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

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


                                 FORM 10-K/A-1

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                             --------------------------
                           COMMISSION FILE NUMBER 0-25732

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

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

     538 COMMONS DRIVE, GOLDEN, COLORADO                           80401
   (Address of principal executive offices)                      (Zip Code)
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       Registrant's telephone number, including area code: (303) 526-5050

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

 Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
                              VALUE $.01 PER SHARE

     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.  [ ]

     As of February 22, 1999, there were 34,206,247 shares of common stock
outstanding. The aggregate market value of such shares held by non-affiliates of
the registrant was approximately $958,843,861.

                      DOCUMENTS INCORPORATED BY REFERENCE

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                 DESCRIPTION OF DOCUMENT                             PART OF THE FORM 10-K
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<S>                                                         <C>
Portions of the Definitive Proxy Statement to be used in
  connection with the registrant's 1999 Annual Meeting of
  Stockholders............................................    Part III (Item 10 through Item 13)
</TABLE>

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                                     PART I

ITEM 1. BUSINESS

GENERAL

     We are the world's largest air cargo outsourcer, with an all Boeing fleet
of 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 generally under three- to five-year
fixed-rate U.S. dollar denominated contracts which typically require that we
supply aircraft, crew, maintenance and insurance (the "ACMI Contracts"). Our
customers currently include some of the world's leading air carriers, including,
Alitalia, British Airways World Cargo and China Airlines Ltd. 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.

     Our fleet currently includes 23 Boeing 747-200 and 5 Boeing 747-400
freighter aircraft in service. We acquired the 747-400 aircraft in the second
half of 1998 pursuant to an agreement with The Boeing Company to purchase 10 new
747-400 freighter aircraft powered by engines acquired from General Electric
Company, with options to purchase up to 10 additional 747-400 aircraft (the
"Boeing Purchase Agreement"). In February 1999, we exercised options for two
additional aircraft pursuant to the Boeing Purchase Agreement. The seven 747-400
aircraft on order are scheduled to be delivered as follows: four in 1999 and
three in 2000.

     The advantages of the 747-400 aircraft as compared to the 747-200 aircraft
include:

     - significantly longer range;

     - greater payload capability;

     - lower maintenance costs; and

     - increased fuel efficiency.

We placed the first five 747-400 aircraft into service in 1998 and expect to
place the remaining undelivered 747-400 aircraft in service with both existing
and prospective customers whom we believe could benefit from the unique
performance capabilities of the 747-400 aircraft.

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

Long-Term Customer Contracts Which Provide Revenue Stability

     Our ACMI Contracts, which accounted for approximately 94% of our total
operating revenues in 1998, generally allow our customers to guarantee monthly
minimum aircraft utilization levels at fixed hourly rates. These ACMI Contracts
are typically in force for periods of three to five years, subject in certain
limited cases to early termination provisions. These ACMI 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. As a result, our ACMI Contracts
minimize the load factor, yield risk and fuel cost risk

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traditionally associated with the air cargo business and provide a minimum
annual revenue base and more predictable profit margins. We also periodically
engage in ad hoc charter or scheduled air service depending on availability of
aircraft for these uses.

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 and Lufthansa Technik 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 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.

     The new 747-400 aircraft have even greater operational capabilities than
the Boeing 747-200 aircraft and allow us to maintain our low cost structure. The
new aircraft's higher level of operational reliability and warranty coverage
will result in 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 will make Atlas the largest operator of this aircraft type to
date and will enable us to achieve economies of scale from the standardization
in maintenance and crew training.

Expanding Business Base

     We expect that the 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 us with
the opportunity to expand our air cargo outsourcing services. The primary
business focus of most of our customers 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
(for passenger operations) twin-engine aircraft which have limited cargo space.
Our customers 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.

Increasing Cargo Market Share

     We have successfully increased our customer base from a single customer in
1992 to twelve customers in 1998. In addition, we have in the past operated
under short-term, seasonal ACMI Contracts with Kitty Hawk Air Cargo, Inc., among
others, and anticipate providing short-term, seasonal service in the future. The
growth in the number of customers is a result of our ability to provide a
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 new and existing customers who have a need for 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 a competitive advantage
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.
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Industry Background

     While the air cargo industry is highly competitive, we believe that current
industry trends are favorable to the continued growth of our business. According
to reports prepared by Boeing, the world air cargo market is expected to more
than triple over the next 20 years. Such reports indicate that the world air
cargo market has grown at an average rate of 7.9% per year from 1987 to 1997.
The average annual percentage growth through 2017 is expected to average 6.4%,
with international air cargo market growth outpacing U.S. domestic growth. We
believe this growth has been generated, in part, by:

     - economic growth;

     - the relaxation of international trade barriers, as indicated by the
       passage of the NAFTA and establishment of the WTO;

     - reductions in the price of shipping by air;

     - manufacturers' search for low-cost labor in developing countries; and

     - the increasingly time-sensitive nature of product-delivery schedules due
       to shorter product life-cycles and "just-in-time" inventory management.

In addition to growth in the global air cargo market, we expect to benefit from
growth in the export-driven economies of the countries in the Pacific Rim, where
we have focused a significant amount of our flight operations. We have not
experienced any adverse impact on our business as a result of the recent
economic and political turmoil in Asia, although there can be no assurances that
there will not be any future impact. According to Boeing reports, eastbound and
westbound Trans-Pacific cargo volumes grew at average annual rates of 7.6% and
10.8%, respectively, between 1987 and 1997, and are projected to grow at average
annual rates of 7.7% and 6.0%, respectively, between 1997 and 2017. Similarly,
northbound and southbound air cargo volumes between North America and South
America increased at average annual rates of 8.7% and 10.2%, respectively,
between 1987 and 1997, and are projected to grow at average annual rates of 6.4%
and 6.8%, respectively, from 1997 to 2017. Additionally, eastbound and westbound
North Atlantic air cargo volumes increased at average annual rates of 6.8% and
6.9%, respectively, between 1987 and 1997 and are projected to grow at average
annual rates of 6.7% and 7.3%, respectively, from 1997 to 2017. We believe that,
as a U.S. certificated "flag" carrier, we are well positioned to benefit from
the progressive expansion of international trade and the consequential growth in
global air cargo markets, particularly in Asia, South America and Europe, where
we have concentrated a significant portion of our resources.

ACMI CONTRACTS

     The Company's ACMI Contracts, which accounted for approximately 94% of our
total operating revenues in 1998, 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.

These contracts, therefore, eliminate the load factor and yield risk
traditionally associated with the air cargo business. The ACMI Contracts
typically require minimum air freight capacity to be provided to our

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customers. All of our revenues, and most of our costs, are in U.S. dollars, thus
avoiding currency risks normally associated with doing business primarily
overseas.

     At December 31, 1998, the Company operated under twenty-seven ACMI
Contracts with twelve customers. In most cases, one aircraft is dedicated under
each contract. China Airlines, LAS and Fast Air accounted for approximately 33%,
10% and 9% of the our total revenues, respectively, for the year ended December
31, 1998. In addition, we have also operated short-term, seasonal ACMI Contracts
with Kitty Hawk, among others, and anticipate doing so in the future.

     Some of our ACMI Contracts allow our customers to cancel up to a maximum of
approximately 5% of the guaranteed hours of aircraft utilization over the course
of a year. Our customers most often exercise such cancellation options early in
the first quarter or late in the fourth quarter of the year, when the demand for
air cargo capacity has been historically lower. We have found that such
cancellations provide a timely opportunity for the scheduling of maintenance on
our aircraft, to the extent possible. 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 at
all times to be under our exclusive operational control. 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." Additionally, if we are required to use the
customer's "call sign" in identifying ourself throughout the 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.

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 Kitty Hawk, among others, pursuant to short-term, seasonal ACMI Contracts
during periods of excess aircraft capacity.

SALES AND MARKETING

     From our primary offices in Golden, CO, New York, NY and Miami, FL, we
service our air cargo customers and solicit ACMI Contract business. 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. We have placed the first five 747-400 aircraft into service and
expect to place the remaining 747-400 aircraft into service with both existing
and prospective customers whom we believe will benefit from the unique
performance capabilities of the 747-400 aircraft such as its longer range,
greater payload and increased fuel efficiency.

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 "Item 2. Properties -- Aircraft." Aircraft maintenance
includes, among other things, routine daily maintenance, maintenance every six
weeks (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
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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 (the "Maintenance Contract") in
effect until January 2005, a significant part of the regular maintenance
(principally C Checks and engine overhauls, excluding D Checks) for the 747-200
freighter aircraft and certain of their GE engines 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. Pratt
& Whitney ("P&W") engines have historically been serviced elsewhere, each at a
cost based upon the actual time and material necessary for such service. We have
entered into a contract with Boeing to re-engine the only two P&W powered
aircraft in the Company's fleet from P&W engines to GE engines, in order to
improve the performance of the aircraft and to improve the standardization of
our fleet. We have contracted with a third-party to acquire, among other things,
the GE engines and parts required for such re-engineing. In addition, we believe
that the recent sale of the P&W engines, coupled with the value derived from the
unused parts associated with the acquisition of the GE engines, will result in
no material financial impact as a result of these re-engineing efforts. On a
prospective basis, we expect to incur lower maintenance costs related to these
two aircraft compared to the costs we have experienced to date. Under the terms
of the Maintenance Contract, in 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 twelve of our aircraft are currently subject to the
Maintenance Contract.

     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 quarters 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 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, 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.

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GOVERNMENTAL REGULATION

     Under the Aviation Act, the DOT and the FAA exercise regulatory authority
over the Company. 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 charter
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.

     In order to engage in the air transportation business, we are required to
maintain a Certificate of Public Convenience and Necessity (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 the Company 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 U.S. and Taiwan. Both CPCNs are
subject to standard terms, conditions and limitations. By virtue of holding
those CPCNs, we possess worldwide charter authorities. We also hold limited-term
DOT exemption authority to engage in scheduled air transportation of property
and mail between certain points in the U.S., 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

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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 U.S. 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 U.S. 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.

     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;

     - 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. The Company is considered to be a
high-growth carrier by the FAA and, therefore, receives 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. Seven of
our Boeing 747-200 aircraft will have to be brought into compliance with such
Directives by March 2000 at an estimated total cost of approximately $3.5
million. 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. Twelve aircraft in our fleet have already
undergone the major portion of such modifications. The remaining eleven 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. On December 3, 1998, the FAA issued a Directive ordering Boeing
747 operators to change fuel pump procedures to prevent dry tank operation that
could result in ignition of the center or horizontal stabilizer fuel tanks.
Compliance with this Directive may adversely impact our customers' operating
costs and schedules. 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 U.S. 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

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that would also compete with us. Such airlines may have substantially greater
financial resources than we do. In addition, certain retail air freight
companies, such as Evergreen International and Kitty Hawk, 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 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 1998, approximately 3% 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, 1998, we had 890 employees, 507 of whom were air crew
members. We have hired and expect to hire additional pilots in 1999 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 update programs. We believe
that our current training program has been sufficiently modified to provide
training required for pilots for the 747-400 aircraft. In addition, as part of
the Boeing Purchase Agreement, to defray a portion of the costs, Boeing has
trained and will train a limited number of our pilots and crew assigned to the
747-400 aircraft. However, we have incurred and will incur incremental costs
associated with ongoing training with regard to the 747-400 aircraft.

     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.

     Our labor relations are covered under Title II of the Railway Labor Act of
1926, as amended, and are subject to the jurisdiction of the National Mediation
Board ("NMB"). None of our employees is subject to a collective bargaining
agreement; however, many airline industry employees are subject to such
agreements and our employees have been and are routinely solicited by union
representatives seeking to organize them. In January 1998, our pilots rejected
union representation by Airline Pilots Association ("ALPA"). On February 2,
1999, we were notified by the NMB that an application has been filed by the
International Brotherhood of Teamsters ("IBT") and ALPA requesting authority to
ballot Atlas' crew members to determine if they wish to be represented by a
third party. The NMB verified the authenticity of the union authorization cards
presented by both IBT and ALPA and scheduled a representation election with
ballots to be mailed in March 1999.

                                        9
<PAGE>   10

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.

ITEM 2. PROPERTIES

AIRCRAFT

     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 will make Atlas the largest operator 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 February 22, 1999, our existing fleet
and the 747-400 aircraft subject to the Boeing Purchase Agreement (including two
exercised options).

                                 FLEET PROFILE

<TABLE>
<CAPTION>
                                                NUMBER       AIRCRAFT                       YEAR OF
                                              OF AIRCRAFT      TYPE      OWNED/LEASED     MANUFACTURE
                                              -----------    --------    ------------     -----------
<S>                                           <C>            <C>         <C>              <C>
Existing fleet:.............................      22         747-200         Owned(1)      1974-1986(2)
                                                   1         747-200        Leased(3)           1976
                                                   1         747-400         Owned              1998
                                                   4         747-400        Leased(4)           1998
747-400 aircraft on order(5):...............       4         747-400                            1999
                                                   3         747-400                            2000
</TABLE>

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

(1) Two aircraft are powered by Pratt & Whitney engines and 20 are powered by GE
    engines. See "-- Maintenance."

(2) The years of manufacture for these 22 aircraft are as follows: six aircraft
    in 1979, four aircraft in 1980, two aircraft each in 1976, 1978 and 1981 and
    one aircraft each in 1974, 1975, 1977, 1984, 1985 and 1986.

(3) The aircraft is leased from a third party under a lease expiring in March
    2010 and is powered by GE engines.

(4) These aircraft are leased from third parties under three leases expiring in
    2019, and one lease expiring in 2020.

(5) We have agreed to purchase 10 new Boeing 747-400 freighter aircraft and have
    exercised options for two additional aircraft. The first five aircraft were
    delivered in July, August, October and December 1998;

                                       10
<PAGE>   11

    seven aircraft are scheduled to be delivered as follows: four in 1999 and
    three in 2000. See "-- 747-400 Aircraft Acquisition." These aircraft will be
    powered by GE engines. A portion of the financing for the first five
    aircraft has been secured through the EETCs 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 1999 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. We acquired and placed into service five of the
747-400 aircraft in the second half of 1998. Due to production problems at
Boeing, some of the 1998 delivery positions of the 747-400 aircraft were
delayed, resulting in compensation to us. In addition, Boeing has agreed to
compensate us 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 our ability to initiate service with
existing and prospective customers in a timely fashion. The Boeing Purchase
Agreement also provides us with options to purchase up to 10 additional 747-400
freighter aircraft for delivery from 2000 through 2002. In February 1999, we
exercised options for two additional aircraft for delivery in 2000. As a result
of our being the largest 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 of $1.7 billion for the 10 747-400 freighter aircraft, four
installed engines per aircraft and five spare engines. In addition, we obtained
certain ancillary products and services at advantageous prices.

FACILITIES

     Our principal executive offices are located in a 7,000 square foot office
building owned by the Company at 538 Commons Drive, Golden, Colorado. We also
rent 5,300 square feet of office space in two adjacent buildings.

     We presently occupy a 22,000 square foot facility located at JFK
International Airport. This facility includes administrative offices,
maintenance work areas and hangar and parts storage facilities, as well as
flight dispatch operations. We occupy this facility pursuant to a lease
agreement with Japan Airlines ("JAL") for a five-year period with two five-year
renewal rights from JAL, which began on June 1, 1995, at a monthly rate of
approximately $55,000. Additionally, in the third quarter of 1998, we leased an
additional 8,000 square feet with a monthly rate increase to approximately
$88,000. We believe the JAL facility is adequate to support the near-term growth
in operations that will result from the anticipated acquisition of additional
aircraft. In addition, we lease 7,750 square feet of warehouse space at JFK for
the storage of aircraft components, tires and other aircraft related equipment
at a monthly lease rate of $5,000. The initial lease term expires at the end of
August 1999 and provides for two one-year renewal option periods beginning
September 1, 1999. The Company is evaluating location alternatives to JFK to
handle its long-term growth plans.

     Due to increased operations at MIA, we entered into a month-to-month office
lease and a month-to-month warehouse lease with Dade County, Florida in March
1997 that currently provide for a combined monthly lease rate of approximately
$19,000. 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
                                       11
<PAGE>   12

and commenced July 1, 1998, at a monthly rate of approximately $105,000, subject
to an annual escalation factor.

ITEM 3. LEGAL PROCEEDINGS

     In March 1997, Air Support International, Inc. ("ASI") filed a complaint
against us in the U.S. District Court, Eastern District of New York alleging
actual and punitive damages of approximately $13.5 million arising from our
refusal to pay commissions which ASI claims it is owed for allegedly arranging
certain ACMI Contracts. We intend to vigorously defend against all of ASI's
claims.

     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 1998.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK & RELATED SECURITY HOLDER 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
February 22, 1999 was 266.

     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>
                                                                     1998               1997
                                                                --------------      -------------
                                                                HIGH       LOW      HIGH      LOW
                                                                ----       ---      ----      ---
<S>                                                           <C>       <C>       <C>       <C>
QUARTER ENDED
  March 31..................................................  $22 21/32 $14 15/32 $31 13/16 $13 1/4
  June 30...................................................   27 9/16   20 7/8    23 15/16  16
  September 30..............................................   25 21/32  14 1/16   22 13/16  14 1/4
  December 31...............................................   32 5/8    15 15/32  19 1/2    14 9/16
</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.

                                       12
<PAGE>   13

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,
                                          ----------------------------------------------------
                                            1998       1997       1996       1995       1994
                                          --------   --------   --------   --------   --------
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues......................  $422,238   $401,041   $315,659   $171,267   $102,979
Operating income........................   135,849     56,002     88,063     42,674     13,894
Income before extraordinary item........    46,217      6,689     37,838     17,831      3,586
Net income..............................    46,217     23,429     37,838     17,831      3,586
Basic EPS:
  Income before extraordinary item per
     common share.......................      1.37        .20       1.17        .71        .16
  Net income per common share...........      1.37        .70       1.17        .71        .16
  Weighted average common shares
     outstanding during the period(1)...    33,675     33,675     32,254     25,174     22,500
Diluted EPS:
  Income before extraordinary item per
     common share.......................      1.37        .20       1.16        .71        .16
  Net income per common share...........      1.37        .69       1.16        .71        .16
  Weighted average common shares
     outstanding during the period(1)...    33,841     33,803     32,523     25,278     22,500
</TABLE>

<TABLE>
<CAPTION>
                                                           AT DECEMBER 31,
                                       --------------------------------------------------------
                                          1998         1997        1996       1995       1994
                                       ----------   ----------   --------   --------   --------
                                                            (IN THOUSANDS)
<S>                                    <C>          <C>          <C>        <C>        <C>
BALANCE SHEET DATA:
Cash and short-term investments......  $  471,814   $  152,969   $124,663   $ 96,990   $ 10,524
Working capital (deficit)............     294,511       80,363     98,675     81,022     (1,937)
Total assets.........................   1,988,869    1,297,415    773,707    447,323    162,731
Long-term debt, net of current
  portion............................   1,166,460      736,026    462,868    335,902    158,730
Other liabilities....................     235,308      163,167         --         --         --
Stockholders' equity (deficit).......     283,890      238,829    215,785     68,715    (15,753)
</TABLE>

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

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

                                       13
<PAGE>   14

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 occurring traditionally 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, 1998 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, 1998, 1997 and 1996 (dollars in
thousands).

<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 (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%
</TABLE>

<TABLE>
<CAPTION>
                                                                  1997
                                        ---------------------------------------------------------
                                                        4TH         3RD         2ND         1ST
                                        CUMULATIVE    QUARTER     QUARTER     QUARTER     QUARTER
                                        ----------    --------    --------    --------    -------
<S>                                     <C>           <C>         <C>         <C>         <C>
Total operating revenues..............   $401,041     $120,893    $104,197    $ 93,902    $82,049
Operating expenses....................    345,039       93,112      82,464     104,556     64,907
Operating income (loss)...............     56,002       27,781      21,733     (10,654)    17,142
Other (expense).......................    (45,469)     (13,383)    (11,930)    (10,908)    (9,248)
Net income............................     23,429        9,143       6,225       3,048      5,013
Block hours...........................     75,254       22,333      19,937      17,541     15,443
Average aircraft operated.............       19.5         20.9        20.4        19.5       17.2
Operating margin (deficit)............       14.0%        23.0%       20.9%      (11.4)%     20.9%
</TABLE>

<TABLE>
<CAPTION>
                                                                  1996
                                        ---------------------------------------------------------
                                                        4TH         3RD         2ND         1ST
                                        CUMULATIVE    QUARTER     QUARTER     QUARTER     QUARTER
                                        ----------    --------    --------    --------    -------
<S>                                     <C>           <C>         <C>         <C>         <C>
Total operating revenues..............   $315,659     $104,715    $ 79,681    $ 72,614    $58,649
Operating expenses....................    227,596       74,775      59,635      49,947     43,239
Operating income......................     88,063       29,940      20,046      22,667     15,410
Other (expense).......................    (28,475)      (8,569)     (7,207)     (6,982)    (5,717)
Net income............................     37,838       13,397       8,201      10,037      6,203
Block hours...........................     59,445       18,803      15,444      14,073     11,125
Average aircraft operated.............       14.7         18.4        15.4        14.0       10.8
Operating margin......................       27.9%        28.6%       25.2%       31.2%      26.3%
</TABLE>

                                       14
<PAGE>   15

  1998 Compared to 1997

     Operating Revenues and Results of Operations.  Total operating revenues for
the year ended December 31, 1998 increased to $422.2 million compared to $401.0
million for 1997, an increase of approximately 5%. The average number of
aircraft in our fleet during 1998 was 19.6 compared to 19.5 during 1997. Total
block hours for 1998 were 76,276 compared to 75,254 for 1997, an increase of
approximately 1%, reflecting better aircraft utilization. Revenue per block hour
increased by approximately 4% to $5,536 for 1998 compared to $5,329 for 1997.
Our operating results increased from an operating profit of $56.0 million in
1997 to a $135.8 million operating profit in 1998, primarily due to the return
at the end of 1997 of the aircraft subleased from FedEx, for which we
experienced higher maintenance costs compared to the other aircraft in our
fleet. In addition, we recorded a largely non-cash charge to earnings of $27.1
million in the second quarter of 1997, which was comprised of: write-offs of
various leasehold improvements associated with our subleases from FedEx of the
five 747-200 aircraft and reserves for costs necessary to return the aircraft
upon termination of the subleases in January 1998; reserves primarily related to
certain customers and vendors for out-of-period items, which we settled in 1998;
and reserves for litigation costs and other costs not expected to re-occur. Net
income of $23.4 million for 1997 increased to a net income of $46.2 million of
1998, primarily due to lower maintenance costs in 1998. The after-tax effect of
the second quarter charge noted above was substantially offset by the after-tax
effect of an extraordinary gain on early extinguishment of debt in the same
quarter of 1997.

     Operating levels increased during the second half of 1998 with the delivery
of the first five new 747-400 freighter aircraft, one each in July, August and
October and two in December, 1998. In addition, we took delivery of three
747-200 freighter aircraft in the fourth quarter of 1998. These 1998 deliveries
more than offset the lost capacity associated with the return at the end of 1997
of five leased 747-200 freighter aircraft to FedEx. In addition, during 1998 we
converted two aircraft from passenger configuration to cargo configuration.

     Our operating levels increased in the second half of 1998 as a result of
these aircraft acquisitions. Block hours increased from 15,388 in the first
quarter of 1998 to 25,134 in the fourth quarter of 1998, reflecting the growth
in the average fleet size from 17.0 aircraft to 23.7 aircraft for the two
periods. Total operating revenue increased from $79.6 million in the first
quarter to $145.5 million in the fourth quarter, representing slightly higher
block hour rates for the fourth quarter compared to those of the first quarter
of 1998, primarily due to the seasonality of the business of our customers. We
earned $47.1 million operating income and $18.1 million net income in the fourth
quarter of 1998, compared to $21.5 million operating income and $5.3 million net
income in the first quarter of 1998.

     Operating Expenses.  Our principal operating expenses include flight crew
salaries and benefits; other flight-related expenses; maintenance; aircraft and
engine rentals; fuel costs and 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 $35.5 million in 1998 compared to
$30.2 million in 1997, due to increases in the number of aircraft in our fleet
and aircraft block hours and in particular to crew our new 747-400 aircraft.
While actual expense increased by approximately 18% during 1998, on a block hour
basis this expense increased 16% to $466 per block hour for 1998 from $401 per
block hour for 1997. This increase in the block hour rate was primarily due to
the added costs associated with the introduction of the 747-400 freighter
aircraft into our fleet in the second half of 1998.

     Other flight-related expenses include hull and liability insurance on our
fleet of Boeing 747 aircraft, crew travel and meal expenses, initial and
recurrent crew training costs and other expenses necessary to conduct our flight
operations.

     Other flight-related expenses increased to $34.7 million in 1998 compared
to $28.8 million in 1997, or approximately 21%. On a block hour basis, other
flight-related expenses increased approximately 19% to $455 per block hour for
1998 compared to $382 per block hour for 1997. This increase was primarily due
to the impact of the added costs associated with the introduction of the 747-400
freighter aircraft into our fleet in the second half of 1998.

                                       15
<PAGE>   16

     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. 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
10 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 decreased to $96.6 million in 1998 from $123.8 million
in 1997, or approximately 22%, primarily due to the return at the end of 1997 of
the aircraft subleased from FedEx, for which we experienced higher maintenance
costs compared to the other aircraft in our fleet. On a block hour basis,
maintenance expense also decreased year over year by approximately 22%.

     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 $14.6 million in 1998 compared to $31.6
million in 1997, or a decrease of approximately 54%, primarily due to the return
at the end of 1997 of the five leased 747-200 freighter aircraft to FedEx,
partially offset by the four leased 747-400 aircraft acquired in the second half
of 1998.

     Because of the nature of our ACMI Contracts with our airline customers,
under which we are responsible for the ownership cost and maintenance of the
aircraft and for supplying aircraft crews and insurance, our airline customers
bear all other operating expenses. As a result, we incur fuel and ground
handling expenses only 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 the 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 decreased to $8.7 million for 1998 compared
to $10.8 million for 1997, or approximately 19%. This was due to lower fuel
prices in 1998 compared to 1997, partially offset by an increase in scheduled
service, charter and other non-ACMI block hours to 1,924 block hours in 1998
from 1,787 block hours in 1997.

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

     Depreciation and amortization expense increased to $59.1 million in 1998
from $42.9 million in 1997, or approximately 38%. This increase primarily
reflected an increase of approximately 30% in owned aircraft.

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

     Other operating expenses decreased to $37.1 million in 1998 from $49.8
million in 1997, or approximately 26%. On a block hour basis, these expenses
decreased to $486 per block hour in 1998 from $661 per block hour in 1997, or
approximately 27%. The reduced expense in cost from the prior year was due
primarily to certain vendor credits, partially offset by increased staffing and
other resources associated with the expansion of our operations.

     Other income (expense) consists of interest income and interest expense.
Interest income for 1998 was $12.6 million compared to $7.4 million for 1997,
primarily due to the investment of proceeds from our issuance of the 9 1/4%
Senior Notes in April 1998, the 9 3/8% Senior Notes in November 1998 and the
return of deposits and proceeds from financing the 747-400 freighter aircraft
deliveries in the third and fourth quarters of 1998. Interest expense increased
to $74.9 million for 1998 from $52.8 million for 1997, or approximately 42%.
This increase resulted from the financing associated with the acquisition of
additional 747-200 aircraft,
                                       16
<PAGE>   17

the cost of freighter conversions between these periods and the issuance of $175
million of 9 1/4% Senior Notes in April 1998 and $150 million of 9 3/8% Senior
Notes in November 1998.

     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 taxes at the rate of 37.2% during
1998 and 36.5% during 1997. Due to significant capital costs, which are
depreciated at an accelerated rate for tax purposes, a majority of our tax
provision in these periods is deferred.

  1997 Compared to 1996

     Operating Revenues and Results of Operations.  Total operating revenues for
the year ended December 31, 1997 increased to $401.0 million compared to $315.7
million for 1996, an increase of approximately 27%. The average number of
aircraft in our fleet during 1997 was 19.5 compared to 14.7 during 1996. Total
block hours for 1997 were 75,254 compared to 59,445 for 1996, an increase of
approximately 27%, principally reflecting the increase in the size of our fleet.
Revenue per block hour increased by approximately 0.4% to $5,329 for 1997
compared to $5,310 for 1996. Our operating results decreased from an $88.1
million operating profit in 1996 to a $56.0 million operating profit in 1997,
primarily due to the largely non-cash charge to earnings of $27.1 million in the
second quarter of 1997. The after-tax effect of this second quarter charge was
substantially offset by the after-tax effect of the extraordinary gain on early
extinguishment of debt in the same quarter of 1997. Net income of $37.8 million
for 1996 declined to a net income of $23.4 million for 1997, primarily due to
the increase in interest expense associated with the increase in aircraft in
service year over year and the higher maintenance costs with respect to the
aircraft subleased from FedEx.

     Operating levels increased during the second quarter of 1997 as a result of
placing in service two additional aircraft upon completion of their respective
cargo modifications by Boeing, one in March 1997 and one in May 1997. In
addition, we placed in service the fifth aircraft subleased from FedEx in April
1997. In August 1997 and at the end of September 1997, we took delivery of a
fifth and sixth aircraft from Thai Airways, respectively, upon completion by
Boeing of its modification to cargo configuration. At the end of 1997, we
removed from revenue service the five aircraft subleased from FedEx in
preparation for the return of these aircraft to FedEx in the first quarter of
1998, as provided for in the subleases.

     Our operating levels increased moderately during 1997 as a result of these
aircraft acquisitions. Block hours increased from 15,443 in the first quarter of
1997 to 22,333 in the fourth quarter of 1997, reflecting the growth in the
average fleet size from 17.2 aircraft to 20.9 aircraft for the two periods.
Total operating revenue increased from $82.0 million in the first quarter to
$120.9 million in the fourth quarter, representing slightly higher block hour
rates for the fourth quarter compared to those of the first quarter of 1997,
primarily due to the seasonality of the business of our customers. We achieved
$27.8 million operating income and $9.1 million net income in the fourth quarter
of 1997, compared to $17.1 million operating income and $5.0 million net income
in the first quarter of 1997.

     In the second quarter of 1997, we recorded a largely non-cash charge of
$27.1 million to operating income. This charge included the write-off of our
remaining balance sheet investment in the five aircraft subleased from FedEx, as
well as the establishment of certain reserves associated with costs necessary to
return the aircraft in the first quarter of 1998 and other non-recurring items.
Excluding this charge, operating income was $83.1 million for 1997 compared to
$88.1 million for 1996, or a decrease of approximately 6%. There were an average
of 4.4 aircraft subleased from FedEx operating in 1997 compared to an average of
1.7 aircraft subleased from FedEx operating in 1996. Maintenance costs with
respect to the FedEx aircraft were substantially higher than for the rest of our
fleet. In addition, we incurred $1.2 million of costs in the first quarter of
1997 related to the return of two leased aircraft to their respective lessors.
In the second quarter of 1997, the realization of an after-tax extraordinary
gain of $16.7 million, resulting from the receipt of a prepayment incentive
credit associated with the refinancing of approximately $228 million of
indebtedness during the second quarter, for the most part offset the $17.2
million after-tax impact of the non-recurring charge discussed above.

                                       17
<PAGE>   18

     One of our customers has disputed a portion of approximately $8.9 million
of ACMI billings and non-ACMI billings associated with maintenance support. We
believe that we have established adequate reserves with respect to this dispute.

     Operating Expenses.  Flight crew salaries and benefits increased to $30.2
million in 1997 compared to $25.0 million in 1996, due to increases in the
number of aircraft in our fleet and aircraft block hours. While actual expense
increased by approximately 21% during 1997, on a block hour basis this expense
declined by approximately 5% to $401 per block hour for 1997 from $421 per block
hour for 1996. This reduction was due to increased efficiency in staffing levels
and scheduling resulting from the increased level of operations.

     Other flight-related expenses increased to $28.8 million in 1997 compared
to $27.4 million in 1996, or approximately 5%. The impact of the larger fleet
size for 1997 compared to the prior year was partially offset by a reduction in
our aircraft hull and liability insurance rates based on its increased size and
favorable operating history. As a result of this and other operating
efficiencies, on a block hour basis, other flight-related expenses declined by
approximately 17% to $383 per block hour for 1997 compared to $461 per block
hour for 1996.

     Maintenance expense increased to $123.8 million in 1997 from $84.3 million
in 1996, or approximately 47%, partially due to the increase in our average
fleet size and partially due to the higher maintenance costs with respect to the
aircraft subleased from FedEx. On a block hour basis, maintenance expense
increased year over year by approximately 16%, primarily due to higher
maintenance costs associated with the aircraft subleased from FedEx.

     Aircraft and engine rentals were $31.6 million in 1997 compared to $27.3
million in 1996, or an increase of approximately 16%, of which approximately
$2.6 million was due to higher lease rates in 1997 compared to 1996 and $3.1
million was due to an additional 0.5 aircraft leased in 1997 over 1996. This
increase was partially offset by a $1.4 million decrease in engine rentals year
over year, due to additional spare engines purchased in 1997.

     Fuel and ground handling costs increased to $10.8 million for 1997 compared
to $10.6 million for 1996, or an increase of approximately 3%. This was due to
higher fuel prices in 1997 compared to 1996, partially offset by the relative
decrease in scheduled service, charter and other non-ACMI block hours to 1,787
block hours in 1997 from 2,042 block hours in 1996.

     Depreciation and amortization expense increased to $42.9 million in 1997
from $25.5 million in 1996, or approximately 68%. This increase reflected an
increase of approximately 50% in owned aircraft, an approximate two-fold
increase in owned spare engines and an increase of approximately 100% in spare
parts for 1997 over 1996. In addition, Other Revenues include $1.5 million of
depreciation for 1997, associated with the net lease of two owned aircraft which
were in passenger configuration.

     Other operating expenses increased to $49.8 million in 1997 from $27.5
million in 1996, or approximately 81%, reflecting the increase in our
operations. On a block hour basis, these expenses increased to $661 per block
hour in 1997 from $462 per block hour in 1996, or approximately 43%. This
increase in cost was due primarily to additional personnel and other resources
necessary to properly manage our increased operations and to prepare for the
introduction of the 747-400 aircraft.

     Other Income (Expense). Interest income for 1997 was $7.4 million compared
to $7.1 million for 1996, due to achieving higher interest rates in 1997
compared to 1996 on a slightly lower short-term investment level in 1997
compared to 1996. Interest expense increased to $52.8 million in 1997 from $35.6
million in 1996, or approximately 49%, primarily resulting from an increase of
approximately 50% in financed flight equipment between these periods.

     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 taxes at the rate of 36.5% during
1997 and 1996. Due to significant capital costs, which are depreciated at an
accelerated rate for tax purposes, a majority of our tax provision in these
periods is deferred.

                                       18
<PAGE>   19

LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 1998, we had cash and cash equivalents of approximately
$449.6 million, short-term investments of approximately $22.2 million and
working capital of approximately $294.5 million. During 1998, cash and cash
equivalents increased approximately $408.3 million, principally reflecting cash
provided from operations of $106.2 million, proceeds from equipment financings
of $775.9 million, net proceeds from the maturity and purchase of short-term
investments of $89.4 million and proceeds from the issuance of common stock of
$2.0 million, partially offset by the net sale and purchase of investments in
flight and other equipment of $460.8 million, principal reductions of
indebtedness of $89.9 million, debt issuance costs of $11.4 million and net
treasury stock purchases of $3.1 million.

     At December 31, 1997, the Company had cash and cash equivalents of
approximately $41.3 million, short-term investments of approximately $111.6
million and working capital of approximately $80.4 million. During 1997, cash
and cash equivalents increased approximately $31.5 million, principally
reflecting cash provided from operations of $87.7 million, proceeds from
equipment financings of $815.8 million and net proceeds from the maturity and
purchase of short-term investments of $3.2 million, partially offset by the net
sale and purchase of investments in flight and other equipment of $364.0
million, principal reductions of indebtedness of $494.1 million, debt issuance
costs of $16.6 million and net treasury stock purchases of $0.4 million.

     In June 1997, we entered into the Boeing Purchase Agreement to purchase 10
new 747-400 freighter aircraft to be powered by engines acquired from GE, with
options to purchase up to 10 additional 747-400 aircraft. We arranged leveraged
lease financing for the four 747-400 freighter aircraft that were delivered in
July, August, October and December 1998 and debt financing for the fifth
aircraft delivered in December 1998. See discussion of EETCs below. The Boeing
Purchase Agreement requires that we 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, we expect
the maximum total amount of pre-delivery deposits at any time outstanding will
be approximately $162.3 million, which was paid as of June 30, 1998. There were
approximately $96.1 million of pre-delivery deposits outstanding at December 31,
1998 which were included in flight equipment. We expect to pay an additional
$55.2 million in 1999 in pre-delivery deposits in accordance with the firm order
pre-delivery deposits schedule for seven aircraft, including the two option
aircraft. Upon each delivery, Boeing refunds to us 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) for which we accrue and
pay interest quarterly at 6-month LIBOR, plus 2.0%. As of December 31, 1998,
there was $152.6 million of deferred aircraft obligations included in other
liabilities, and the combined interest rate was approximately 7.25%.

     In January and February 1998, pursuant to an early lease termination
agreement negotiated in November 1997 with Philippine Airlines, we delivered to
Boeing for modification to cargo configuration an aircraft acquired from Marine
Midland Bank in December 1996 and an aircraft acquired from Citicorp Investor
Lease, Inc. in May 1997. The first aircraft was re-delivered to us at the end of
April 1998 and the second aircraft was re-delivered to us in July 1998. The
financing for the modification to cargo configuration was provided under the
Aircraft Credit Facility, under which we borrowed a total of $3.3 million during
the first quarter of 1998 with respect to these aircraft. In April 1998 and July
1998, we borrowed an additional $13.8 million and $17.2 million, respectively,
to pay for the final costs of conversion for these two aircraft.

     In February 1998, we completed an offering of $538.9 million of Enhanced
Equipment Trust Certificates ("EETCs"). The 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 EETCs have
been used to finance (through four leveraged leases and one secured debt
financing) the acquisition of the first five new 747-400 freighter aircraft from
Boeing which were delivered to us during the period July 1998 through December
1998. In connection with the secured debt financing, we 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%. In November and

                                       19
<PAGE>   20

December 1997, we 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
EETCs that were priced in January 1998. The effect of the hedge resulted in a
deferred cost of $6.3 million, which will be amortized over the expected
twenty-year life associated with this financing. There can be no assurance that
we will be able to obtain sufficient financing to fund the purchase of the
remaining 747-400 freighter aircraft, or if such financing is available, that it
will be available on a commercially reasonable basis. If we are unable to do so,
we could be required to modify our expansion plans or to incur higher than
anticipated financing costs, which could have a material adverse effect on our
financial position and results of operations.

     In March 1998, we entered into a 10-year agreement with GE to provide all
repair and overhaul work on the engines related to both the 10 firm and 10
option 747-400 freighter aircraft. This agreement is based on a fixed cost per
flight hour, similar to our engine agreement with GE for its 747-200 fleet.

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

     In May 1998, we agreed to purchase a Boeing Business Jet ("BBJ") from
Boeing for approximately $32 million. At the end of January 1999, we took
delivery of the BBJ from Boeing and immediately delivered the aircraft to a
third party for installation of the interior business configuration. This
aircraft will be used to transport our executives on business trips throughout
the world. We intend to sell our current corporate aircraft (currently owned by
one of our subsidiaries) upon delivery of the BBJ from the third party, and our
Chief Executive Officer has agreed to share in the acquisition costs and capital
improvement costs of the BBJ.

     In June 1998, we entered into an agreement with Lufthansa Technik pursuant
to which Lufthansa Technik will provide all required airframe maintenance for
our initial order of 10 747-400 freighter aircraft, plus any additional 747-400
freighter aircraft we purchase pursuant to our option in the Boeing Purchase
Agreement, on a fixed cost per flight hour basis for 10 years, subject to an
annual escalation adjustment. The Company may terminate the agreement in June
2003.

     In July 1998, we secured permanent financing in the amount of $38.9 million
from Banc One Leasing Corporation for one of the aircraft originally financed
under the Aircraft Credit Facility. The new financing carries a term of 10 years
at an annual interest rate of approximately 7.5% with quarterly debt service
payments.

     In July 1998, we purchased a 747-200 freighter aircraft from Air France
Partnairs Leasing N.V. for which we financed approximately $31.3 million through
the Aircraft Credit Facility.

     In August 1998, the commitment for the Aircraft Credit Facility was
decreased from $250.0 million to $200.0 million in connection with a revision of
terms that are more favorable to us, including a decrease in the interest rate
from a Eurodollar Rate Loan plus 2.5% to a Eurodollar Rate Loan plus 2.0%.

     In September 1998, we entered into an agreement to acquire three 747-200
freighter aircraft from Cargolux for scheduled deliveries in the fourth quarter
of 1998, of which the first delivery occurred in October 1998, the second
delivery occurred in November 1998 and the third delivery occurred in December
1998. Upon delivery, we immediately placed these aircraft into service. We
financed these aircraft through the Aircraft Credit Facility for approximately
$31.0 million, $34.1 million and $30.1 million, respectively.

     In November 1998, we completed the offering of $150 million of unsecured
9 3/8% Senior Notes due 2006. The proceeds of the offering are being used for
general corporate purposes, including the redemption of our outstanding 12 1/4%
Pass Through Certificates due 2002. See "-- Recent Developments."

     In November 1998, we entered into a contract with Boeing to re-engine the
only two P&W powered aircraft in our fleet from P&W engines to GE engines, in
order to improve the performance of the aircraft and to improve the
standardization of our fleet. We have contracted with a third-party to acquire,
among other things, the GE engines and parts required for such re-engineing. The
recent sale of the P&W engines, coupled with the expected sale of the unused
parts associated with the acquisition of the GE engines, will result in no

                                       20
<PAGE>   21

material financial impact as a result of these re-engineing efforts. On a
prospective basis, we expect to incur lower maintenance costs related to these
two aircraft compared to the costs we have experienced to date.

     Due to the contractual nature of our business, our 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
ranging from flight hours to months. 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 in the past had a requirement for a working capital facility.

     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. Seven of
our Boeing 747-200 aircraft will have to be brought into compliance with such
Directives by March 2000 at an estimated total cost of approximately $3.5
million. As part of the FAA's overall aging aircraft program, it has issued
Directives requiring certain additional aircraft modifications to be
accomplished. We estimate that the modification costs per 747-200 aircraft will
range between $2 million and $3 million. Twelve aircraft in our 747-200 fleet
have already undergone the major portion of such modifications. The remaining
eleven 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. On December 3, 1998, the FAA issued a Directive
ordering Boeing 747 operators to change fuel pump procedures immediately to
prevent dry tank operation that could result in ignition of the center fuel or
horizontal stabilizer tanks. Compliance with this Directive may adversely impact
our customers' operating costs and schedules. 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 have performed a review of our internal information systems for Year
2000 ("Y2K") automation problems through a company-wide effort, assisted by Y2K
experienced consultants, to address internal Y2K system issues and, jointly with
industry trade groups, issues related to key business partners which are common
to other air carriers. As a result, we do not anticipate that Y2K compliance
will have a material financial impact. We have completed the first phase of this
project, which included an inventory of our computer network environment and an
assessment of the effort involved to bring our internal computer system
environment to full Y2K compliance. Due to our relatively young systems, our
advanced client server, development and data base architecture, and our partial
reliance on vendor representations regarding Y2K compliant third-party systems,
related remediation efforts are minimal and achievable. Third-party hardware and
software used by us are, for the most part, Y2K compliant; those that are not
compliant have broad customer bases and available software upgrades. A limited
number of systems remain to be reviewed for compliance, but are not of material
significance. Initial review of our 747-200 and 747-400 aircraft computer
systems indicate that most all of the systems are compliant, and those not
compliant are being addressed by Boeing sub-contractors. A limited number of
systems need further analysis.

     We have begun an ongoing program to review the status of key
supplier/business partner Y2K compliance efforts. While we believe we are taking
all appropriate steps to assure our Y2K compliance, we are dependent on key
business partner compliance to some extent. We plan to have all
company-controllable systems Y2K tested and compliant by mid-1999. We anticipate
that third-party and supplier/business partner systems will be fully addressed
by mid-1999 in the form of compliance remediation, plans for timely remediation,
or contingency plans. The Y2K problem is pervasive and complex, as virtually
every global computer operation will be affected in some way. Consequently, no
assurance can be given that all company-used third-party systems and
suppliers/business partners can achieve Y2K compliance. The Company expects that
the costs incurred to become Y2K compliant will not exceed $300,000.

                                       21
<PAGE>   22

     From time to time we engage in discussions with third-parties regarding
possible acquisitions of aircraft that could expand our operations. We are
currently in discussions with third-parties for the possible acquisition of
additional aircraft for delivery in 1999 and beyond.

     We believe that cash on hand and the cash flow generated from our
operations, combined with availability under the Aircraft Credit Facility and
the proceeds of the 9 1/4% Senior Notes, EETCs and the 9 3/8% Senior Notes, will
be sufficient to meet our normal ongoing liquidity needs for the next twelve
months.

RECENT DEVELOPMENTS

     In January 1999, we used a portion of the proceeds from the 9 3/8% Senior
Notes to redeem at 108% all of our 12 1/4% Equipment Notes due 2002. We expect
to record an approximate $6.6 million one-time extraordinary loss from the
extinguishment of debt, which is net of an applicable tax benefit of
approximately $3.9 million, in the first quarter of 1999 associated with this
redemption.

     In February 1999, we exercised options for two additional 747-400 freighter
aircraft in accordance with the Boeing Purchase Agreement discussed above. These
aircraft are scheduled for delivery in 2000. We have not yet secured financing
for these aircraft.

     In February 1999, we filed a $650 million shelf registration statement with
the Securities and Exchange Commission, which was recently declared effective.
The shelf registration statement provides for debt or equity financing, or a
combination of both, the net proceeds from which will be available for general
corporate purposes, including but not limited to, repayment of indebtedness,
capital expenditures, repurchase of common stock and acquisitions.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In March 1998, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants ("AICPA") issued
Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 is effective for financial statements for fiscal years beginning
after December 15, 1998. This statement will be adopted in the first quarter of
1999 and we do not expect that SOP 98-1 will have a material impact on our
financial statements.

     In April 1998, the AcSEC issued SOP 98-5 "Reporting on the Costs of
Start-up Activities." SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and requires such costs to be expensed as
incurred. Generally, initial application of SOP 98-5 should be reported as the
cumulative effect of a change in accounting principle. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. During
1998, we deferred certain start-up costs related to the introduction of new
Boeing 747-400 freighter aircraft into our fleet. We expect the net of tax
effect of the application of SOP 98-5 in the first quarter of 1999 to be a
one-time charge of approximately $1.5 million.

     In June 1998, the Financial Accounting Standards Board issued 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 in 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 is effective for fiscal years beginning after
June 15, 1999 and may be implemented as of the beginning of any fiscal quarter
after June 15, 1998. We have not yet quantified the impact, if any, of adopting
SFAS No. 133 on our financial statements and have not determined the timing of
or method of adoption of SFAS No. 133. However, SFAS No. 133 could increase
volatility in earnings and other comprehensive income.

                                       22
<PAGE>   23

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;

     - 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.

                                       23
<PAGE>   24

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. We do not use derivative financial instruments in our
investment portfolio. 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:         1999      2000       2001       2002      2003     THEREAFTER    TOTAL      VALUE
    ------------------------       --------   -------   --------   --------   -------   ----------   --------   --------
<S>                                <C>        <C>       <C>        <C>        <C>       <C>          <C>        <C>
Assets
  Cash equivalents
    Fixed rate...................  $339,028   $    --   $     --   $     --   $    --    $     --    $339,028   $339,024
    Avg. interest rate...........      4.4%      -- %       -- %       -- %      -- %        -- %        4.4%
  Short-term investments
    Fixed rate...................  $ 22,000   $    --   $     --   $     --   $    --    $     --    $ 22,000   $ 21,999
    Avg. interest rate...........     5.25%      -- %       -- %       -- %      -- %        -- %       5.25%
Long-term debt
  Fixed rate.....................  $109,463   $16,545   $ 19,786   $ 20,389   $29,981    $574,183    $770,347   $788,987
  Avg. interest rate.............     12.0%      8.4%       8.3%       8.4%      8.9%        9.4%        9.7%
  Floating rate..................  $ 45,989   $71,596   $146,716   $130,764   $45,200    $111,300    $551,565   $551,565
  Avg. interest rate.............        (1)       (1)        (1)        (1)       (1)         (1)         (1)
  Swap (notional amount).........  $ 25,654   $25,654   $ 25,654   $ 25,654   $25,654    $ 63,170    $191,440   $191,440
  Avg. interest rate
    Floating rate payee..........        (2)       (2)        (2)        (2)       (2)         (2)         (2)
    Fixed rate payer.............        (3)       (3)        (3)        (3)       (3)         (3)         (3)
</TABLE>

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

(1) Floating rate is a weighted average of the combined LIBOR and Eurodollar all
    in rates, which was 7.8% at December 31, 1998.

(2) Floating rate is the 3 month LIBOR rate which was 5.25% at December 31,
    1998.

(3) Fixed rate is: 5.97% for the calculation period from November 30, 1998 to
    November 28, 1999; 6.22% for the calculation period from November 29, 1999
    to November 28, 2000; and 6.47% thereafter.

  Other Risk Factors

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

SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT

     We are highly leveraged. 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 to us 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 principal, 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 to a certain extent 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

                                       24
<PAGE>   25

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
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
reasonably favorable terms.

AVAILABILITY OF 747-400 AIRCRAFT FINANCING; DELIVERY DELAYS

     On June 9, 1997, we entered into an agreement with Boeing to purchase 10
new 747-400 freighter aircraft powered by engines acquired from GE, with options
to purchase up to 10 additional 747-400 aircraft. In February 1999 we exercised
two such options for delivery in 2000. The aggregate value of the 12 747-400
aircraft, four installed engines per aircraft and five spare engines, based on
list prices, is approximately $2.0 billion. In February 1998, we completed an
offering of $538.9 million of enhanced equipment trust certificates (the
"EETCs"), the proceeds of which were used to finance a portion of the
acquisition cost of the first five 747-400 aircraft which were delivered during
the period July 1998 through December 1998. While we currently anticipate that
we will be able to obtain the necessary financing on a timely basis to pay the
total purchase price for the remaining 747-400 freighter aircraft to be
acquired, there can be no assurance that we will be able to obtain sufficient
financing or, if such financing is available, that it will be available on
commercially reasonable terms. A recent decision of the United States District
Court for the District of Colorado (the state in which our headquarters is
located) raises questions concerning the ability of lenders and lessors under
certain types of aircraft equipment financing arrangements to exercise special
remedies under bankruptcy law against a bankrupt air carrier, which decision if
not reversed or modified could increase the cost of our future aircraft
financing arrangements. If we are unable to obtain sufficient financing, we
could be required to modify our expansion plans, incur higher than anticipated
financing costs or incur various penalty payments under the Boeing Purchase
Agreement, which could have a material adverse effect on our financial position
and results of operations.

     Due to production problems at Boeing, some of the 1998 delivery positions
of the 747-400 aircraft were delayed and we received compensation. In addition,
Boeing has agreed to compensate us 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 our ability to
initiate service with existing and prospective customers in a timely fashion.

RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS

     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 certain 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. There
can be no assurance that we will meet such tests. A breach of any of these
covenants could result in a default under certain debt instruments. Upon the
occurrence of an event of default under the various debt instruments, the
lenders thereunder could elect to declare all amounts outstanding thereunder,
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 such lenders accelerate the

                                       25
<PAGE>   26

payment of such indebtedness, there can be no assurance that our assets would be
sufficient to repay in full such indebtedness and our other indebtedness.

OUR MARKET IS HIGHLY COMPETITIVE

     The market for air cargo services is highly competitive. 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 and Kitty Hawk, 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.

DEPENDENCE ON SIGNIFICANT CUSTOMERS; GEOGRAPHIC CONCENTRATION

     In 1998, China Airlines, LAS and Fast Air accounted for approximately 33%,
10% and 9%, respectively, 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 ACMI Contracts range from 1999 to
2003. See "Item 1. 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 the Company. 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 the Company. We have not experienced any adverse
impact on our business as a result of the current economic and political turmoil
in Asia; however, there can be no assurance that continuation of the economic
and political turmoil in Asia will not have an adverse impact on air cargo
market growth generally, which could adversely affect our ability to obtain new
ACMI Contracts or to renew existing ACMI Contracts.

OPERATIONS DEPENDENT UPON LIMITED FLEET

     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 can 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 the Company.

UTILIZATION OF FUTURE AIRCRAFT

     We have not yet finalized long-term ACMI Contracts for the seven 747-400
aircraft scheduled to be delivered in 1999 and 2000. See "-- Availability of
747-400 Aircraft Financing; Delivery Delays." The failure to generate adequate
revenue from new aircraft pending the commencement 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, could have a material adverse
effect on the Company. See "Item 2. Properties -- Aircraft."
                                       26
<PAGE>   27

AGING AIRCRAFT

     Our fleet currently includes 23 Boeing 747-200 aircraft in service, all of
which were manufactured between 1974 and 1986. Manufacturer Service Bulletins
and the FAA 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. Seven of our Boeing 747-200 aircraft will have to be
brought into compliance with such Directives by March 2000 at an estimated
aggregate cost of approximately $3.5 million. 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.

EMPLOYEE RELATIONS

     We believe we operate with competitive or lower incremental personnel costs
than many established international airlines and cargo carriers, principally due
to the flexibility and high productivity of our workforce, arising in part as a
result of providing financial incentives to our personnel that are focused on
financial performance rather than on base wages. Our employees are not currently
subject to a collective bargaining agreement; however, many airline industry
employees are subject to such agreements and our employees have been solicited
from time to time by union representatives seeking to organize them. The most
recent solicitation resulted in our pilots rejecting representation by the ALPA
on January 27, 1998. On February 2, 1999, we were notified by the NMB that an
application has been filed by the IBT and ALPA requesting authority to ballot
Atlas' crew members to determine if they wish to be represented by a third
party. The NMB verified the authenticity of the union authorization cards
presented by both IBT and ALPA and scheduled a representation election with
ballots to be mailed in March 1999. There can be no assurance that our flight
crew employees will not become subject to a collective bargaining agreement and
the extent to which, if any, such collective bargaining agreement may adversely
impact our operations or cost structure.

REGULATORY MATTERS

     Under the Federal Aviation Act of 1958, as amended and recodified at 49
U.S.C. Subtitle VII (the "Aviation Act"), the DOT and the FAA exercise
regulatory authority over the Company. 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 the strict scrutiny and inspection
by FAA officials and to the imposition of new regulatory requirements that can
negatively affect their operations. FAA approval is required for each of our
long-term ACMI Contracts and DOT approval is required for each of our long-term
ACMI Contracts with foreign air carriers. In addition, FAA approval is required
for each of our short-term seasonal ACMI Contracts. In order to provide service
to foreign points, we must also obtain permission for such operations from the
applicable foreign governments and certain airport authorities. See "Business --
Governmental Regulation." In 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. On December 3,
1998, the FAA issued a Directive ordering Boeing 747 operators to change fuel
pump procedures to prevent dry operation that could result in ignition of the
center or horizontal stabilizer fuel tanks. Compliance with this Directive may
adversely impact our customers' operating costs and schedules.

                                       27
<PAGE>   28

CONTROL BY PRINCIPAL STOCKHOLDER

     As of December 31, 1998 Michael A. Chowdry, the founder, Chief Executive
Officer, President and Chairman of the Board of Directors of the Company,
beneficially owned approximately 59.2% of our outstanding common stock. As a
result, Mr. Chowdry is 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

     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 the Company. We have employment
agreements with such officers, which are generally terminable at any time by
either party.

SEASONALITY OF CUSTOMERS' CARGO OPERATIONS

     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.

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.

                                       28
<PAGE>   29

                                    PART III

     Certain information required by Part III is omitted from this report since
the Registrant will file a definitive Proxy Statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the year
covered by this report, and certain information included therein is incorporated
herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information concerning the Company's executive officers and directors
required by this Item is incorporated by reference from the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION.

     The information required by this Item is incorporated by reference from the
Proxy Statement.

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

     The information required by this Item is incorporated by reference from the
Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by this Item is incorporated by reference from the
Proxy Statement.

                                    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.

                                       29
<PAGE>   30

     (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.
            +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.
            +10.16       -- Atlas Air, Inc. Employee Stock Purchase Plan.
            +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.
          ***10.52       -- Employment Agreement dated as of November 18, 1996
                            between the Company and R. Terrence Rendlerman.
          ***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       -- Third 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 September 5,
                            1997.
           **10.59       -- Credit Agreement among Atlas Freighter Leasing, Inc., the
                            Lenders listed therein and Bankers Trust Company, as
                            agent, dated May 29, 1997.
           **10.60       -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N516MC.
           **10.61       -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N508MC.
           **10.62       -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N507MC.
           **10.63       -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N509MC.
           **10.64       -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N808MC.
           **10.65       -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N505MC.
           **10.66       -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N808MC.
           **10.67       -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N507MC.
           **10.68       -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N509MC.
           **10.69       -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N505MC.
</TABLE>

                                       30
<PAGE>   31

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
           **10.70       -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N508MC.
           **10.71       -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N516MC.
           **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)
           **10.75       -- Credit Agreement among Atlas Freighter Leasing II, Inc.,
                            the Lenders listed therein, Bankers Trust Company (as
                            Administrative Agent) and Goldman Sachs Credit Partners
                            L.P. (as Syndication Agent) dated September 5, 1997.
           **10.76       -- Lease Agreement dated September 5, 1997 between Atlas
                            Freighter Leasing II, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N527MC and Spare Engine Nos. 517538,
                            517539 and 455167.
           **10.77       -- Lease Agreement dated September 5, 1997 between Atlas
                            Freighter Leasing II, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N523MC and Spare Engine Nos. 530168 and
                            517530.
           **10.78       -- Lease Agreement dated September 5, 1997 between Atlas
                            Freighter Leasing II, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N524MC and Spare Engine Nos. 517790 and
                            517602.
           **10.79       -- Lease Agreement dated September 5, 1997 between Atlas
                            Freighter Leasing II, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N526MC and Spare Engine Nos. 517544 and
                            517547.
           **10.80       -- Security Agreement and Chattel Mortgage dated September
                            5, 1997 between Atlas Freighter Leasing II, Inc., the
                            Company and Bankers Trust Company, as Agent, relating to
                            B747-200 aircraft, U.S. Registration No. N523MC and Spare
                            Engine Nos. 530168 and 517530.
            *10.81       -- Security Agreement and Chattel Mortgage dated September
                            5, 1997 between Atlas Freighter Leasing II, Inc., the
                            Company and Bankers Trust Company, as Agent, relating to
                            B747-200 aircraft, U.S. Registration No. N524MC and Spare
                            Engine Nos. 517790 and 517602.
           **10.82       -- Security Agreement and Chattel Mortgage dated September
                            5, 1997 between Atlas Freighter Leasing II, Inc., the
                            Company and Bankers Trust Company, as Agent, relating to
                            B747-200 aircraft, U.S. Registration No. N526MC and Spare
                            Engine Nos. 517544 and 517547.
           **10.84       -- Security Agreement and Chattel Mortgage dated September
                            5, 1997 between Atlas Freighter Leasing II, Inc., the
                            Company and Bankers Trust Company, as Agent, relating to
                            B747-200 aircraft, U.S. Registration No. N527MC and Spare
                            Engine Nos. 517538, 517539 and 455167.
           **10.85       -- First Amendment to Lease Agreement among Atlas Freighter
                            Leasing, Inc. and Bankers Trust Company, as agent, dated
                            September 5, 1997
      **/****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>

                                       31
<PAGE>   32

<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.
           ++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.
</TABLE>

                                       32
<PAGE>   33


<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
           ++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.
           ++10.110      -- Employment Agreement dated as of February 16, 1998
                            between the Company and Stephen C. Nevin.
        *****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.
           ++21.1        -- Subsidiaries of the Registrant.
          +++24          -- Powers of Attorney (set forth on the signature page of
                            the Report).
          +++27          -- Financial Data Schedule.
</TABLE>


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


    +++ 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-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.

  ***** 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

     No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.

                                       33
<PAGE>   34

                                   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, as amended, to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
second day of July, 1999.


                                            ATLAS AIR, INC.

                                            By:    /s/ STEPHEN C. NEVIN
                                              ----------------------------------
                                                       Stephen C. Nevin
                                                   Vice President-Finance,
                                                   Chief Financial Officer

                                                 Principal Accounting Officer



<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<C>                                                    <S>                              <C>

                          *                            Chairman of the Board of           July 2, 1999
-----------------------------------------------------    Directors, Chief Executive
                 Michael A. Chowdry                      Officer and President

                          *                            Executive Vice President --        July 2, 1999
-----------------------------------------------------    Strategic Planning, Treasurer
                 Richard H. Shuyler                      and Director

                          *                            Director                           July 2, 1999
-----------------------------------------------------
                    Berl Bernhard

                          *                            Director                           July 2, 1999
-----------------------------------------------------
                Lawrence W. Clarkson

                          *                            Director                           July 2, 1999
-----------------------------------------------------
                    David K.P. Li

                          *                            Director                           July 2, 1999
-----------------------------------------------------
                 David T. McLaughlin

                          *                            Director                           July 2, 1999
-----------------------------------------------------
                     Brian Rowe

              *By: /s/ STEPHEN C. NEVIN
  ------------------------------------------------
                  Stephen C. Nevin
                  Attorney-in-fact
</TABLE>


                                       34
<PAGE>   35

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>

Report of Independent Public Accountants....................  F-2
Consolidated Balance Sheets as of December 31, 1998 and
  December 31, 1997.........................................  F-3
Consolidated Statements of Operations for the years ended
  December 31, 1998, 1997 and 1996..........................  F-4
Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 1998, 1997 and 1996..............  F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1998, 1997 and 1996..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                       F-1
<PAGE>   36

                    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, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
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 generally accepted auditing
standards. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.

                                            ARTHUR ANDERSEN LLP

Denver, Colorado,
  February 22, 1999.

                                       F-2
<PAGE>   37

                        ATLAS AIR, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
Current assets:
  Cash and cash equivalents.................................  $  449,627    $   41,334
  Short-term investments....................................      22,187       111,635
  Accounts receivable and other, net........................      86,234        55,702
                                                              ----------    ----------
          Total current assets..............................     558,048       208,671
Property and equipment:
  Flight equipment..........................................   1,527,921     1,154,562
  Other.....................................................      11,584         7,607
                                                              ----------    ----------
                                                               1,539,505     1,162,169
  Less accumulated depreciation.............................    (146,311)      (98,959)
                                                              ----------    ----------
          Net property and equipment........................   1,393,194     1,063,210
Other assets:
  Debt issuance costs, net of accumulated amortization of
     $10,413 and $4,981.....................................      32,224        21,705
  Deposits..................................................       5,403         3,829
                                                              ----------    ----------
                                                                  37,627        25,534
                                                              ----------    ----------
          Total assets......................................  $1,988,869    $1,297,415
                                                              ==========    ==========
                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt (Note 16)...............  $  155,452    $   40,049
  Accounts payable and accrued expenses.....................     100,051        88,105
  Income tax payable........................................       8,034           154
                                                              ----------    ----------
          Total current liabilities.........................     263,537       128,308
Long-term debt, net of current portion......................   1,166,460       736,026
Other liabilities...........................................     235,308       163,167
Deferred income tax liability...............................      39,674        31,085
Commitments and contingencies
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; 33,819,882 and 33,675,343 shares issued....         338           337
  Additional paid-in capital................................     178,131       176,141
  Retained earnings.........................................     108,892        62,803
  Treasury Stock, at cost; 164,403 and 28,609 shares,
     respectively...........................................      (3,471)         (452)
                                                              ----------    ----------
          Total stockholders' equity........................     283,890       238,829
                                                              ----------    ----------
          Total liabilities and stockholders' equity........  $1,988,869    $1,297,415
                                                              ==========    ==========
</TABLE>

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

                                       F-3
<PAGE>   38

                        ATLAS AIR, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1998        1997        1996
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Revenues:
  Contract services........................................  $400,981    $383,824    $296,289
  Scheduled services.......................................       441       7,171       6,005
  Charters and other.......................................    20,816      10,046      13,365
                                                             --------    --------    --------
          Total operating revenues.........................   422,238     401,041     315,659
Operating expenses:
  Flight crew salaries and benefits........................    35,549      30,153      25,020
  Other flight-related expenses............................    34,712      28,784      27,404
  Maintenance..............................................    96,636     123,820      84,305
  Aircraft and engine rentals..............................    14,616      31,644      27,341
  Fuel and ground handling.................................     8,714      10,816      10,554
  Depreciation and amortization............................    59,082      42,945      25,515
  Other....................................................    37,080      49,777      27,457
  Write-off of capital investment and other................        --      27,100          --
                                                             --------    --------    --------
          Total operating expenses.........................   286,389     345,039     227,596
Operating income...........................................   135,849      56,002      88,063
Other income (expense):
  Interest income..........................................    12,603       7,365       7,102
  Interest expense.........................................   (74,901)    (52,834)    (35,577)
                                                             --------    --------    --------
                                                              (62,298)    (45,469)    (28,475)
                                                             --------    --------    --------
Income before income taxes.................................    73,551      10,533      59,588
Provision for income taxes.................................   (27,334)     (3,844)    (21,750)
                                                             --------    --------    --------
Income before extraordinary item...........................    46,217       6,689      37,838
Extraordinary item:
  Gain from extinguishment of debt, net of applicable taxes
     of $9,622.............................................        --      16,740          --
                                                             --------    --------    --------
          Net income.......................................  $ 46,217    $ 23,429    $ 37,838
                                                             ========    ========    ========
Basic earnings per share (Note 13):
  Income before extraordinary item.........................  $   1.37    $    .20    $   1.17
  Extraordinary item.......................................        --         .50          --
                                                             --------    --------    --------
  Net income...............................................  $   1.37    $    .70    $   1.17
                                                             ========    ========    ========
  Weighted average common shares...........................    33,675      33,675      32,254
                                                             ========    ========    ========
Diluted earnings per share (Note 13):
  Income before extraordinary item.........................  $   1.37    $    .20    $   1.16
  Extraordinary item.......................................        --         .49          --
                                                             --------    --------    --------
  Net income...............................................  $   1.37    $    .69    $   1.16
                                                             ========    ========    ========
  Weighted average common shares...........................    33,841      33,803      32,523
                                                             ========    ========    ========
</TABLE>

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

                                       F-4
<PAGE>   39

                        ATLAS AIR, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 13)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                   COMMON STOCK     ADDITIONAL                             TOTAL
                                                  ---------------    PAID-IN     RETAINED   TREASURY   STOCKHOLDERS'
                                                  SHARES   AMOUNT    CAPITAL     EARNINGS    STOCK        EQUITY
                                                  ------   ------   ----------   --------   --------   -------------
<S>                                               <C>      <C>      <C>          <C>        <C>        <C>
Balance, December 31, 1995......................  29,400    $294     $ 66,493    $  1,928   $    --      $ 68,715
  Issuance of Common Stock......................   3,450      34       99,614          --        --        99,648
  Exercise of stock options, including income
     tax benefits of $3,412.....................     825       9       10,034          --        --        10,043
  Purchase of Treasury Stock....................      --      --           --          --      (933)         (933)
  Issuance of Treasury Stock....................      --      --           --        (223)      697           474
  Net income....................................      --      --           --      37,838        --        37,838
                                                  ------    ----     --------    --------   -------      --------
Balance, December 31, 1996......................  33,675     337      176,141      39,543      (236)      215,785
  Purchase of Treasury Stock....................      --      --           --          --    (1,051)       (1,051)
  Issuance of Treasury Stock....................      --      --           --        (169)      835           666
  Net income....................................      --      --           --      23,429        --        23,429
                                                  ------    ----     --------    --------   -------      --------
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
                                                  ======    ====     ========    ========   =======      ========
</TABLE>

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

                                       F-5
<PAGE>   40

                        ATLAS AIR, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                           -----------------------------------
                                                             1998         1997         1996
                                                           ---------   -----------   ---------
<S>                                                        <C>         <C>           <C>
OPERATING ACTIVITIES:
Net income...............................................  $  46,217   $    23,429   $  37,838
Adjustments to reconcile net income to net cash provided
  by operating activities:
  Depreciation and amortization..........................     59,230        44,506      25,156
  Amortization of debt issuance and lease financing
     costs...............................................      4,465         3,620       2,278
  Net gain on disposition of property and equipment......         --        (1,029)         --
  Write-off of capital investment and other..............         --        27,100          --
  Change in deferred income tax liability................      8,589        11,622      14,731
  Extraordinary gain.....................................         --       (26,363)         --
  Changes in operating assets and liabilities:
     Accounts receivable and other.......................    (30,532)      (16,052)    (31,009)
     Deposits............................................     (1,574)       (1,040)        592
     Accounts payable and accrued expenses...............     11,946        27,992      28,824
     Income tax payable..................................      7,880        (6,113)      6,003
                                                           ---------   -----------   ---------
          Net cash provided by operating activities......    106,221        87,672      84,413
INVESTING ACTIVITIES:
Purchase of property and equipment.......................   (460,839)     (367,787)   (289,675)
Proceeds from sale of property and equipment.............         --         3,750          --
Purchase of short-term investments.......................   (150,516)   (2,505,530)   (246,387)
Maturity of short-term investments.......................    239,964     2,508,765     131,517
                                                           ---------   -----------   ---------
          Net cash used in investing activities..........   (371,391)     (360,802)   (404,545)
FINANCING ACTIVITIES:
Issuance of Common Stock.................................      1,991            --     106,279
Purchase of Treasury Stock...............................     (4,025)       (1,051)       (933)
Issuance of Treasury Stock...............................        878           666         474
Net proceeds from debt issuance and lease financing......    775,933       815,767     154,808
Principal payments on notes payable......................    (89,895)     (494,121)    (21,640)
Debt issuance costs......................................    (11,419)      (16,590)     (6,053)
                                                           ---------   -----------   ---------
          Net cash provided by financing activities .....    673,463       304,671     232,935
                                                           ---------   -----------   ---------
          Net increase (decrease) in cash................    408,293        31,541     (87,197)
Cash and cash equivalents at beginning of period.........     41,334         9,793      96,990
                                                           ---------   -----------   ---------
Cash and cash equivalents at end of period...............  $ 449,627   $    41,334   $   9,793
                                                           =========   ===========   =========
</TABLE>

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

                                       F-6
<PAGE>   41

                        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 generally
accepted accounting principles 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 two 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 D checks which are capitalized and
amortized over the corresponding life. Owned aircraft are depreciated over their
estimated useful lives of 20 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 $34,825,000, $16,115,000 and
$5,347,000 for the years ended December 31, 1998, 1997 and 1996, respectively.

                                       F-7
<PAGE>   42
                        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 May 1997, $3,647,000 of unamortized debt issuance
costs was charged against the extraordinary gain recognized upon early
extinguishment of certain debt (see Note 3). Amortization of debt issuance costs
was $5,383,000, $3,620,000 and $2,278,000 for the years ended December 31, 1998,
1997 and 1996, 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.

  Short-Term Investments

     All 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 (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 609,750, 607,500 and 598,500 shares in 1998, 1997 and 1996,
respectively, and after taking into account the Stock Split (see Note 13), 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 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).
The fair value of deferred aircraft obligations is based upon the fair value of
the purchase contracts associated with the obligations.

  Hedges

     The Company may from time to time enter into swaps to reduce exposure to
interest rate fluctuations in connection with certain debt. Swaps are usually
placed with major financial institutions which the Company believes to be of
minimal credit risk. The cash flows of the swaps mirror those of the underlying
exposures. The Company accounts for its swaps using the hedge (or deferral)
method of accounting. The premiums on the swaps, as measured at inception, are
amortized over their respective lives as components of interest expense.
                                       F-8
<PAGE>   43
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Any gains or losses realized upon the early termination of these swaps are
deferred and recognized in income over the remaining life of the underlying
exposure.

  Significant Customers and Concentration of Credit Risk

     For the year ended December 31, 1998, China Airlines ("China Airlines"),
Lineas Aereas Suramericanas, S.A. ("LAS") and Fast Air Carrier, S.A. ("Fast
Air") accounted for approximately 33%, 10% and 9%, of the Company's total
revenues, respectively. For the year ended December 31, 1997, China Airlines,
Fast Air and Lufthansa Cargo AG ("Lufthansa") accounted for approximately 34%,
11% and 8%, of the Company's total revenues, respectively. For the year ended
December 31, 1996, China Airlines, KLM Royal Dutch Airlines ("KLM") and
Lufthansa accounted for approximately 34%, 12% and 11%, of the Company's total
revenues, respectively. Accounts receivable from these principal customers were
$26,897,000 and $18,963,000 in the aggregate at December 31, 1998 and 1997,
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 $100,362,000,
$55,097,000 and $30,744,000 for the years ended December 31, 1998, 1997 and
1996, respectively.

     The Company made federal and state income tax payments of approximately
$10,374,000, $7,959,000 and $750,000 in the years ended December 31, 1998, 1997
and 1996, respectively.

  Recent Pronouncements

     In March 1998, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants ("AICPA") issued
Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 is effective for financial statements for fiscal years beginning
after December 15, 1998. The Company does not believe that the application of
SOP 98-1 will have a material impact on its financial statements.

     In April 1998, the AcSEC issued SOP 98-5 "Reporting on the Costs of
Start-up Activities." SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and requires such costs to be expensed as
incurred. Initial application of SOP 98-5 will be reported as the cumulative
effect of a change in accounting principle. SOP 98-5 is effective for financial
statements for fiscal years beginning after December 15, 1998. During 1998 and
1997, the Company deferred certain start-up costs related to the introduction of
new Boeing 747-400 freighter aircraft into its fleet. The Company expects the
net of tax effect of the application of SOP 98-5 in the first quarter of 1999 to
be a one-time charge of approximately $1.5 million.

     In June 1998, the Financial Accounting Standards Board issued 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 in 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 treatment. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999 and may be implemented
                                       F-9
<PAGE>   44
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

as of the beginning of any fiscal quarter after June 15, 1998. The Company has
not yet quantified the impact, if any, of adopting SFAS No. 133 on its financial
statements and has not determined the timing or method of adoption of SFAS No.
133. However, SFAS No. 133 could increase volatility in earnings and other
comprehensive income.

2. SHORT-TERM INVESTMENTS

     Proceeds from the secondary public offering of the Company's common stock
("SPO") in May 1996, plus additional funds, were invested 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
value, gross unrealized holding gains, gross unrealized holding losses, and
amortized/accreted cost basis by major security type as of December 31, 1998 (in
thousands):

<TABLE>
<CAPTION>
                                 AGGREGATE    GROSS UNREALIZED   GROSS UNREALIZED   (AMORTIZATION)
         SECURITY TYPE           FAIR VALUE    HOLDING GAINS      HOLDING LOSSES      ACCRETION
         -------------           ----------   ----------------   ----------------   --------------
<S>                              <C>          <C>                <C>                <C>
Included in cash and cash
  equivalents:
  Commercial Paper.............   $ 59,549          $ --               $  3              $ 91
  Corporate Bonds..............     15,000            --                 --                --
  Corporate Notes..............     10,425            --                  1                (2)
  Market Auction Preferreds....    254,050            --                 --                --
                                  --------          ----               ----              ----
          Totals...............   $339,024          $ --               $  4              $ 89
                                  ========          ====               ====              ====
Included in short-term
  investments:
  Medium Term Notes............   $  4,999          $ --               $ (1)             $  2
  Market Auction Preferreds....     17,000            --                 --                --
                                  --------          ----               ----              ----
          Totals...............   $ 21,999          $ --               $ (1)             $  2
                                  ========          ====               ====              ====
</TABLE>

In addition, accrued interest on short-term investments at December 31, 1998 was
approximately $1,274,000. Interest earned on these investments and maturities of
these investments are reinvested in similar securities.

3. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                 1998         1997
                                                              ----------    --------
<S>                                                           <C>           <C>
12 1/4% Equipment Notes.....................................  $  100,000    $100,000
Aircraft Credit Facility....................................     200,000      85,000
AFL Term Loan Facility......................................     168,650     185,000
AFL II Term Loan Facility...................................     168,650     185,000
10 3/4 Senior Notes.........................................     150,000     150,000
9 1/4 Senior Notes..........................................     174,778          --
9 3/8 Senior Notes..........................................     150,000          --
EETC........................................................     107,889          --
Other.......................................................     101,945      71,075
                                                              ----------    --------
                                                               1,321,912     776,075
Current maturities (Note 16)................................    (155,452)    (40,049)
                                                              ----------    --------
Long-term debt, net.........................................  $1,166,460    $736,026
                                                              ==========    ========
</TABLE>

                                      F-10
<PAGE>   45
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  12 1/4% Equipment Notes

     In November 1995, the Company sold $100 million of 12 1/4% Pass Through
Certificates. Each 12 1/4% Pass Through Certificate due 2002 represents a
fractional undivided interest in the Atlas Air Pass Through Trust formed
pursuant to a pass through trust agreement between the Company and First
Fidelity Bank, N.A., as trustee under the Trust. The property of the Trust
consists of 12  1/4% Senior Secured Notes due 2002 (the "12 1/4% Equipment
Notes") issued by the Company to finance, together with funds from the Company,
the acquisition and conversion cost of three Boeing 747 aircraft (the
"Collateral Aircraft") that were acquired by the Company in the fourth quarter
of 1995 and converted to freighter configuration in the first quarter of 1996.
The Company issued the related 12 1/4% Equipment Notes during the fourth quarter
of 1995 and the first quarter of 1996 at or prior to the time pre-delivery
deposits and final purchase price payments were required to be made with respect
to the Collateral Aircraft.

     Interest on the 12 1/4% Equipment Notes is passed through to the
Certificateholders on June 1 and December 1 of each year. The 12 1/4% Equipment
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after December 1, 1998 at redemption prices ranging from 108% in 1998
to 100% in 2001 and thereafter, together with accrued and unpaid interest, if
any, to the date of redemption (see Note 16 Subsequent Events).

  Aircraft Credit Facility

     In May 1996, the Company entered into a $175 million 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. The Aircraft Credit Facility was
subsequently amended and restated in conjunction with certain refinancings. The
Aircraft Credit Facility was amended and restated in February 1997 and in
September 1997 and further amended in August 1998. The Aircraft Credit Facility,
as amended, provides for a $200 million revolving credit facility with a
two-year revolving period and a subsequent two-year term loan period in the
event that permanent financing has not been obtained for any flight equipment
financed under the facility. At the time of each borrowing, the Company must
select either a Base Rate Loan (prime rate, plus 1.0% through September 30,
2000, thereafter plus 1.5%) or a Eurodollar Rate Loan (Eurodollar rate, plus
2.0% through September 30, 2000, thereafter plus 2.5%). The Company selected the
Eurodollar Rate Loan for substantially all borrowings in 1996, 1997 and 1998.
The weighted average interest rate on borrowings outstanding under the Aircraft
Credit Facility was 7.6% at December 31, 1998. 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, 1998, the Company had approximately $200.0
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, 1998.

  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

                                      F-11
<PAGE>   46
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. Interest is based on the Eurodollar rate, plus 2.5% for the first
three years and 3.0% thereafter, and is payable quarterly. The interest rate on
borrowings outstanding under the AFL Term Loan Facility was 8.2% at December 31,
1998. Quarterly scheduled principal payments of $2.5 million commenced in
February 1998 and increased to $5.7 million in August 1998 with a final payment
of $50.0 million in May 2004. The AFL Term Loan Facility is secured by a first
priority interest in the six subject aircraft 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 is in compliance with all such covenants as of
December 31, 1998.

  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. Interest is based on the Eurodollar rate, plus 2.25%, less
a pricing reduction, if any, in effect from time to time and is payable
quarterly. The interest rate on borrowings outstanding under the AFL II Term
Loan Facility was 7.9% at December 31, 1998. Quarterly scheduled principal
payments of $2.5 million commenced in February 1998 and increased to $5.7
million in August 1998 with a final payment of $50.0 million in May 2004. The
AFL II Term Loan Facility is secured by a first priority interest in the four
subject aircraft, plus nine 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 is in compliance with all such covenants as of
December 31, 1998.

  10 3/4% Senior Notes

     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 addition, at any time on or prior to August 1, 2000,
the Company, at its option, may redeem up to 35% of the aggregate principal
amount of the 10 3/4% Senior Notes originally issued with the net cash proceeds
of one or more public equity offerings, at a redemption price equal to 110.75%
of the principal amount thereof plus accrued interest to the date of redemption;
provided that at least 65% of the aggregate principal amount of the 10 3/4%
Senior Notes originally issued remains outstanding immediately after any such
redemption.

     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.

                                      F-12
<PAGE>   47
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Covenants with respect to the 10 3/4% 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, 1998.

  9 1/4% Senior Notes

     In April 1998, the Company consummated the offering of $175 million of
unsecured 9 1/4% Senior Notes at 99.867% due 2008. The proceeds of the offering
of 9 1/4% Senior Notes are being 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 may 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.

     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, 1998.

  9 3/8% Senior Notes

     In November 1998, the Company consummated the offering of $150 million of
unsecured 9 3/8% Senior Notes due 2006. The proceeds of the offering of 9 3/8%
Senior Notes are being used for general corporate purposes, which included the
redemption of the 12 1/4% Equipment Notes.

     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 may 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.

                                      F-13
<PAGE>   48
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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, 1998.

  Enhanced Equipment Trust Certificates

     In February 1998, the Company completed an offering of $538.9 million of
pass-through certificates, also known as enhanced equipment trust certificates
("EETCs"). The 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 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%. 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 are
the basis for the pricing of the EETCs that were priced 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.

  Hedges

     In September 1997, the Company entered into an interest rate swap with BTCo
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, 1998, the notional amount was $191.4 million, the fixed
interest rate was 5.97% and the 3-month LIBOR rate was 5.25%.

  Fair Value of Long-Term Debt

     Based on current rates available for similar debt with similar maturities
and security, the fair values of the debt in the above table at December 31,
1998, are estimated to be their carrying values. The Equipment Notes and all of
the Senior Notes are publicly traded. Based on published trading prices at
December 31, 1998, the fair values of the Equipment Notes and the Senior Notes
are estimated to be as follows (in thousands):

<TABLE>
<CAPTION>
                                                              FAIR VALUE
                                                              ----------
<S>                                                           <C>
12 1/4% Equipment Notes.....................................   $108,000
10 3/4% Senior Notes........................................    157,500
9 1/4% Senior Notes.........................................    175,000
9 3/8% Senior Notes.........................................    151,500
EETCs.......................................................    109,307
</TABLE>

                                      F-14
<PAGE>   49
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Five Year Debt Maturities

     At December 31, 1998 principal repayments on long-term debt for the next
five years were as follows (in thousands):

<TABLE>
<S>                                                         <C>
1999 (Note 16)............................................  $155,452
2000......................................................    88,141
2001......................................................   166,502
2002......................................................   151,153
2003......................................................    75,181
Thereafter................................................   685,483
</TABLE>

4. DEFERRED AIRCRAFT OBLIGATIONS

     In June 1997, the Company entered into an agreement with Boeing to purchase
10 new 747-400 freighter aircraft (the "Boeing Purchase Agreement") (see Note
6). 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, 1998, was $152.6 million of Deferred Aircraft Obligations at a
combined interest rate of 7.25%. The Company settled its Deferred Aircraft
Obligations upon delivery of each of the first five of 12 747-400 aircraft
(including two exercised options -- see Note 16 Subsequent Events), which were
delivered in 1998. Financing for the first five aircraft was secured through the
EETCs. The Company will settle the balance of its Deferred Aircraft Obligations
upon delivery of the remaining seven aircraft, which are scheduled for delivery
as follows: four in 1999 and three in 2000.

5. INCOME TAXES

     The Company had net operating loss carryforwards of approximately
$92,790,000 as of December 31, 1998 which expire between 2008 and 2018. The
Company has generated approximately $27,191,000 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. 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,
                                                        -----------------------------
                                                         1998       1997       1996
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Current:
  Federal.............................................  $18,012    $ 1,704    $ 6,625
  State and local.....................................      733        140        394
Deferred:
  Federal.............................................    8,113     11,622     14,731
  State and local.....................................      476         --         --
                                                        -------    -------    -------
     Provision for income taxes.......................  $27,334    $13,466    $21,750
                                                        =======    =======    =======
</TABLE>

                                      F-15
<PAGE>   50
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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,
                                                          --------------------------------
                                                           1998         1997         1996
                                                          ------       ------       ------
<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         1.04          .66
Nondeductible items.....................................    1.16         2.36         2.04
Benefit of net operating loss carryforward..............      --        (1.90)       (1.20)
                                                          ------       ------       ------
  Effective tax provision rate..........................   37.16%       36.50%       36.50%
                                                          ======       ======       ======
</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,
                                                              -------------------
                                                                1998       1997
                                                              --------    -------
<S>                                                           <C>         <C>
Deferred tax liabilities:
  Tax depreciation in excess of book depreciation...........  $138,255    $96,147
  Other.....................................................        --      1,372
                                                              --------    -------
          Total deferred tax liabilities....................   138,255     97,519
Deferred tax assets:
  Tax benefit of net operating loss carryforwards...........    33,367     44,218
  Alternative minimum tax credits...........................    27,191      8,665
  Other.....................................................    38,023     13,551
                                                              --------    -------
          Total deferred tax assets.........................    98,581     66,434
                                                              --------    -------
          Net deferred tax liability........................  $ 39,674    $31,085
                                                              ========    =======
</TABLE>

6. COMMITMENTS AND CONTINGENCIES

  Aircraft

     Minimum annual rental commitments under noncancelable aircraft operating
leases for years ending December 31, are approximately (in thousands):

<TABLE>
<S>                                                           <C>
1999........................................................  $ 46,233
2000........................................................    45,234
2001........................................................    47,085
2002........................................................    46,894
2003........................................................    48,967
Thereafter..................................................   712,241
</TABLE>

     The above commitments do not include the potential lease financing (if any)
of Boeing 747-400 freighter aircraft scheduled for delivery during 1999 and
2000. In addition to the above commitments, the Company leases engines under
short-term lease agreements on an as needed basis.

     Aircraft and engine rentals, including short-term rentals, were
$14,616,000, $31,644,000 and $27,341,000 for the years ended December 31, 1998,
1997 and 1996, respectively.

                                      F-16
<PAGE>   51
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Boeing Purchase Agreement

     In June 1997, the Company entered into the Boeing Purchase Agreement to
purchase 10 new 747-400 freighter aircraft to be powered by GE engines. The
Company acquired and placed into service five of the 747-400 aircraft in the
second half of 1998. 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 also provides the Company with options to purchase up to 10
additional 747-400 freighter aircraft for delivery from 2000 through 2002. In
February 1999, the Company exercised options for two such additional aircraft.
As a result of the Company being the largest purchaser of 747-400 freighter
aircraft to date, it was able to negotiate from Boeing and GE a significant
discount from the aggregate list price of approximately $2.0 billion for the 12
747-400 freighter aircraft, four installed engines per aircraft and five spare
engines. In addition, the Company obtained certain ancillary products and
services at advantageous prices.

     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. The Company expects the maximum total amount
of pre-delivery deposits at any time outstanding will be approximately $162.3
million, which was paid as of June 30, 1998. There were approximately $96.1
million of pre-delivery deposits outstanding at December 31, 1998 which were
included in flight equipment. The Company expects to pay an additional $55.2
million in 1999 in pre-delivery deposits in accordance with the firm order
pre-delivery deposits schedule for seven aircraft, including the two option
aircraft. 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 2.00%. As
of December 31, 1998, there was $152.6 million of Deferred Aircraft Obligations
included in other liabilities, and the combined interest rate was 7.25%.

  Maintenance Agreements

     In January 1995, the Company entered into a maintenance agreement with one
of its principal customers. This agreement includes a provision which requires
the Company to remit a fixed amount per flight hour each month to the customer,
subject to a 3.5% annual escalation factor for the first five years, for which
the customer will perform most regular maintenance on a substantial portion of
the aircraft in the Company's fleet. The agreement extends for a period of ten
years. Pursuant to its maintenance agreement, engines may be upgraded when
inducted into the maintenance pool in order to improve engine reliability and to
lower Company operating costs. When such costs are incurred and identified, they
are capitalized and amortized over the remaining life of each applicable engine.
As of December 31, 1998, the Company had paid the customer $9.3 million for such
costs and does not expect to incur additional costs.

     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
quarters of 1996. Pursuant to its maintenance agreement and upon the first time
shop visit, the Company is invoiced for certain one-time charges, which the
Company capitalizes and amortizes over the lesser of the remaining life of the
asset or the remaining life of the maintenance agreement. As of December 31,
1998, the Company had recorded $11.5 million of such charges. Effective in the
year 2000, the Company has an option to add not less than 40 engines to the
program.

                                      F-17
<PAGE>   52
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During the initial 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 the Company's initial order of
ten 747-400 aircraft, plus any additional 747-400 aircraft that it purchases
pursuant to its option in the Boeing Purchase Agreement, on a fixed cost per
flight hour basis for ten years, subject to an annual escalation adjustment. The
Company may terminate the agreement in June 2003. In connection with 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 14), and in certain
circumstances relocation and severance benefits.

  FAA Airworthiness Directives

     Under the FAA's 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. Seven of the Company's Boeing 747-200 aircraft will have to be brought into
compliance with such Directives by March 2000 at an estimated total cost of
approximately $3.5 million. 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 aircraft
will range between $2 million and $3 million. Twelve aircraft in the Company's
fleet have already undergone the major portion of such modifications. The
remaining eleven 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. On December 3, 1998, the FAA issued a
Directive ordering Boeing 747 operators to change fuel pump procedures
immediately to prevent dry tank operation that could result in ignition of the
center fuel or horizontal stabilizer tanks. Compliance with this Directive may
adversely impact our customers' operating costs and schedules. 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.

  Legal Proceedings

     In March 1997, Air Support International, Inc. ("ASI") filed a complaint
against the Company in the U.S. District Court, Eastern District of New York
alleging actual and punitive damages of approximately $13.5 million arising from
the Company's refusal to pay commissions which ASI claims it is owed for
allegedly arranging certain ACMI Contracts. The Company intends to vigorously
defend against all of ASI's claims.

     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.

                                      F-18
<PAGE>   53
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. RELATED PARTY TRANSACTIONS

     In August and September 1995, the Company extended demand loans to three
officers of the Company in the aggregate amount of $550,000, bearing interest at
7.50%. Two of the loans plus interest were paid in full in April and May 1996,
and the third loan plus interest was paid in full in December 1997. 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 February 1998, a loan of
$147,000 was extended to an officer of the Company, for a term of two years,
bearing interest at approximately 5.5%. In June 1998, an interest-free loan of
$100,000 was extended to an officer of the Company, due on demand, subject to
certain conditions and restrictions. As of December 31, 1998 the outstanding
balance of officer demand loans, including accrued interest, was $516,000.

     In November 1995, the Company began renting a Cessna Citation SP, on an as
needed basis, from MAC Flightlease for the purpose of corporate business travel.
MAC Flightlease is wholly-owned by the wife of the Company's Chairman, President
and CEO. The Company paid $265,000 in 1996 for such travel, at rates which are
considered by the Company to be at fair market value.

     In October 1997, AFI purchased a 1988 Canadair Challenger passenger
aircraft (the "Challenger") from MAC Flightlease for corporate business travel.
Currently, the Challenger is financed for approximately 100% of its purchase
price with Nationsbanc under a 5-year LIBOR based loan which was guaranteed by
the Company. The Company paid $15.3 million for the Challenger, which is
considered by the Company to be at fair market value.

     In May 1998, the Company agreed to purchase a Boeing Business Jet ("BBJ")
from Boeing for approximately $32 million, for which the Company's Chairman,
President and CEO has agreed to share in the acquisition costs and capital
improvement costs of the BBJ. This aircraft will be used to transport the
Company's executives on business trips throughout the world. The Company intends
to sell the Challenger, upon delivery of the BBJ from the third party installing
the interior business configuration (see Note 16 Subsequent Events).

8. ACCOUNTS RECEIVABLE AND OTHER

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1998       1997
                                                              -------    -------
<S>                                                           <C>        <C>
Accounts receivable-trade...................................  $75,684    $58,817
Insurance and vendor claims.................................    9,717      2,250
Spare parts inventory.......................................    4,191        500
Employee receivables........................................      582        771
Prepaids and other..........................................    1,730      2,639
Less: Allowance for doubtful accounts.......................   (5,670)    (9,275)
                                                              -------    -------
                                                              $86,234    $55,702
                                                              =======    =======
</TABLE>

     During 1998 and 1997, the Company recorded additional reserves for doubtful
accounts of approximately $.7 million and $9.8 million, respectively.

                                      F-19
<PAGE>   54
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                                1998      1997
                                                              --------   -------
<S>                                                           <C>        <C>
Accounts payable-trade......................................  $  1,535   $12,291
Accrued salaries and wages..................................     8,877     6,779
Accrued maintenance.........................................    25,306    19,012
Accrued interest............................................    18,832    13,581
Loss reserves (Note 10).....................................     8,741    18,550
Deferred rent...............................................    11,097        --
Accrued expenses............................................    16,612    17,892
Other.......................................................     9,051        --
                                                              --------   -------
                                                              $100,051   $88,105
                                                              ========   =======
</TABLE>

10. WRITE-OFF OF CAPITAL INVESTMENT AND OTHER

     In conjunction with the Boeing Purchase Agreement, the Company reassessed
the economic viability of renewing on a longer-term basis its subleases with
Federal Express Corporation ("FedEx") for five 747-200 freighter aircraft. Based
on the results of this assessment in the second quarter of 1997, the Company
decided to schedule the return of these aircraft in the first quarter of 1998.
The Company wrote-off its remaining investment in the five FedEx aircraft and
established certain other reserves.

     The impact of the various largely non-recurring charges was $27.1 million,
or $17.2 million on an after-tax basis, which comprised write-offs of various
leasehold improvements associated with the Company's subleases with FedEx of the
five 747-200 aircraft and reserves for costs necessary to return the aircraft
upon the termination of the subleases. In addition, the Company established
reserves primarily related to certain customers and vendors for out-of-period
items, which the Company settled in 1998. In addition, the reserves included
estimates for litigation costs and other costs not expected to re-occur.

11. 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
$1,636,000, $1,255,000 and $559,000 for the years ended December 31, 1998, 1997
and 1996, respectively.

12. 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 96%, 99% and 98% of total revenues for the
years ended December 31, 1998, 1997 and 1996, respectively. All foreign sales
were U.S. dollar denominated.

                                      F-20
<PAGE>   55
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. 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.

  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.

14. 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 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, 1998, 117,868 shares were issued at a weighted average cost of
$15.47 to 193 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 and an additional
750,000 shares were reserved in 1998.

                                      F-21
<PAGE>   56
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  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. If a non-employee director elects at the commencement of
any quarter to receive his quarterly remuneration, or a portion thereof, in
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, 1998, 9,355 shares were issued at a weighted
average cost of $20.89 to five directors who have participated in the Director
Plan.

  Other

     In July 1995, options to purchase 187,500 and 107,145 shares of the
Company's common stock were granted to an officer ("July 1995 Grant"), who
subsequently resigned from his position with the Company to accept a position
with an affiliate of the Company, at exercise prices of $6.67 per share and
$9.33 per share, respectively. As of January 1998, all of these options were
exercised.

  Statement of Financial Accounting Standards No. 123

     SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair
value based method of accounting for employee stock options or similar equity
instruments. However, SFAS No. 123 allows the continued measurement of
compensation cost for such plans using the intrinsic value based method
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," provided that pro forma disclosures are made of
net income or loss and net income or loss per share, assuming the fair value
based method of SFAS No. 123 had been applied. The Company has elected to
account for its stock-based compensation plans under APB Opinion No. 25;
accordingly, for purposes of the pro forma disclosures presented below, the
Company has computed the fair value of all options granted during 1998, 1997 and
1996, using the Black-Scholes pricing model and the following weighted average
assumptions:

<TABLE>
<CAPTION>
              ASSUMPTIONS -- 1995 PLAN                  1998        1997        1996
              ------------------------                 -------    --------    --------
<S>                                                    <C>        <C>         <C>
Risk-free interest rates.............................  5.54%      6.51%       6.31%
Expected dividend yields.............................  --         --          --
Expected lives.......................................  5 years    5 years     5 years
Expected volatility..................................  59.79%     65.33%      73.44%
</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>
                                                             1998      1997       1996
                                                            -------   -------    -------
<S>                                            <C>          <C>       <C>        <C>
Net income (in thousands):...................  As Reported  $46,217   $23,429    $37,838
                                               Pro Forma     43,136    17,875     35,211
Net income per common share (basic EPS):.....  As Reported     1.37       .70       1.17
                                               Pro Forma       1.28       .53       1.09
Net income per common share (diluted EPS):...  As Reported     1.37       .69       1.16
                                               Pro Forma       1.27       .53       1.08
</TABLE>

                                      F-22
<PAGE>   57
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the status of the 1995 Plan and the July 1995 Grant at
December 31, 1998, 1997 and 1996 and changes during the years then ended is
presented in the table below:

<TABLE>
<CAPTION>
                                    1998                          1997                          1996
                         ---------------------------   ---------------------------   ---------------------------
                                         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....   1,168,662       $19.62          953,943       $20.06        1,280,475       $ 8.66
Granted................   1,368,000        22.97          214,719        17.59          553,500        27.63
Exercised..............    (144,540)       10.81               --           --         (825,343)        8.07
Forfeited..............          --           --               --           --          (54,689)       10.67
                         ----------                    ----------                    ----------
Outstanding at end of
  year.................   2,392,122        22.07        1,168,662        19.61          953,943        20.06
                         ==========                    ==========                    ==========
Exercisable at end of
  year.................     943,122        20.55          602,643        15.14          249,409         9.47
Weighted average fair
  value of options
  granted..............  $    13.03                    $    10.45                    $    18.18
</TABLE>

     The following table summarizes information with regard to the options
outstanding at December 31, 1998:

<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>           <C>
$ 6.67 -- $ 6.67...................      68,625     6.5 years     $ 6.67       68,625      $ 6.67
 10.67 --  16.00...................     214,548     6.8 years      10.70      214,548       10.70
 16.15 --  24.11...................   1,375,449     8.7 years      21.95      173,949       18.10
 24.44 --  33.83...................     732,000     4.6 years      27.02      484,500       27.71
 37.58 --  37.58...................       1,500     7.4 years      37.58        1,500       37.58
                                      ---------                               -------
                                      2,392,122     7.2 years      22.07      943,122       20.55
</TABLE>

15. 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. For the
years 1997, 1998 and 1999, 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 receive a guarantee of 20%.
The expense for the Profit Sharing Plan for the years ended December 31, 1998,
1997 and 1996 was $8,061,000, $4,004,000 and $6,779,000, respectively.

16. SUBSEQUENT EVENTS

     In January 1999, the Company used a portion of the proceeds from the 9 3/8%
Senior Notes to redeem at 108% all of its 12 1/4% Equipment Notes due 2002. The
Company expects to record an approximate

                                      F-23
<PAGE>   58
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$6.6 million one-time extraordinary loss from the extinguishment of debt, net of
applicable taxes of approximately $3.9 million, in the first quarter of 1999
associated with this redemption. As a result of the redemption, the debt was
reclassified to the current portion of long-term debt as of December 31, 1998.

     In January 1999, the Company purchased the BBJ from Boeing and immediately
delivered the aircraft to a third-party for installation of the interior
business configuration (see Note 7).

     In February 1999, the Company exercised options for two additional 747-400
freighter aircraft in accordance with the Boeing Purchase Agreement (see Note
6). These aircraft are scheduled for delivery in 2000. The Company has not yet
secured financing for these aircraft.

     In February 1999, the Company filed a $650 million shelf registration
statement with the Securities and Exchange Commission which was recently
declared effective. The shelf registration statement provides for debt or equity
financing, or a combination of both, the net proceeds from which will be
available for general corporate purposes, including but not limited to,
repayment of indebtedness, capital expenditures, repurchase of common stock and
acquisitions.

17. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
                                                                         INCOME
                                                                         (LOSS)                  INCOME (LOSS) BEFORE
                                          OPERATING   INCOME (LOSS)      BEFORE                   EXTRAORDINARY ITEM      NET INCOME
                                           INCOME        BEFORE       EXTRAORDINARY     NET     -----------------------   ---------
                               REVENUE     (LOSS)     INCOME TAXES        ITEM        INCOME    BASIC EPS   DILUTED EPS   BASIC EPS
                               --------   ---------   -------------   -------------   -------   ---------   -----------   ---------
<S>                            <C>        <C>         <C>             <C>             <C>       <C>         <C>           <C>
                                                                                                       (1)
                                                                                                                    )(1         )(1
1998
 First Quarter...............  $ 79,634   $ 21,543      $  8,429        $  5,310      $ 5,310     $ .16        $ .16        $.16
 Second Quarter..............    87,950     31,518        16,039          10,105       10,105       .30          .30         .30
 Third Quarter...............   109,189     35,716        20,238          12,745       12,745       .38          .38         .38
 Fourth Quarter..............   145,465     47,072        28,845          18,057       18,057       .54          .53         .54
1997
 First Quarter...............  $ 82,049   $ 17,142      $  7,894        $  5,013      $ 5,013     $ .15        $ .15        $.15
 Second Quarter..............    93,902    (10,654)      (21,562)        (13,692)       3,048      (.41)        (.41)        .09
 Third Quarter...............   104,197     21,733         9,804           6,225        6,225       .18          .18         .18
 Fourth Quarter..............   120,893     27,781        14,397           9,142        9,143       .27          .27         .27

<CAPTION>

                             NET INCOME
                               -----------
                               DILUTED EPS
                               -----------
<S>                            <C>
                                      ) (1
1998
 First Quarter...............     $.16
 Second Quarter..............      .30
 Third Quarter...............      .38
 Fourth Quarter..............      .53
1997
 First Quarter...............     $.15
 Second Quarter..............      .09
 Third Quarter...............      .18
 Fourth Quarter..............      .27
</TABLE>

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

(1) As restated to reflect the Stock Split.

                                      F-24
<PAGE>   59

                                 EXHIBIT INDEX

<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.
          +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.
          +10.16         -- Atlas Air, Inc. Employee Stock Purchase Plan.
          +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.
        ***10.52         -- Employment Agreement dated as of November 18, 1996
                            between the Company and R. Terrence Rendlerman.
        ***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         -- Third 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 September 5,
                            1997.
         **10.59         -- Credit Agreement among Atlas Freighter Leasing, Inc., the
                            Lenders listed therein and Bankers Trust Company, as
                            agent, dated May 29, 1997.
         **10.60         -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N516MC.
         **10.61         -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N508MC.
         **10.62         -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N507MC.
         **10.63         -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N509MC.
         **10.64         -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N808MC.
         **10.65         -- Lease Agreement between Atlas Freighter Leasing, Inc., as
                            lessor, and the Company, as lessee, relating to B747-200
                            aircraft. U.S. Registration No. N505MC.
         **10.66         -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N808MC.
</TABLE>
<PAGE>   60

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         **10.67         -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N507MC.
         **10.68         -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N509MC.
         **10.69         -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N505MC.
         **10.70         -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N508MC.
         **10.71         -- Security Agreement and Chattel Mortgage between the
                            Company, Atlas Freighter Leasing, Inc. and Bankers Trust
                            Company, as agent, relating to B747-200 aircraft. U.S.
                            Registration No. N516MC.
         **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)
         **10.75         -- Credit Agreement among Atlas Freighter Leasing II, Inc.,
                            the Lenders listed therein, Bankers Trust Company (as
                            Administrative Agent) and Goldman Sachs Credit Partners
                            L.P. (as Syndication Agent) dated September 5, 1997.
         **10.76         -- Lease Agreement dated September 5, 1997 between Atlas
                            Freighter Leasing II, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N527MC and Spare Engine Nos. 517538,
                            517539 and 455167.
         **10.77         -- Lease Agreement dated September 5, 1997 between Atlas
                            Freighter Leasing II, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N523MC and Spare Engine Nos. 530168 and
                            517530.
         **10.78         -- Lease Agreement dated September 5, 1997 between Atlas
                            Freighter Leasing II, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N524MC and Spare Engine Nos. 517790 and
                            517602.
         **10.79         -- Lease Agreement dated September 5, 1997 between Atlas
                            Freighter Leasing II, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N526MC and Spare Engine Nos. 517544 and
                            517547.
         **10.80         -- Security Agreement and Chattel Mortgage dated September
                            5, 1997 between Atlas Freighter Leasing II, Inc., the
                            Company and Bankers Trust Company, as Agent, relating to
                            B747-200 aircraft, U.S. Registration No. N523MC and Spare
                            Engine Nos. 530168 and 517530.
          *10.81         -- Security Agreement and Chattel Mortgage dated September
                            5, 1997 between Atlas Freighter Leasing II, Inc., the
                            Company and Bankers Trust Company, as Agent, relating to
                            B747-200 aircraft, U.S. Registration No. N524MC and Spare
                            Engine Nos. 517790 and 517602.
         **10.82         -- Security Agreement and Chattel Mortgage dated September
                            5, 1997 between Atlas Freighter Leasing II, Inc., the
                            Company and Bankers Trust Company, as Agent, relating to
                            B747-200 aircraft, U.S. Registration No. N526MC and Spare
                            Engine Nos. 517544 and 517547.
</TABLE>
<PAGE>   61

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         **10.84         -- Security Agreement and Chattel Mortgage dated September
                            5, 1997 between Atlas Freighter Leasing II, Inc., the
                            Company and Bankers Trust Company, as Agent, relating to
                            B747-200 aircraft, U.S. Registration No. N527MC and Spare
                            Engine Nos. 517538, 517539 and 455167.
         **10.85         -- First Amendment to Lease Agreement among Atlas Freighter
                            Leasing, Inc. and Bankers Trust Company, as agent, dated
                            September 5, 1997
    **/****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.
         ++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.
</TABLE>
<PAGE>   62


<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         ++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.
         ++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.
         ++10.110        -- Employment Agreement dated as of February 16, 1998
                            between the Company and Stephen C. Nevin.
      *****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.
         ++21.1          -- Subsidiaries of the Registrant.
</TABLE>

<PAGE>   63


<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
        +++24            -- Powers of Attorney (set forth on the signature page of
                            the Report).
        +++27            -- Financial Data Schedule.
</TABLE>


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


    +++ 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-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.

  ***** 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)