### EXHIBIT 13

---

The Company's common stock is traded on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol ABF.  The following is a summary of
the cash dividends paid and the quarterly trading price ranges of Airborne
common stock on the New York Stock Exchange for 2000 and 1999:

`Quarter                      High        Low       Dividend
-------                      ----        ---       --------
2000:
Fourth                     $10.938     $ 8.438     $ .04
Third                       19.313      10.000       .04
Second                      22.938      18.375       .04
First                       25.375      17.250       .04

1999:
Fourth                     $25.375     $20.000     $ .04
Third                       28.875      21.063       .04
Second                      36.625      24.688       .04
First                       41.625      28.625       .04`

---



|AIRBORNE, INC. AND SUBSIDIARIES
  SELECTED CONSOLIDATED FINANCIAL DATA
|----------------------------------------------------------------------
|
|
|OPERATING RESULTS:
     Revenues                                      
|Domestic                                                              
|International                                                         
|                                                                      
|Total                                                                 
|Operating Expenses                                                    
|                                                                      
|Earnings From
  Operations                                            
|Other, Net                                                            
|                                                                      
|Earnings
  Before Income Taxes                                        
|Income Taxes                                                          
|                                                                      
|Net Earnings Before Change in Accounting                              
|Cumulative Effect of Change in Accounting                             
|                                                                      
|Net Earnings                                                          
|                                                                      
|Preferred Stock Dividends                                             
|                                                                      
|Net Earnings Available to Common
  Shareholders                       
|                                                                      
|Earnings Per Common Share:
        Basic (1)                          
|Diluted (1)                                                           
|                                                                      
|Dividends Per Common Share                                            
|                                                                      
|Diluted Average Shares Outstanding                                    
|                                                                      
|FINANCIAL STRUCTURE:                                                  
|Property and Equipment                                                
|Total Assets                                                          
|Long-term Debt                                                        
|Shareholders' Equity                                                  
|NUMBER OF SHIPMENTS:                                                  
|Domestic                                                              
|International                                                         
|                                                                      
|Total                                                                 
|                                                                      
|

(1)For 2000, net earnings per common share is shown exclusive of the cumulative effect
of a change in accounting for major engine overhaul costs.  Basic and diluted earnings per
share inclusive of the change was $.59.



---

AIRBORNE, INC. AND SUBSIDIARIES
              MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                   OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS:


    The Company's operating performance for 2000 was substantially below
the results reported for 1999.  A decline in the Company's core domestic
shipments was the primary factor for the deterioration in earnings.  With
the slow growth in total shipment volumes, productivity gains were
difficult to achieve and not sufficient to offset increases in operating
costs.  High fuel costs and poor weather late in the year coupled with
additional costs to service the Company's new airborne@home service also
had a negative impact on earnings.

    Net earnings in 2000 were $28.5 million or $.59 per diluted share,
which includes a credit due for a change in accounting for certain major
engine overhaul costs. Net earnings before this change were $14.3 million,
or $.30 per share compared to $91.2 million, or $1.85 per share in 1999.
Net earnings were $137.3 million or $2.72 per share in 1998.

    Effective at the beginning of 2000, the Company changed from the
accrual method of accounting for DC-9 major engine overhaul costs to the
direct expense method where costs are expensed as incurred.  The cumulative
effect of this change in accounting resulted in a non-cash credit of $14.2
million, net of taxes, or $.29 per share.

The following table is an overview of the Company's shipments, revenue
and weight trends for the last three years:

`2000         1999         1998
                                        ----         ----         ----
Number of Shipments (in thousands):
  Domestic
    Overnight                        185,419      186,346      186,321
    Next Afternoon Service            54,213       56,201       58,186
    Second Day Service                82,583       73,556       71,724
    100 lbs. and Over                    278          288          359
                                     -------      -------      -------
      Total Domestic                 322,493      316,391      316,590
                                     -------      -------      -------
  International
    Express                            6,157        6,639        6,017
    Freight                              401          399          434
                                     -------      -------      -------
      Total International              6,558        7,038        6,451
                                     -------      -------      -------

  Total Shipments                    329,051      323,429      323,041
                                     =======      =======      =======

Average Pounds Per Shipment:
  Domestic                               4.3          4.2          4.3
  International                         51.8         44.2         42.6

Average Revenue Per Pound:
  Domestic                           $  2.03       $ 2.03       $ 1.96
  International                      $  1.10       $ 1.17       $ 1.31

Average Revenue Per Shipment:
  Domestic                           $  8.92       $ 8.76       $ 8.56
  International                      $ 57.96       $52.05       $56.03`

Total revenues increased 4.4% to $3.28 billion in 2000, compared to
revenue growth of 2.1% in 1999 and 5.5% in 1998. Shipment volume was 329.1
million shipments in 2000, increasing 1.7% compared to growth of .1% in
1999 and 6.7% in 1998.

    Domestic revenues increased 4.4% to $2.9 billion in 2000, compared to
domestic revenue growth of 2.2% in 1999 and 7.9% in 1998. Domestic
shipments increased 1.9% to 322.5 million compared to flat growth in 1999
and 6.6% in 1998. Domestic revenues were aided by the implementation of a
3% fuel surcharge in February 2000 with an additional 1% added in October
2000. Fuel surcharge revenues totaled $77.6 million in 2000 and accounted
for 63% of the increase in domestic revenues.  Also impacting domestic
revenue growth was the expansion of the Company's charter services, which
contributed $18.9 million in revenues in 2000 compared to $2.5 million in
1999 and $2.8 million in 1998.  Average revenue per domestic shipment was
$8.92 in 2000 compared to $8.76 for 1999 and $8.56 for 1998.

    Core product shipment volumes experienced a disappointing .9% decline
in 2000.  The Company's core products include its Overnight Service, Next
Afternoon Service (NAS) and Second Day Service (SDS) excluding
airborne@home shipments.  Airborne@home shipments are classified with
Second Day Service (SDS) volumes for statistical reporting purposes. Higher
yielding Overnight shipments decreased .5% in 2000 compared to flat growth
in 1999 and 7.8% growth in 1998.  The NAS product decreased 3.5% and 3.4%
in 2000 and 1999, respectively and grew 8.2% in 1998.  Core SDS shipment
volumes grew .5%, 2.1% and 2.3% in 2000, 1999 and 1998, respectively.
Overnight shipments accounted for 57.5% of total domestic shipments in 2000
compared to 58.9% in 1999 and 1998.  The deferred NAS and SDS products
comprise the balance of the Company's domestic product mix.

    The Company's new airborne@home product, which was introduced in late
1999, provided virtually all of the Company's shipment growth in 2000 and
totaled 9.0 million shipments in 2000 compared to .3 million shipments in
1999. This service is intended to capture primarily business-to-consumer
shipments from e-commerce and catalog fulfillment providers.  airborne@home
utilizes an arrangement with the U.S. Postal Service to provide final
delivery of the product.

    International revenues increased 3.8% in 2000 with shipments
decreasing 6.8%.  Higher yielding international freight shipments increased
slightly over 2000 while lower yielding international express product
volumes decreased 7.3% due to the loss in early 2000 of a major customer.
International revenues increased 1.4% in 1999 on shipment growth of 9.1%.
In 1998, revenues declined 9.1% on shipment growth of 13.2%. While growth
in the international freight segment was encouraging in the second half of
2000, a shift in mix during the year towards lower margin import business
coupled with overall cost increases from airlines resulted in a
deterioration in margins and international segment profitability.  Lower
international express volumes also contributed to the decline in
profitability.  The international segment contribution to earnings from
operations was a loss of $7.3 million in 2000, compared to earnings of $1.1
million in 1999 and $1.5 million in 1998.

OPERATING EXPENSES are affected by shipment volume, productivity
levels, costs incurred to increase capacity and expand service, fuel price
volatility and discretionary items such as the level of sales and marketing
expenditures.  Operating expenses as a percentage of revenues increased to
98.7% of revenues in 2000 compared to 95.0% in 1999 and 92.4% in 1998.
Measuring cost performance on a per shipment basis, total operating
expenses per shipment increased 6.6% to $9.83, compared to $9.22 in 1999
and $8.80 in 1998. The significantly higher cost of jet fuel was a major
factor impacting operating expenses in 2000. Excluding the cost of jet
fuel, operating cost per shipment rose 4.5% to $9.26 compared to $8.86 in
1999 and $8.45 in 1998. Additionally, productivity, as measured by
shipments handled per paid employee hour declined .9% in 2000, compared to
a decline of 2.5% in 1999 and an improvement of 1.4% in 1998. The Company
continued to manage productivity at levels sufficient to maintain a high
level of overall service integrity with its customers.  A comparison of
operating expense components is discussed below.

    Transportation purchased increased as a percentage of revenues to
31.8% in 2000 as compared to 30.8% in 1999 and 30.7% in 1998.  This
increase was primarily due to higher costs in farmed out pickup and
delivery, international airline and surface line haul as well as fuel
surcharges on these services.  An increase in airborne@home shipment
volumes was also a significant contributor to the increase as this category
includes the U.S. Postal Service delivery costs necessary to support the
new product. Due to the higher than expected volumes of this product during
certain periods of the holiday season, additional and often times more
expensive line hauls were incurred to meet service requirements.

    Station and ground expense as a percentage of revenues was 32.2% in
2000 compared to 31.1% in 1999 and 29.8% in 1998. The increase in this
category as a percentage of revenues in 2000 compared to 1999 was primarily
a result of a decline in productivity, increases in wage related costs to
maintain service, and poor weather in the latter part of 2000.

    Flight operations and maintenance expense as a percentage of revenues
was 18.0% in 2000 compared to 16.4% in 1999 and 15.5% in 1998.  This
category of expense was impacted during 2000 by higher fuel costs.  The
average aviation fuel price, exclusive of fuel hedge settlements was $1.02
per gallon in 2000 compared to $.64 per gallon in 1999 and $.57 per gallon
in 1998. Aviation fuel consumption increased 1.8% to 184.1 million gallons
compared to a .9% decrease in consumption in 1999 over 1998.  Consumption
totals include fuel used to service the Company's expanded charter
operations. Excluding charters, total fuel consumed in 2000 decreased .5%.
The decrease was due to the placing of nine additional 767 aircraft in
service thereby allowing less fuel-efficient DC-8 aircraft to be moved to
shorter lane segments, backup status or charter operations, or removed from
service.  The high cost of fuel through 1999 and 2000 hampered the
Company's efforts to enter into fuel hedging contracts at acceptable price
levels. No fuel contract hedges were outstanding as of either the year
ended December 31, 2000 or 1999.  The Company incurred settlement expense
equivalent to approximately $.01 per gallon in 1999 and $.04 in 1998 as a
result of fuel hedging contracts.

    Effective January 1, 2000 the Company began to expense DC-9 major
engine overhaul costs directly to maintenance expense as costs were
incurred.  Engine overhaul costs charged to expense as incurred in 2000 and
included in flight operations and maintenance were previously accrued in
advance of the next scheduled overhaul and charged to the depreciation and
amortization category.

    General and administrative expense as a percentage of revenues
increased to 7.9% in 2000 compared to 7.6% in 1999 and 8.0% in 1998. The
increase in 2000 was primarily due to wage and compensation cost pressures.

    Sales and marketing costs were 2.5% of revenues in 2000 and 1999 and
2.3% in 1998.  In an effort to improve shipment growth the Company plans on
adding sales personnel in 2001 as well as expanding its marketing efforts.

    Depreciation and amortization expense constituted 6.3% of revenues in
2000 compared to 6.7% in 1999 and 6.0% in 1998. The decrease in expense is
due primarily to the effect of the change in accounting for engine
overhauls discussed above but is offset by an increase in depreciation
associated with the additional 767 aircraft placed in service during 2000
and the later part of 1999.  In 2000, this expense category also includes
an impairment loss of $4.0 million on three DC-8 aircraft which were
removed from service.

INTEREST EXPENSE increased in 2000 compared to 1999, primarily as a
result of the higher level of average outstanding borrowings.  Interest
capitalized in 2000 of $6.8 million was primarily related to the
acquisition and modification of 767 aircraft and compares to capitalized
interest of $4.0 million in 1999 and $5.9 million in 1998.  The Company
anticipates the level of capitalized interest in 2001 to be less than the
amount recorded in 2000 due to fewer 767 aircraft being modified and placed
in service.

OTHER income includes gains on sale and realized income from
securities held, foreign joint venture earnings and costs associated with
accounts receivable securitization transactions.  In 2000, a gain of $1.9
million was recorded on the sale of common stock received in connection
with the demutualization of Metropolitan Life Insurance Company.  The
shares were received since the Company held certain employee benefit
policies with Metropolitan.  In 1999, a gain of $4.6 million was realized
on the sale of 34% of the Company's investment in Equant N.V., an
international data network services company.  The Company acquired its
interest in Equant through its membership in SITA, a cooperative of major
airline companies, which primarily provides data communication services to
the air transport industry.

INCOME TAXES for 2000 resulted in an effective tax rate on earnings
from continuing operations of 38.5% compared to 38.1% in 1999 and 38.0% in
1998.  The higher tax rates in 2000 were primarily due to higher non-
deductible expenses in relation to earnings and higher effective state tax
rates.

The Company is undertaking a number of initiatives targeted to improve
revenue growth and profitability.  In January 2001, the Company announced a
new pricing structure for its domestic services that include a rate
increase, a shift to zone-based pricing, and a non-scheduled pickup fee.
Additionally, a new product, Ground Delivery Service (GDS) is scheduled to
be introduced beginning April 2001.  This product will leverage the
Company's sort and line haul infrastructure and will provide the Company
the ability to offer customers both air and ground services.  Other
initiatives targeted to improve growth include expanded logistics
capabilities, e-commerce and marketing alliances, as well as an expansion
of the Company's sales force.

The strength of the U.S. and global economies will have an impact on
the results of operations in 2001 and beyond.  The consensus forecast of
some experts indicates very slow U.S. economic growth in the first half of
2001, with growth improving somewhat in the second half of the year.
Looking ahead, it is difficult at this point to project a trend for all of
2001 regarding volume growth, but the Company is anticipating modest
shipment growth somewhat commensurate with these forecasts.  The Company's
focus will continue to be on managing yields and cost per shipment to
improve margins, while maintaining the high level of customer service.

FINANCIAL CONDITION:
    CAPITAL EXPENDITURES and financing associated with those expenditures
have been the primary factors affecting the financial condition of the
Company over the last three years. A significant portion of these
expenditures has been related to the acquisition and modification of
aircraft and related flight equipment. Over the past two years the Company
accelerated its program to acquire and deploy Boeing 767 aircraft - which
provide a high level of operating efficiency compared to the DC-8 aircraft.
The Company acquired nine 767 aircraft during 2000. Accordingly, total
capital expenditures net of dispositions increased to $368 million in 2000
compared to $293 million in 1999 and $283 million in 1998. At the end of
2000, there were 120 aircraft in service, consisting of 17 767s, 30 DC-8s
and 73 DC-9s.  In addition, there were two 767 and one DC-9 aircraft in
modification status. Other capital expenditures in 2000 included vehicles
for expansion and replacement, facilities and package handling equipment,
leasehold improvements for new or expanded facilities and computer
equipment.

    The level of planned capital spending for 2001 has been significantly
reduced compared to 2000, primarily as a result of fewer planned aircraft
acquisitions. The Company anticipates 2001 capital expenditures of
approximately $260 million.   This includes aircraft related expenditures
of approximately $111 million, including the acquisition of three
additional 767 aircraft. Also included is an estimated $30 million for
vehicles and facility expansion related to the Ground Delivery Service
program being launched in the second quarter. Other expenditures are
primarily related to facilities and package handling equipment, leasehold
improvements for new or expanded facilities, information systems
development and equipment, and replacement vehicles.

    As the Company places additional 767 aircraft into service over the
next few years, it may continue to remove additional DC-8's from service.
This will depend on factors such as overall capacity requirements and the
availability of placing aircraft for charter operations. At December 31,
2000 there were five DC-8 aircraft removed from service.

    The Company has commitments to acquire a total of 30 767 aircraft
including the 19 aircraft owned and the three aircraft which will be
delivered in 2001.  The remaining 767 aircraft are to be delivered in 2002
and 2003.  Additional 767 commitments may be made depending on capacity
requirements or for operating efficiency purposes.

LIQUIDITY AND CAPITAL RESOURCES:
    A majority of the liquidity for financing capital expenditures in the
past three years came from internally generated cash provided by
operations. Cash provided by operations net of changes in working capital
was approximately $264 million in 2000 compared to $259 million in 1999 and
$345 million in 1998. Additional liquidity of $150 million was provided in
2000 from advances under a receivable securitization facility implemented
in December 2000. Also, the Company's unsecured revolving bank credit
agreement has been used as a source of liquidity for periods between other
financing transactions.

    The Company completed a share repurchase of 1 million shares of common
stock in June 2000 for approximately $20.7 million, which were added to the
Company's treasury stock. The shares were repurchased pursuant to a 4
million stock repurchase program authorized by the Board of Directors in
1998. The Company has no current plans to purchase additional shares under
the remaining repurchase authority.

    In July 2000, the Company replaced its revolving bank credit facility
with a new agreement expiring June 30, 2005. The revolving bank credit is
for a total commitment of $275 million, subject to certain financial
covenants. The Company was in compliance with covenants at December 31,
2000. One of these covenants requires a fixed charge coverage ratio of 2.75
or greater to be maintained on a prior four quarter reporting basis. The
Company's ratio of fixed charge coverage was approximately 2.95 at December
31, 2000. The fixed charge coverage ratio may not be met for the March 31,
2001 reporting date as a result of the decreased level of operating
earnings over recent quarters.  The Company is pursuing strategies to
ensure the borrowing commitment under the bank revolver facility is
maintained. These strategies may include obtaining covenant waivers,
renegotiating terms of the agreement, and reducing amounts outstanding
under the agreement through other financing options available to the
Company.

    The Company also has available $30 million under unsecured,
uncommitted money market lines of credit with two banks, used in
conjunction with the revolving credit agreement to facilitate settlement
and accommodate short-term borrowing fluctuations.

    Reliance on the bank facilities increased during 1999 and 2000 as the
result of the level of capital expenditures exceeding cash provided by
operating activities.  At December 31, 2000, a total of $103.0 million was
owed under the revolving bank credit and money market agreements compared
to $95.0 million outstanding at December 31, 1999.

    In December 2000, the Company completed an agreement for an accounts
receivable securitization facility for $200 million with a term of up to
three years. This facility is accounted for as a sale of assets. Therefore,
the amount outstanding is not reflected as long-term debt on the balance
sheet and is not included in the debt capitalization ratio referred to
below. At December 31, 2000, the Company had $150 million of sales proceeds
drawn and outstanding under the facility.

    The Company's percentage ratio of total long-term debt to total
capitalization was 24.6% at December 31, 2000, compared to 24.7% at
December 31, 1999. Anticipated cash flow from 2001 operations and liquidity
available under the accounts receivable securitization facility should
provide the majority of the liquidity for projected 2001 capital
expenditures. Accordingly, the debt-to-capitalization percentage ratio is
not expected to change significantly during 2001.

    In management's opinion, the available capacity under the accounts
receivable securitization facility and bank credit agreements coupled with
anticipated internally generated cash flow from operations should provide
adequate flexibility for financing growth in 2001.

INFLATION:

    The rate of inflation has been relatively constant over the past
several years, and so has the impact of inflation on the Company's results
of operations and financial condition.  The effects of inflation have been
considered in management's discussion where considered pertinent.

NEW ACCOUNTING PRONOUNCEMENTS:

    In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for
Transfers of Servicing of Financial Assets and Extinguishments of
Liabilities", which revises standards for accounting for securitizations
and other transfers of financial assets and collateral and requires certain
disclosures, but carries over most of the provisions of SFAS No. 125
without reconsideration.  SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001.  SFAS No. 140 is not expected to have a material
effect on the Company's financial position or results of operations.

    In 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value.  SFAS No. 133, as
amended, will be implemented in 2001 and is no expected to have a material
effect on the Company's financial position or results of operations.

FORWARD LOOKING STATEMENTS:
    Statements contained herein and in other parts of this annual report
which are not historical facts are considered forward-looking statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995).  Such statements relating to future events involve risks and
uncertainties which are inherently difficult to predict, including
statements regarding future shipment growth and product acceptance,
capacity requirements, capital expenditure levels and the adequacy of
available financing capacity.  Actual results, however, may vary because of
competitor pricing initiatives, customer demand for time-definite and
deferred services, the ability of management to successfully implement
growth and profitability initiatives, economic and regulatory conditions,
fuel price volatility and labor disputes.

---





The management of Airborne, Inc. has the responsibility for preparing
the accompanying consolidated financial statements of the Company and for
their integrity and objectivity.  The consolidated financial statements
have been prepared by the management of the Company in accordance with
accounting principles generally accepted in the United States of America
using management's best estimates and judgment where necessary.  Financial
information appearing throughout this annual report is consistent with that
in the consolidated financial statements.

    To help fulfill its responsibility, management maintains a system of
internal controls designed to provide reasonable assurance that assets are
safeguarded against loss or unauthorized use and that transactions are
executed in accordance with management's authorizations and are reflected
accurately in the Company's records.  The concept of reasonable assurance
is based on the recognition that the cost of maintaining a system of
internal accounting controls should not exceed benefits expected to be
derived from the system.  The Company believes that its long-standing
emphasis on the highest standards of conduct and ethics set forth in
comprehensive written policies serves to reinforce its system of internal
controls.

    Deloitte & Touche LLP, independent auditors, audited the consolidated
financial statements in accordance with auditing standards generally
accepted in the United States of America to independently assess the fair
presentation of the Company's financial position results of operations and
cash flows.

    The Audit Committee of the Board of Directors, composed entirely of
outside directors, oversees the fulfillment by management of its
responsibilities over financial controls and the preparation of financial
statements.  The Audit Committee meets with the independent auditors during
the year to review audit plans and audit results.  This provides the
auditors direct access to the Board of Directors.

    Management recognizes its responsibility to conduct the business of
Airborne, Inc. in accordance with high ethical standards.  This
responsibility is reflected in key policy statements that, among other
things, address potentially conflicting outside business interests of
Company employees and specify proper conduct of business activities.
Ongoing communications and review programs are designed to help ensure
compliance with these policies.



`/s/ Robert S. Cline                     /s/ Lanny H. Michael
Robert S. Cline                         Lanny H. Michael
Chairman of the Board and               Senior Vice President and
Chief Executive Officer                 Chief Financial Officer`



---



Board of Directors
Airborne, Inc. and subsidiaries
Seattle, Washington

We have audited the accompanying consolidated balance sheets of
Airborne, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of net earnings, cash flows and
shareholders' equity for each of the three years in the period ended
December 31, 2000.  These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards
generally accepted in the United States of America.  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, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of
December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United
States of America.

    As discussed in Note A to the financial statements, the Company
changed its method of accounting for major engine overhaul costs on DC-9
aircraft effective January 1, 2000.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
February 9, 2001
Seattle, Washington

---



|AIRBORNE INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF NET EARNINGS
|------------------------------------------------------------------------
|
|                                                                        
|REVENUES:                                                               
|Domestic                                                                
|International                                                           
|                                                                        
|                                                                        
|OPERATING EXPENSES:                                                     
|Transportation purchased                                                
|Station and ground operations                                           
|Flight operations and maintenance                                       
|General and administrative                                              
|Sales and marketing                                                     
|Depreciation and amortization                                           
|                                                                        
|                                                                        
|                                                                        
|EARNINGS
  FROM OPERATIONS                                              
|OTHER INCOME (EXPENSE):                                                 
|Interest, net                                                           
|Other                                                                   
|                                                                        
|EARNINGS BEFORE
  INCOME TAXES                                          
|INCOME TAXES                                                            
|                                                                        
|NET EARNINGS BEFORE CHANGE IN ACCOUNTING                                
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING                               
|                                                                        
|NET EARNINGS                                                            
|                                                                        
|EARNINGS PER
  SHARE:                                                   
|BASIC-                                                                  
|Before change in accounting                                             
|Cumulative effect of change in accounting                               
|                                                                        
|Earnings per basic share                                                
|                                                                        
|DILUTED-                                                                
|Before change in accounting                                             
|Cumulative effect of change in accounting                               
|                                                                        
|Earnings per diluted share                                              
|                                                                        
|DIVIDENDS PER SHARE                                                     
|                                                                        
|See notes to consolidated financial statements.                         

---



|AIRBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS                                                          
|---------------------------------------------------------------------------------------------------------------------
|
|(In thousands)                                                                                                       
|ASSETS                                                                                                               
|CURRENT ASSETS:                                                                                                      
|Cash                                                                                                                 
|Trade accounts
  receivable, 
        less allowance of $10,290,000 and $9,640,000                                   
|Spare parts and
  fuel inventory                                                                                     
|Refundable income taxes                                                                                              
|Deferred income tax
  assets                                                                                         
|Prepaid expenses and
  other                                                                                         
|                                                                                                                     
|TOTAL CURRENT ASSETS                                                                                                 
|PROPERTY AND EQUIPMENT, NET                                                                                          
|EQUIPMENT DEPOSITS
  AND OTHER ASSETS                                                                                
|                                                                                                                     
|TOTAL ASSETS                                                                                                         
|                                                                                                                     
|LIABILITIES AND
  SHAREHOLDERS' EQUITY                                                                               
|CURRENT LIABILITIES:                                                                                                 
|Accounts payable                                                                                                     
|Salaries, wages and
  related taxes                                                                                  
|Accrued expenses                                                                                                     
|Income taxes
  payable                                                                                               
|Current portion of
  debt                                                                                            
|                                                                                                                     
|TOTAL CURRENT LIABILITIES                                                                                            
|                                                                                                                     
|LONG-TERM DEBT                                                                                                       
|DEFERRED INCOME TAX
  LIABILITIES                                                                                    
|POSTRETIREMENT LIABILITIES                                                                                           
|OTHER LIABILITIES                                                                                                    
|COMMITMENTS AND CONTINGENCIES (Note
  H)                                                                             
|SHAREHOLDERS' EQUITY:                                                                                                
|Preferred Stock,
  without par value - 
        Authorized 5,200,000 shares, no shares issued                        
|Common Stock, par value $1 per share -
        Authorized 120,000,000 shares
        Issued 51,279,651 and 51,176,018
|Additional paid-in capital                                                                                           
|Retained earnings                                                                                                    
|Accumulated other comprehensive income                                                                               
|                                                                                                                     
|                                                                                                                     
|Treasury stock, 3,244,526 and
  2,491,078 shares, at cost                                                            
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|TOTAL LIABILITIES AND
  SHAREHOLDERS' EQUITY                                                                         
|                                                                                                                     
|See notes to consolidated financial statements.                                                                      

---



|AIRBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS                        
|---------------------------------------------------------------------------------------------
|
|                                                                                             
|OPERATING ACTIVITIES:                                                                        
|Net Earnings                                                                                 
|Adjustments to reconcile net
  earnings to
        net cash provided by operating activities:
|Cumulative effect of change in accounting                                                    
|Depreciation and amortization                                                                
|Deferred income taxes                                                                        
|Postretirement obligations                                                                   
|Provision for aircraft engine
  overhauls                                                    
|Other                                                                                        
|                                                                                             
|CASH PROVIDED BY
  OPERATIONS                                                                
|                                                                                             
|Change in:                                                                                   
|Proceeds from receivable securitization facility                                             
|Receivables                                                                                  
|Inventories and prepaid
  expenses                                                           
|Refundable income taxes                                                                      
|Accounts payable                                                                             
|Accrued expenses salaries and
  taxes payable                                                
|                                                                                             
|NET CASH PROVIDED BY
  OPERATING ACTIVITIES                                                  
|                                                                                             
|INVESTING ACTIVITIES:                                                                        
|Additions to property and equipment                                                          
|Dispositions of property and equipment                                                       
|Proceeds from sale of securities                                                             
|Expenditures for engine
  overhauls                                                          
|Other                                                                                        
|                                                                                             
|NET CASH USED BY
  INVESTING ACTIVITIES                                                      
|                                                                                             
|FINANCING ACTIVITIES:                                                                        
|Proceeds (payments) on bank
  notes, net                                                     
|Repurchase of common stock                                                                   
|Principal payments on debt                                                                   
|Proceeds from common
  stock
  issuance                                                      
|Dividends paid                                                                               
|                                                                                             
|NET CASH (USED) PROVIDED
  BY FINANCING ACTIVITIES                                           
|                                                                                             
|NET INCREASE (DECREASE) IN CASH                                                              
|                                                                                             
|CASH AT BEGINNING OF YEAR                                                                    
|                                                                                             
|CASH AT END OF YEAR                                                                          
|                                                                                             
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                          
|Cash paid during
  the year -                                                                
|Interest,
  net of amount capitalized                                                        
|Income
  taxes                                                                               
|Non-cash
  financing activities -                                                            
|Contribution
  of treasury stock to profit sharing plans                                     
|See notes to consolidated financial statements.                                              

---





|AIRBORNE, INC. AND
  SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
|-----------------------------------------------------------------------------------
|
|
|BALANCE at JANUARY 1,1998                                                          
|Comprehensive income:                                                              
|Net earnings                                                                       
|Other comprehensive income, net of
 tax-                                           
|Unrealized
 securities gains                                                       
|Foreign currency
 translation adjustments                                          
|                                                                                   
|Total comprehensive income                                                         
|Common stock dividends paid                                                        
|Repurchase of common stock                                                         
|Exercise of stock options                                                          
|Contribution of treasury stock
     to profit sharing plans                        
|                                                                                   
|BALANCE at DECEMBER 31, 1998                                                       
|Comprehensive income:                                                              
|Net earnings                                                                       
|Other comprehensive income, net of
 tax-                                           
|Unrealized
 securities gains                                                       
|Foreign currency
 translation adjustments                                          
|                                                                                   
|Total comprehensive income                                                         
|Common stock dividends paid                                                        
|Exercise of stock options                                                          
|                                                                                   
|BALANCE at DECEMBER 31, 1999                                                       
|Comprehensive income:                                                              
|Net earnings                                                                       
|Other comprehensive income, net of
 tax-                                           
|Unrealized
 securities losses                                                      
|Foreign currency
 translation adjustments                                          
|                                                                                   
|Total comprehensive income                                                         
|Common stock dividends paid                                                        
|Repurchase of common stock                                                         
|Exercise of stock options                                                          
|Contribution of treasury stock
     to profit sharing plans                        
|                                                                                   
|BALANCE at DECEMBER 31, 2000                                                       
|                                                                                   
|
|See notes to consolidated financial statements.                                    

---





Three Years Ended December 31, 2000

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


REORGANIZATION

    Effective December 26, 2000, the Company reorganized its corporate
structure through the creation of a new holding company, Airborne, Inc.
(the Company).  Pursuant to a reorganization agreement, Airborne Express,
Inc., (formerly Airborne Freight Corporation), ABX Air, Inc., and Sky
Courier, Inc. (formerly Airborne Forwarding Corporation) became wholly-
owned subsidiaries of Airborne, Inc.  Holders of outstanding Airborne
Freight Corporation common shares, $1.00 par value, automatically became
holders of Airborne, Inc. common shares at the same par value.

NATURE OF OPERATIONS

    The Company's revenues are primarily derived from domestic and
international transportation of shipments.  The Company provides door-to-
door express delivery of small packages and documents throughout the United
States and to most foreign countries.  The Company also acts as an
international and domestic freight forwarder for shipments of any size.
Most domestic shipments are transported on the Company's own airline and a
fleet of ground transportation vehicles through its Company-owned airport
and central sorting facilities, or one of nine regional hubs.
International shipments are transported utilizing a combination of the
Company's domestic network, commercial airline lift capacity, and through a
network of offshore Company offices and independent agents.

    As of December 31, 2000, the Company had approximately 10,600
employees (44% of total employees), including approximately 800 pilots,
employed under collective bargaining agreements with various locals of the
International Brotherhood of Teamsters and Warehousemen.  The pilots are
covered by an agreement that becomes amendable on July 31, 2001.  Most
labor agreements covering the Company's ground personnel expire in either
2003 or 2004.  The Company has not experienced any significant disruptions
from labor disputes in the past.

PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries.  Intercompany balances and
transactions are eliminated in consolidation.

USE OF ESTIMATES

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect amounts reported
in the consolidated financial statements.  Changes in these estimates and
assumptions may have a material impact on the financial statements.

CASH

    The Company has a cash management system under which a cash overdraft
exists for uncleared checks in the Company's primary disbursement accounts.
The cash amount in the accompanying financial statements represents
balances in other accounts prior to being transferred to the primary
disbursement accounts.  Uncleared checks of $51,738,000 and $43,246,000 are
included in accounts payable at December 31, 2000 and 1999, respectively.

SPARE PARTS AND FUEL INVENTORY

    Spare parts are stated at average cost and fuel inventory is stated at
cost on a first-in, first-out basis.

PROPERTY AND EQUIPMENT

    Property and equipment is stated at cost.  The cost and accumulated
depreciation of property and equipment disposed of are removed from the
accounts with any related gain or loss reflected in earnings from
operations.

For financial reporting purposes, depreciation of property and
equipment is provided on a straight-line basis over the asset's useful life
or lease term as follows:

`Flight equipment                                    5 to 18 years
Buildings, runways, and leasehold improvements      5 to 40 years
Package handling and ground support equipment       3 to 10 years
Vehicles and other equipment                        3 to  8 years`

DC-8 and DC-9 aircraft generally carry residual values of 10% and 15%
of asset cost, respectively.  All other property and equipment have no
assigned residual values.

    As of December 31, 2000, residual values on three DC-8 aircraft that
were removed from service were adjusted to fair value in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of".  During 2000, an impairment loss of $3,956,000
was recorded and included in depreciation and amortization expense in the
consolidated statements of net earnings. The fair values of the aircraft
were adjusted to their estimated parts value.  The fair value approximated
net book value on two additional DC-8 aircraft which had been removed from
service as of December 31, 2000.

    Major engine overhauls as well as ordinary engine maintenance and
repairs for DC-8 and 767 aircraft are performed by third-party service
providers under long-term contracts.  Service costs under the contracts are
based upon hourly rates for engine usage and are charged to expense in the
period utilization occurs. Beginning in 2000, major engine overhauls for DC-
9 aircraft are expensed as incurred.  As discussed in "Change in
Accounting" below, prior to 2000 the Company provided accruals for costs in
advance of the next scheduled overhaul.  The provision for engine overhauls
was included in depreciation and amortization expense in prior years.

CAPITALIZED INTEREST

    Interest incurred during the construction period of certain facilities
and on aircraft purchase and modification costs is capitalized until the
date the asset is placed in service as an additional cost of the asset.
Capitalized interest was $6,770,000, $3,969,000 and $5,850,000 for 2000,
1999 and 1998, respectively.

INCOME TAXES

    The Company uses the asset and liability method of accounting for
income taxes.  Deferred income taxes are provided for temporary differences
between the timing of reporting certain revenues and expenses for financial
versus tax purposes.  Deferred taxes are measured using provisions of
currently enacted tax laws.  Tax credits are accounted for as a reduction
of income taxes in the year in which the credit originates.

FUEL CONTRACTS

    The Company has, in the past, utilized fuel contract hedges with
financial institutions to limit its exposure to volatility in jet fuel
prices.  Under terms of the contracts, the Company either made or received
payments if the market price of heating oil, as determined by an index of
the monthly NYMEX Heating Oil futures contracts, was lower than or exceeded
certain prices agreed to between the Company and the financial
institutions.  Settlements were made in cash and recorded in the period of
settlement as either an increase or decrease to fuel expense.

    The Company had no fuel contract hedges outstanding at December 31,
2000.  There were no settlement payments made on fuel contract hedges
during 2000.  Settlement payments of $1,886,000 and $7,915,000 were made
during 1999 and 1998, respectively. The Company may enter into fuel
contract hedges in future periods depending on pricing and market
conditions.

    The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities".  As amended
by SFAS No. 137, this statement will be effective for fiscal year 2001.
SFAS No. 138, an additional amendment, and SFAS No. 133 require an entity
to recognize all derivatives as either assets or liabilities in the
consolidated balance sheets and measure those instruments at fair value.

    Under the cash flow hedge provisions of SFAS Nos. 133 and 138, the
Company will be required to record all outstanding fuel contracts at fair
value, with corresponding changes in fair value recorded as a component of
Other Comprehensive Income if the hedges are determined to be effective.
Upon implementation in 2001, the Company does not anticipate the provisions
of SFAS Nos. 133 and 138 will have a material effect on its financial
condition or results of operations.

COMPREHENSIVE INCOME

    Comprehensive income includes net income and other comprehensive
income which includes changes in equity arising during the period from
holding investments in marketable securities and foreign joint ventures.

REVENUE RECOGNITION

    Domestic revenues and most domestic operating expenses are recognized
when shipments are picked up from the customer.  International revenues and
direct air carrier expenses are recognized in the period when shipments are
tendered to a carrier for transport to a foreign destination.  Domestic and
international delivery costs are recognized in the period incurred.  The
net revenue resulting from existing recognition policies does not
materially differ from that which would be recognized on a delivery date
basis.

CHANGE IN ACCOUNTING

    Effective January 1, 2000, the Company changed its method of
accounting for major engine overhaul costs on DC-9 aircraft from the
accrual method to the direct expense method where costs are expensed as
incurred.  Previously, these costs were accrued in advance of the next
scheduled overhaul based upon engine usage and estimates of overhaul costs.
The Company believes that this new method is preferable because it is more
consistent with industry practice and appropriate given the relatively
large size of its DC-9 fleet.

    The cumulative effect of this change in accounting resulted in a non-
cash credit in 2000 of $14,206,000 net of taxes, or $.29 per diluted share.
Excluding the cumulative effect, this change increased net earnings for
2000 by approximately $3,687,000, net of tax or $.08 per diluted share.  If
the accounting change had been retroactively applied, net earnings and
earnings per diluted share would have been as follows (in thousands except
per share data):

`Year Ended December 31                                1999         1998
                                                      ----         ----
As reported:
     Net Earnings                                   $91,201     $ 137,285
     Earnings per diluted share                     $  1.85     $    2.72

Proforma:
     Net Earnings                                   $94,828     $ 135,819
     Earnings per diluted share                     $  1.92     $    2.69`

RECLASSIFICATIONS

    Certain amounts for prior years have been reclassified in the
consolidated financial statements to conform to the classification used in
2000.

NOTE B - FAIR VALUE INFORMATION


The carrying amounts and related fair values of the Company's financial
instruments are as follows (in thousands):

`December 31                             2000                  1999
-----------                             ----                  ----
                                Carrying       Fair   Carrying       Fair
                                  Amount      Value     Amount      Value
                                  ------      -----     ------      -----
Marketable securities           $ 18,747   $ 18,747   $ 19,619   $ 19,619
Long-term debt                   322,707    306,078    315,149    314,804`

Marketable securities consist primarily of commingled investment funds
that may be used for funding non-qualified pension plan obligations.  These
securities are considered available-for-sale securities for financial
reporting purposes and are classified with equipment deposits and other
assets on the consolidated balance sheets.  Fair value for these
investments is based on quoted market prices for the securities underlying
the investment funds or the same securities.  Unrealized losses on these
securities, which are included in other comprehensive income, were
$1,248,000 for 2000.  Unrealized gains on these securities were $47,000 and
$1,540,000 for 1999 and 1998, respectively.  Realized gains recognized in
2000, 1999 and 1998 were $1,117,000, $1,268,000 and $1,531,000,
respectively.

    Discussion regarding the fair value of the Company's long-term debt
and fuel contracts is disclosed in the respective notes to the consolidated
financial statements.  Carrying amounts for cash, trade accounts receivable
and current liabilities approximate fair value.

NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):

`December 31                                            2000         1999
                                                       ----         ----
Retained interest in securitized accounts
receivable:
     Securitized trade accounts receivable          $340,838     $      -
Less: Proceeds from sale of undivided interest in
receivables                                         (150,000)           -
Less: Allowance for doubtful accounts                 (8,610)           -
                                                    --------     --------
     Retained interest in securitized accounts
receivable, net                                      182,228            -

Other accounts receivable:
     Other trade accounts receivable                  38,137      348,684
Less: Allowance for doubtful accounts                 (1,680)      (9,640)
                                                    --------     --------
Other trade accounts receivable, net                  36,457      339,044
                                                    --------     --------
Accounts receivable on consolidated balance sheets  $218,685     $339,044`

The Company entered into an agreement with a financial institution in
December 2000 to finance the sale, on a continuous basis, of an undivided
interest in all eligible U.S. trade accounts receivables through an
accounts receivable securitization facility.  This financing agreement is
accounted for as a sale of assets under the provisions of SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities".

    To facilitate the sales, the Company formed Airborne Credit, Inc.
("ACI"), a wholly-owned, special purpose, bankruptcy remote subsidiary
consolidated by the Company.  The Company transfers substantially all of
its U.S. trade account receivables to ACI, who's sole purpose, in turn, is
to sell an undivided interest in the receivables to an unrelated third
party and receive proceeds of up to $200,000,000.  The facility has a
committed term of three years, subject to annual renewal of a separate
liquidity facility.  The Company retains the servicing of the receivables
transferred to ACI.

    To the extent that customers default on the receivables, losses will
first reduce the Company's retained interest in the receivables prior to
reducing the interests sold through the facility.  Any increase in actual
defaults above the recorded amount of allowance for doubtful accounts would
decrease the value of the Company's retained interest.

    Upon the sale of the undivided interest in the receivables, the
Company incurs a liability to fund the purchaser's costs of financing the
proceeds. This liability is recorded at the time of sale and is estimated
based on projected financing costs over the projected life of the
receivable interests sold. Discounts associated with the sale of
receivables, primarily related to recording the obligation to fund the
purchaser's costs, were $96,000 for 2000 and are included in other expense
in the consolidated statements of net earnings.  The Company does not
believe any difference between the projected and actual financing costs
would have a material effect on the financial condition or results of
operations.

    In September 2000, the Financial Accounting Standards Board issued
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities", which revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures but carries over most of the
provisions of SFAS No. 125 without reconsideration.  SFAS No. 140 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001.  SFAS No.
140 is not expected to have a material effect on the Company's financial
position or its results of operations.



NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):

`December 31                                           2000         1999
-----------                                           ----         ----
Flight equipment                                   $1,871,137   $1,584,089
Land, buildings and leasehold improvements            269,723      246,004
Package handling and ground support equipment         200,796      175,081
Vehicles and other equipment                          278,585      268,161
                                                   ----------   ----------
                                                    2,620,241    2,273,335
Accumulated depreciation and amortization          (1,305,483)  (1,157,623)
                                                   ----------   ----------
                                                   $1,314,758   $1,115,712
                                                   ==========   ==========`

NOTE E - ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):

`December 31                                           2000         1999
-----------                                           ----         ----
Insurance                                          $40,556      $28,377
Unearned revenues                                   17,176       15,781
Property and other taxes                             9,725        8,815
Other retirement plans                               7,000        3,584
Interest                                             2,738        2,762
Profit sharing retirement plan                         380       10,747
Aircraft lease payments                                  -        2,796
Other                                                5,943        5,893
                                                   -------      -------
                                                   $83,518      $78,755
                                                   =======      =======`

NOTE F - INCOME TAXES

Deferred income tax assets and liabilities consist of the following
(in thousands):

`December 31                                           2000         1999
-----------                                           ----         ----
Employee benefits                                  $ 13,715     $ 19,025
Insurance                                            12,733        9,466
Bad debts, sales reserves and other                   2,391        3,459
                                                   --------     --------
Current net deferred income tax assets               28,839       31,950
                                                   --------     --------
Depreciation                                        146,677      122,974
Employee benefits                                   (17,062)     (10,033)
Insurance                                           (12,874)     (11,788)
Capitalized systems development                       3,671            -
Aircraft engine overhaul accrual                          -       (6,163)
Other                                                 5,032        4,179
                                                   --------     --------
Noncurrent net deferred income tax liabilities      125,444       99,169
                                                   --------     --------
Net deferred income tax liabilities                $ 96,605     $ 67,219
                                                   ========     ========

Income taxes consist of the following (in thousands):

Year Ended December 31                    2000        1999         1998
----------------------                    ----        ----         ----
Current:
   Federal                              $(11,785)    $44,215      $66,372
   State                                    (210)      4,920        7,800
   Foreign                                   256         163          590
                                         -------     -------      -------
                                         (11,739)     49,298       74,762
Deferred:
   Depreciation                           23,702      13,845       11,425
   Aircraft engine overhaul accrual        6,163        (637)       2,180
   Capitalized systems development         3,671           -            -
   Alternative Minimum Tax credit           (639)          -       11,761
   Employee benefits                      (1,684)     (7,230)      (6,240)
   Insurance accruals                     (4,352)     (1,794)      (2,178)
   Cumulative effect of change in
    accounting principle                  (8,707)          -            -
   Union pension benefits                      -           -       (8,225)
   Other                                   2,525       2,705          815
                                         -------     -------      -------
                                          20,679       6,889        9,538
                                         -------     -------      -------
                                         $ 8,940     $56,187      $84,300
                                         =======     =======      =======

     The income tax rate on earnings from continuing operations differed
from the Federal statutory rate as follows:

Year Ended December 31                     2000        1999        1998
----------------------                     ----        ----        ----
Taxes computed at statutory rate of 35%    35.0%       35.0%       35.0%
State and foreign income taxes,
    net of Federal benefit                  3.0%        2.2%        2.3%
Tax effect of nondeductible expenses        6.7%        1.1%        0.7%
Tax credits                                (3.5%)         -           -
Other                                      (2.7%)      (0.2%)         -
                                         -------     -------     -------
                                           38.5%       38.1%       38.0%
                                         =======     =======     =======`

NOTE G - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):

`December 31                                            2000         1999
-----------                                            ----         ----
Revolving credit notes payable to banks, effective
rate of 7.42% as of December 31, 2000              $ 75,000     $ 95,000
Money market lines of credit                         28,000           --
Senior notes, 8.875%, due December, 2002            100,000      100,000
Senior notes, 7.35%, due September, 2005            100,000      100,000
Refunding revenue bonds, effective rate of 4.95% as
of December 31, 2000, due June 2011                  13,200       13,200
Other                                                 6,507        6,949
                                                   --------     --------
                                                    322,707      315,149
  Less current portion                                  477          442
                                                   --------     --------
                                                   $322,230     $314,707
                                                   ========     ========`

The Company has a revolving bank credit agreement providing for a
total commitment of $275,000,000.  The agreement expires June 30, 2005.
Interest rates for borrowings outstanding are generally determined by
maturities selected and prevailing market conditions.  The Company was in
compliance with covenants of the revolving credit agreement during 2000,
1999 and 1998, including net worth restrictions that limit the payment of
dividends ($142,173,000 of retained earnings was not restricted at
December 31, 2000).  One of the covenants requires a fixed charge coverage
ratio of 2.75 or greater to be maintained on a prior four quarter reporting
basis.  The Company's ratio of fixed charge coverage was approximately 2.95
at December 31, 2000.  The fixed charge coverage ratio may not be met for
the March 31, 2001 reporting date as a result of the decreased level of
operating earnings over recent quarters.  The Company is pursuing
strategies to ensure the borrowing commitment under the bank revolver
facility is maintained.  These strategies may include obtaining covenant
waivers, renegotiating terms of the agreement, and reducing amounts
outstanding under the agreement through other financing options available
to the Company.

    The Company has available $30,000,000 of financing under uncommitted
money market lines of credit with several banks.  These facilities bear
interest at rates that vary with the banks' cost of funds and are typically
less than the prevailing bank prime rate.  The average interest rate on
these borrowings was 7.05% for 2000.  These credit lines are used in
conjunction with the revolving credit agreement to facilitate settlement
and accommodate short-term borrowing fluctuations.

    The Company classified the borrowings outstanding under the money
market lines of credit as long-term as of December 31, 2000.  The Company
had the intent and ability at that date to refinance these borrowings under
the revolving credit agreement.

    The Company's tax-exempt airport facilities refunding bonds carry no
sinking fund requirements and bear interest at weekly adjustable rates.
The average interest rate on these borrowings was 4.2% during 2000.
Payment of principal and interest is secured by an irrevocable bank letter
of credit that is collateralized by a mortgage on certain airport
properties which had a net carrying value of $46,343,000 at December 31,
2000.

    The scheduled annual principal payments on long-term debt for the next
five years are $477,000, $100,513,000, $553,000, $596,000 and $203,643,000
for 2001 through 2005, respectively.

    The fair value information shown in Note B reflects values for the
Company's senior notes based on quoted market prices for the same issues.
The carrying value of the Company's remaining long-term financial debt
instruments approximates fair value primarily because of the repricing
frequency of the instruments.

NOTE H - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES

    The Company is obligated under various long-term operating lease
agreements for certain equipment and for a substantial portion of its
facilities.  These leases expire at various dates through 2016.  Rental
expense for 2000, 1999 and 1998 was $95,559,000, $98,416,000 and
$104,816,000, respectively.

Rental commitments under long-term operating leases at
December 31, 2000 total $415,936,000 and are payable as follows (in
thousands):

`Facilities    Equipment
                                                   ----------    ---------
2001                                                 $ 76,350       $3,167
2002                                                   73,395        2,932
2003                                                   61,176        1,785
2004                                                   51,304          613
2005                                                   38,139           31
2006 and beyond                                       107,044            -`

COMMITMENTS

    The Company has entered into firm agreements to purchase 11 used
Boeing 767s and related freighter conversion kits at various dates through
2003. At December 31, 2000, cash deposits of $2,743,000 had been made
toward these purchases. Additional deposits and payments for all aircraft
acquisitions will approximate $67,321,000, $85,243,000 and $75,400,000 for
2001 through 2003, respectively.  There are currently no aircraft related
commitments extending beyond 2003.

CONTINGENCIES

    In the normal course of business, the Company has various legal claims
and other contingent matters outstanding.  Management believes that any
ultimate liability arising from these actions would not have a material
adverse effect on the Company's financial condition or results of
operations as of and for the year ended December 31, 2000.

NOTE I - PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

    The Company sponsors defined benefit and defined contribution pension
plans and postretirement healthcare plans.  These plans are generally
provided to employees who are not covered by multi-employer plans to which
the Company contributes under terms of various collective bargaining
agreements.

Information regarding the Company's qualified defined benefit pension
plans and postretirement healthcare plans is as follows (in thousands):

`Postretirement
                                             Pension Plans         Healthcare Plans
                                             -------------         ----------------
Year Ended December 31                      2000        1999        2000       1999
----------------------                      ----        ----        ----       ----
Reconciliation of benefit obligation:
   Obligation as of January 1            $ 111,902    $111,635   $  8,374   $ 9,234
   Service cost                             17,309      11,218        948       935
   Interest cost                            13,379       7,578        700       540
   Benefits paid                            (1,495)       (999)      (293)     (246)
   Actuarial gain (loss)                    26,755     (17,762)     1,286    (2,089)
   Plan transfers                                -         232          -         -
   Plan amendments                          52,755           -        110         -
                                         ---------    --------   --------   -------
   Obligation as of December 31          $ 220,605    $111,902   $ 11,125   $ 8,374
                                         =========    ========   ========   =======
Reconciliation of fair value of plan
assets:
   Plan assets as of January 1           $  94,511    $ 78,237   $      -   $     -
   Actual return on plan assets             (1,353)     13,309          -         -
   Employer contributions                   10,904       3,732        293       246
   Benefits paid                            (1,495)       (999)      (293)     (246)
   Plan transfers                                -         232          -         -
                                         ---------    --------   --------   -------
   Plan assets as of December 31         $ 102,567    $ 94,511   $      -   $     -
                                         =========    ========   ========   =======
Funded status:
   Funded status as of December 31       $(118,038)   $(17,391)  $(11,125)  $(8,374)
   Unrecognized prior service cost (income) 46,522      (1,625)      (438)     (668)
   Unrecognized net actuarial loss (gain)   28,691      (7,153)     1,279        28
   Unrecognized transition amount                -          30          -         -
                                         ---------     --------  --------   -------
   Accrued benefit liabilities           $ (42,825)   $(26,139)  $(10,284)  $(9,014)
                                         =========     ========  ========   =======`

Accrued expenses on the consolidated balance sheets include accrued
qualified defined benefit pension plan liabilities of $7,000,000 and
$3,584,000 as of December 31, 2000 and 1999, respectively.  Long-term
postretirement liabilities include postretirement healthcare and remaining
qualified defined benefit pension plan liabilities of $46,109,000 and
$31,569,000 as of December 31, 2000 and 1999, respectively, which do not
require funding in the next year.

Net periodic benefit cost consists of the following components (in thousands):

`Postretirement
                                            Pension Plans                Healthcare Plans
                                            -------------                ----------------
Year Ended December 31               2000       1999       1998       2000      1999      1998
----------------------               ----       ----       ----       ----      ----      ----
Service cost                      $17,309    $11,218    $ 9,775    $   948   $   935   $   954
Interest cost                      13,379      7,578      6,403        700       540       529
Expected return on plan assets     (7,926)    (6,390)    (5,363)        --        --        --
Net amortization and deferral       4,828      1,115      1,584       (101)      (73)       29
                                  -------    -------    -------    -------   -------   -------
   Net periodic benefit cost      $27,590    $13,521    $12,399    $ 1,547   $ 1,402   $ 1,512
                                  =======    =======    =======    =======   =======   =======`

Assumptions used in determining pension and postretirement healthcare
obligations were as follows:

`Postretirement
                                                  Pension Plans             Healthcare Plans
                                                  -------------             ----------------
                                            2000      1999      1998     2000     1999     1998
                                            ----      ----      ----     ----     ----     ----
Discount rate                               7.25%     7.75%     6.75%    7.25%    7.75%   6.75%
Expected return on plan assets              8.00%     8.00%     8.00%      --       --       --
Rate of compensation increase (pilots)      6.50%     6.50%     6.50%      --       --       --
Rate of compensation increase (non-pilots)  5.00%     5.00%     5.00%      --       --       --`

Effective January 1, 2000, the Company amended its qualified
retirement plans that cover substantially all employees not covered under
collective bargaining agreements.  Retirement income has historically been
provided to employees through the coordination of benefits accumulated and
funded through a defined benefit plan and a defined contribution profit
sharing plan.  Generally, benefit levels calculated under defined benefit
plan formulas are offset by amounts contributed and earned in an employee's
profit sharing account.  The amendments adopted in 2000 provided for an
increase in retirement income levels provided under the defined benefit
plan through formula changes that increased the percentage applied to an
employee's salary to determine the level of retirement benefit and removed
provisions that limited the maximum years of allowable service credit.
These changes are effective for past and future years of accumulated
service with the Company.  Additionally, the Company amended its defined
contribution profit sharing plan to discontinue future contributions to
employee's accounts.  Previous contributions and earnings accumulated under
the profit sharing plan prior to the amendments as well as future account
earnings will continue to be coordinated with benefits accrued under the
defined benefit plan.

    The effect of the amendments is to increase pension expense and
projected benefit obligations provided under the defined benefit plans and
discontinue contributions to the profit sharing plan, other than for the
Company's pilots.  The Company's funding policy provides for annual
contributions to pension trusts at least equal to amounts required by
ERISA.

    The Company's qualified defined benefit pension plans had aggregate
accumulated benefit obligations of $106,863,000 compared to plan assets of
$102,567,000.  All qualified defined benefit plans had plan assets in
excess of accumulated benefit obligations as of December 31, 1999.

    The Company also sponsors several non-qualified defined benefit
pension plans.  The accumulated benefit obligation of these plans was
$18,379,000 and $13,811,000 as of December 31, 2000 and 1999, respectively.
Postretirement liabilities include accruals relating to these plans of
$16,039,000 and $14,611,000 as of December 31, 2000 and 1999, respectively.
The Company has invested in certain commingled investment funds that may be
used for funding non-qualified pension plan obligations.

    The assumed healthcare cost trend rate used in measuring
postretirement healthcare benefit costs was 8.5% for 2000, decreasing each
year to a 5.5% annual growth rate in 2003 and thereafter.  A 1% increase or
decrease in the assumed healthcare cost trend rate for each year would not
have a material effect on the accumulated postretirement benefit obligation
or cost as of or for the year ended December 31, 2000. Postretirement
healthcare plan obligations have not been funded.

    The Company maintains defined contribution capital accumulation and
profit sharing plans.  Capital accumulation plans (401K) are funded by both
voluntary employee salary deferrals of up to 16% of annual compensation and
by employer matching contributions on employee salary deferrals of up to 6%
of annual compensation.  In connection with the amendments to the Company's
qualified defined benefit retirement plans, except for the pilots, accruals
for contributions to the profit sharing plans were discontinued beginning
in 2000.  Prior to 2000, a basic formula had been followed for
contributions of 7% of earnings before taxes up to a specific profit level
plus 14% of earnings in excess of that level.  The profit sharing plans
hold 1,166,725 shares of the Company's common stock at December 31, 2000,
representing 2% of outstanding shares.  Expense for these plans is as
follows (in thousands):

`Year Ended December 31               2000       1999       1998
----------------------               ----       ----       ----
Capital accumulation plans         $ 7,970    $ 8,009    $ 7,375
Profit sharing plans                   380     10,747     20,407
                                   -------    -------    -------
   Defined contribution plans      $ 8,350    $18,756    $27,782
                                   =======    =======    =======`

The Company contributes to multi-employer defined benefit pension
plans and health and welfare plans for substantially all employees covered
under collective bargaining agreements. Expense for these plans is as
follows (in thousands):

`Year Ended December 31                           2000       1999      1998
----------------------                           ----       ----      ----
Multi-employer defined benefit pension plans  $45,668    $41,062   $37,309
Multi-employer health and welfare plans        49,113     44,415    41,473
                                              -------    -------   -------
Multi-employer plans                          $94,781    $85,477   $78,782
                                              =======    =======   =======`

NOTE J - STOCK OPTIONS

    The Company has three shareholder approved stock option plans.  Two of
these plans, approved by the shareholders in 1994 and 1998 (the "1994 Plan"
and "1998 Plan"), reserve shares of the Company's common stock for issuance
to officers and key employees.  Options granted under the 1994 Plan vest
over a three year period.  Options granted under the 1998 Plan include
options which vest over a four year period and performance options issued
to the Company's executive officers which vest upon attainment of specified
market price targets of the Company's common stock.  A third plan, the 2000
Directors' Stock Option Plan, provides for annual grants to the Company's
non-employee directors of 2,000 shares that vest fully on the date of
grant.  Options granted under these three plans are issued at the fair
market value of the Company's stock on the date of grant.  A total of
7,707,250 shares may be granted under these plans.  There were 4,086,575
shares available for future grants as of December 31, 2000.

A summary of the Company's stock option activity and related information
is as follows:

`Year Ended December 31               2000         1999        1998
----------------------               ----         ----        ----
Outstanding at beginning of year 2,819,847   2,516,417   2,189,014
Granted                            746,200     738,410     766,280
Exercised                         (116,485)   (411,100)   (423,697)
Canceled                          (117,245)    (23,880)    (15,180)
                                 ---------   ---------   ---------
Outstanding at end of year       3,332,317   2,819,847   2,516,417
                                 =========   =========   =========
Exercisable at end of year       1,977,390   1,428,574   1,297,300
                                 =========   =========   =========

Weighted average option price information is as follows:

Year Ended December 31              2000        1999        1998
----------------------              ----        ----        ----
Outstanding at beginning of year  $25.35      $19.38      $12.22
Granted                            18.94       38.13       34.90
Exercised                          10.74       11.21       10.44
Canceled                           25.07       35.30       20.07
Outstanding at end of year         24.44       25.35       19.38
Exercisable at end of year         21.65       17.31       14.54`

Information related to the number of options outstanding, weighted
average price per share and remaining life of significant option groups
outstanding at December 31, 2000 is as follows:

`Outstanding                     Exercisable
              ----------------------------    ----------------------------
                                    Life                            Life
 Price Range   Number     Price   in Years     Number     Price   in Years
 -----------   ------     -----   --------     ------     -----   --------
$11.06-$11.56   345,572  $11.37     2.7         345,572  $11.37     2.7
$13.00-$18.94 1,573,967   16.40     6.8         941,917   14.70     5.3
$31.06-$38.13 1,412,778   36.58     7.5         689,901   36.28     7.4`

The Company has elected to follow APB Opinion No. 25 in accounting for
its stock option plans. No compensation expense was recorded in 2000 or
1999. In 1998, compensation expense of $1,198,000 was recognized upon
attainment of market price targets as specified under the grant provisions
of the performance options.  Had expense been measured under the fair value
provisions of SFAS No. 123, the Company's net earnings and earnings per
diluted share for 2000, 1999 and 1998 would have been reduced to the pro
forma amounts as follows (in thousands except per share data):

`Year Ended December 31                            2000      1999      1998
----------------------                            ----      ----      ----
Net Earnings:
     As reported                               $ 28,492  $ 91,201   $137,285
     Pro forma                                   23,124    85,510    134,230

Earnings Per Diluted Share:
     As reported                               $    .59  $   1.85   $   2.72
     Pro forma                                      .48      1.74       2.65`

The weighted average fair value for options granted in 2000, 1999 and
1998 computed utilizing the Black-Scholes option-pricing model, was $10.61,
$17.21 and $16.83 respectively. Significant assumptions used in the
estimation of fair value and compensation expense are as follows:

`Year Ended December 31                  2000         1999         1998
----------------------                  ----         ----         ----
Weighted expected life (years)           9.6          6.2          7.4
Weighted risk-free interest rate         6.6%         4.8%         5.5%
Weighted volatility                     41.0%        41.0%        38.8%
Dividend yield                           0.9%         0.4%         0.5%`

NOTE K - EARNINGS PER SHARE

Net earnings from continuing operations and average shares used in basic
and diluted earnings per share calculations were as follows (in thousands
except per share data):

`Year Ended December 31                   2000         1999         1998
----------------------                   ----         ----         ----
NET EARNINGS:
Net earnings from continuing
operations before cumulative effect
of change in accounting principle    $ 14,286     $ 91,201     $137,285
                                     ========     ========     ========
SHARES:
   Basic weighted average shares
   outstanding                         48,396       48,596       49,620
      Stock options                       251          673          941
                                     --------     --------     --------
   Diluted weighted average shares
   outstanding                         48,647       49,269       50,561
                                     ========     ========     ========
EARNINGS PER SHARE:
   Basic                             $    .30     $   1.88     $   2.77
   Diluted                                .30         1.85         2.72
                                     ========     ========     ========`

The above calculations of earnings per diluted share for 2000, 1999
and 1998 exclude 2,130,740, 1,361,000 and 528,000, respectively, of common
shares issuable under stock option plans because the options' exercise
price was greater than the average market price of the common shares.

NOTE L - SEGMENT INFORMATION

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

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

`Domestic    International      Total
                                     --------    -------------      -----
2000
----
Revenues                           $2,895,818     $  380,132     $3,275,950
Depreciation and amortization         204,913          1,493        206,406
Segment earnings from operations       49,915         (7,297)        42,618
Segment assets                      1,661,075         84,844      1,745,919
Expenditures for property
   and equipment                      370,317          2,258        372,575

1999
----
Revenues                           $2,772,782     $  366,342     $3,139,124
Depreciation and amortization         207,902          1,488        209,390
Segment earnings from operations      156,637          1,084        157,721
Segment assets                      1,569,367         73,883      1,643,250
Expenditures for property
   and equipment                      292,130          2,189        294,319

1998
----
Revenues                           $2,712,344     $  361,440     $3,073,784
Depreciation and amortization         183,147          1,379        184,526
Segment earnings from operations      230,831          1,501        232,332
Segment assets                      1,428,956         72,621      1,501,577
Expenditures for property
   and equipment                      281,571          3,910        285,481`

International operations are supported in the United States by pickup
and delivery, customer service and airline capabilities provided by the
domestic segment.  Management allocates these costs, generally on a per
shipment basis, to the international segment.

    Management considers interest expense, other income and income taxes
as corporate items and, accordingly, does not allocate these amounts to the
operating segments.  The accounting policies of the segments are the same
as those described in the summary of significant accounting policies.

    A substantial portion of international revenue is associated with
shipments originating within the United States ($211,835,000 in 2000,
$234,087,000 in 1999 and $256,259,000 in 1998).  Long lived assets located
within the United States and associated with the international segment were
$6,382,000, $6,792,000 and $6,274,000 as of December 31, 2000, 1999 and
1998, respectively.

NOTE M - GAIN ON SALE OF SECURITIES

    In June 2000, a gain of $1,912,000 was recorded from the sale of
common shares of Metropolitan Life Insurance Company ("Metropolitan").  As
a policyholder for certain employee benefit programs, these shares were
allocated to the Company and sold in connection with the demutualization of
Metropolitan.  The gain was recorded in other income on the consolidated
statements of net earnings.

    The Company is a participating member of SITA, a cooperative of major
airline companies, which primarily provides data communication services to
the air transport industry. Through this membership the Company holds
depository certificates in The SITA Foundation ("Foundation") whose
principal asset is an equity interest in Equant, N.V. ("Equant"), an
international data network services company whose stock is traded publicly
on the New York Stock Exchange under the symbol ENT.  In December 1999, the
Foundation sold a portion of its interest in Equant through a public
offering and distributed proceeds pro rata to the certificate holders that
elected to participate in the offering.  As part of this sale, the Company
sold 34% of its interest in Equant and recognized a pre-tax gain of
approximately $4,600,000 that was included in other income on the
consolidated statements of net earnings.

    The Company has remaining restricted depository certificates in the
Foundation that may, in the future, become convertible into 103,351 shares
of Equant.  As convertibility is contingent on future share offerings by
the Foundation, no amount has been recorded on the consolidated balance
sheets as of December 31, 2000 and 1999.  The Company has no cost basis in
the depository certificates, although the converted fair value of the
remaining certificates was approximately $2,700,000 and $11,600,000 at
December 31, 2000 and 1999, respectively.

NOTE N - OTHER COMPREHENSIVE INCOME

Other comprehensive income includes the following transactions and tax
effects for the years ended December 31, 2000, 1999 and 1998, respectively
(in thousands):

`Income Tax
                                            Before    (Expense)    Net of
                                             Tax     or Benefit     Tax
                                            -------   --------     ------
2000
----
Unrealized securities losses arising
   during the period                       $  (132)    $    50    $   (82)
Less: Reclassification adjustment for
   gains realized in net income             (1,117)        430       (687)
                                           -------     -------    -------
Net unrealized securities losses            (1,249)        480       (769)
Foreign currency translation adjustments      (465)        180       (285)
                                           -------     -------    -------
Other comprehensive income                 $(1,714)    $   660    $(1,054)
                                           =======     =======    =======
1999
----
Unrealized securities gains arising
   during the period                       $ 1,315     $  (506)   $   809
Less: Reclassification adjustment for
   gains realized in net income             (1,268)        488       (780)
                                           -------     -------    -------
Net unrealized securities gains                 47         (18)        29
Foreign currency translation adjustments       200         (77)       123
                                           -------     -------    -------
Other comprehensive income                 $   247     $   (95)   $   152
                                           =======     =======    =======

1998
----
Unrealized securities gains arising
   during the period                       $ 3,071     $(1,182)   $ 1,889
Less: Reclassification adjustment for
   gains realized in net income             (1,531)        589       (942)
                                           -------     -------    -------
Net unrealized securities gains              1,540        (593)       947
Foreign currency translation adjustments      (295)        114       (181)
                                           -------     -------    -------
Other comprehensive income                 $ 1,245     $  (479)   $   766
                                           =======     =======    =======`

NOTE O - QUARTERLY RESULTS (UNAUDITED)

The following is a summary of quarterly results of operations (in
thousands except per share data):

`1st        2nd        3rd        4th
2000                             Quarter    Quarter    Quarter    Quarter
----                             --------   --------   --------   --------
Revenues                         $812,464   $811,027   $804,529   $847,930
Earnings (Loss) from operations    33,425     25,343     (3,026)   (13,124)
Earnings (Loss) before change in
accounting                         17,899     13,758     (5,509)   (11,862)
Cumulative Effect of Change in
Accounting                         14,206          -          -          -
Net Earnings (Loss)                32,105     13,758     (5,509)   (11,862)
Earnings (Loss) per Share
  Basic:
   Before Change in Accounting   $    .37   $    .28   $   (.11)   $  (.25)
   Cumulative Effect of Change in
Accounting                            .29          -          -          -
                                 --------   --------   --------   --------
   Earnings per Basic Share      $    .66   $    .28   $   (.11)  $   (.25)

  Diluted:
   Before Change in Accounting   $    .36   $    .28   $   (.11)  $   (.25)
   Cumulative Effect of Change in
Accounting                            .29          -          -          -
                                 --------   --------   --------   --------
   Earnings per Diluted Share    $    .65   $    .28   $   (.11)  $   (.25)

1999
----
Revenues                         $769,348   $779,000   $785,308   $805,468
Earnings from Operations           44,827     47,834     38,811     26,249
Net Earnings                       25,244     27,022     21,604     17,331
Earnings per Share:
  Basic                          $    .52   $    .56   $    .44   $    .36
  Diluted                        $    .51   $    .55   $    .44   $    .35

1998
----
Revenues                         $750,153   $763,981   $768,666   $790,984
Earnings from Operations           56,529     58,836     55,471     61,496
Net Earnings                       32,360     33,827     32,813     38,285
Earnings per Share:
  Basic                          $    .65   $    .67   $    .66   $    .79
  Diluted                        $    .63   $    .66   $    .65   $    .78`

NOTE P - SUPPLEMENTAL GUARANTOR INFORMATION

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

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

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

The following are consolidating condensed balance sheets of the
Company as of December 31, 2000 and 1999 and the related consolidating
condensed statements of net earnings and cash flows for each of the three
years ended December 31, 2000:

`Balance Sheet Information:
                          Airborne   Airborne,                Non-
December 31, 2000      Express, Inc.   Inc.     Guarantors guarantors Elimination Consolidated
-----------------         --------- ----------  ---------- ---------- ----------- ------------
                                                    (in thousands)
ASSETS
  Cash                    $  37,523  $        -  $       52   $  2,815   $       -   $   40,390
  Accounts receivable        20,248           -      16,164    182,273           -      218,685
  Spare parts and
   fuel inventory                 -           -      40,885      2,346           -       43,231
  Refundable income taxes    21,595           -           -          -           -       21,595
  Deferred income tax
   assets                    28,839           -           -          -           -       28,839
  Prepaid expenses and
   other                      5,408           -      14,948        453           -       20,809
                          ---------  ----------  ----------   --------   ---------   ----------
  Total current assets      113,613           -      72,049    187,887           -      373,549

Property and equipment,
 net                        115,309           -   1,195,122      4,327           -    1,314,758
Intercompany advances       408,403     364,303      (3,532)   (68,309)   (700,865)           -
Equipment deposits and
 other assets                38,418       5,988      13,207         10         (11)      57,612
                          ---------  ----------  ----------   --------   ---------   ----------
Total assets              $ 675,743  $  370,291  $1,276,846   $123,915   ($700,876)  $1,745,919
                          =========  ==========  ==========   ========   =========   ==========
LIABILITIES AND
 SHAREHOLDERS' EQUITY
  Accounts payable        $ 114,198  $        -  $   61,142   $  5,392    $   (109)  $  180,623
  Salaries, wages and
   related taxes             44,796           -      26,383          -           -       71,179
  Accrued expenses and
   income taxes payable      75,689           -       7,752         77           -       83,518
  Current portion of debt         -           -         477          -           -          477
                          ---------  ----------  ----------   --------   ---------   ----------
  Total current
   liabilities              234,683           -      95,754      5,469        (109)     335,797

Long-term debt              228,000      75,000      19,230          -           -      322,230
Intercompany liabilities          -           -     585,756          -    (585,756)           -
Deferred income tax
 liabilities                 13,112           -     112,124        208           -      125,444
Postretirement
 liabilities                 42,438           -      19,922          -           -       62,360
Other liabilities            37,233           -           -          -           -       37,233
Common stock                      -      51,280        (109)       120         (11)      51,280
Additional paid in
 capital                          -     303,885        (754)   115,754    (115,000)     303,885
Retained earnings           120,413           -     444,923      2,364           -      567,700
Accumulated other
 comprehensive income          (136)          -           -          -           -        (136)
Treasury stock                    -     (59,874)          -          -           -     (59,874)
                          ---------  ----------  ----------   --------   ---------   ----------
  Total shareholders'
   equity                   120,277     295,291     444,060    118,238    (115,011)     862,855
                          ---------  ----------  ----------   --------   ---------   ----------
Total liabilities and
 shareholders'equity      $ 675,743  $  370,291  $1,276,846   $123,915   ($700,876)  $1,745,919
                          =========  ==========  ==========   ========   =========   ==========
                                     Airborne                 Non-
December 31, 1999                 Express, Inc. Guarantors guarantors Elimination Consolidated
-----------------                 ------------- ---------- ---------- -----------  -----------
                                                         (in thousands)
ASSETS
  Cash                               $   28,638 $       99  $     (59)  $       -   $   28,678
  Accounts receivable                   325,778     13,224         42           -      339,044
  Spare parts and fuel inventory              -     42,265      1,998           -       44,263
  Refundable income taxes                 1,679          -          -           -        1,679
  Deferred income tax assets             31,950          -          -           -       31,950
  Prepaid expenses and other              7,281     17,145         30           -       24,456
                                    ----------- ----------  ---------   ---------  -----------
  Total current assets                  395,326     72,733      2,011           -      470,070

Property and equipment, net             113,174  1,001,513      1,025           -    1,115,712
Intercompany advances                   484,583    (47,481)       302    (437,404)           -
Equipment deposits and other assets      43,395     19,562         10      (5,499)      57,468
                                     ---------- ----------  ---------   ---------   ----------
Total assets                         $1,036,478 $1,046,327  $   3,348   ($442,903)  $1,643,250
                                     ========== ==========  =========   =========   ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
  Accounts payable                   $   99,379 $   41,302  $   1,616   ($    210)  $  142,087
  Salaries, wages and related taxes      39,242     26,031          3           -       65,276
  Accrued expenses and income taxes
   payable                               70,970     11,067          -           -       82,037
  Current portion of debt                     -        442          -           -          442
                                     ---------- ----------  ---------   ---------   ----------
  Total current liabilities             209,591     78,842      1,619        (210)     289,842

Long-term debt                          295,000     19,707          -           -      314,707
Intercompany advances                         -    437,194          -    (437,194)           -
Deferred income tax liabilities          14,880     84,081        208           -       99,169
Postretirement liabilities               34,112     12,440          -           -       46,552
Other liabilities                        34,773          -          -           -       34,773
Common stock                             51,176        (10)       110        (100)      51,176
Additional paid in capital              298,741      4,647        753      (5,399)     298,742
Retained earnings                       136,878    409,426        658           -      546,962
Accumulated other comprehensive
 income                                     918          -          -           -          918
Treasury stock                          (39,591)         -          -           -      (39,591)
                                     ---------- ----------  ---------   ---------   ----------
  Total shareholders' equity            448,122    414,063      1,521      (5,499)     858,207
                                     ---------- ----------  ---------   ---------   ----------
Total liabilities and shareholders'
 equity                              $1,036,478 $1,046,327  $   3,348   ($442,903)  $1,643,250
                                     ========== ==========  =========   =========   ==========

Statement of Net Earnings Information:
                                    Airborne                  Non-
Year ended December 31, 2000      Express, Inc. Guarantors guarantors Elimination Consolidated
----------------------------      ------------- ---------- ---------- ----------- ------------
                                                         (in thousands)
Revenues                             $3,198,442 $1,187,164  $     246 ($1,109,902)  $3,275,950
Operating expenses:
  Transportation purchased            1,966,993    185,293          -  (1,109,745)   1,042,541
  Station and ground operations         906,583    148,559          -           -    1,055,142
  Flight operations and maintenance       1,025    590,455     (2,741)       (157)     588,582
  General and administrative            195,926     62,066        157           -      258,149
  Sales and marketing                    81,287      1,225          -           -       82,512
  Depreciation and amortization          52,638    153,485        283           -      206,406
                                     ---------- ----------  ---------  ----------   ----------
                                      3,204,452  1,141,083     (2,301) (1,109,902)   3,233,332
                                     ---------- ----------  ---------  ----------   ----------
  Earnings from operations               (6,010)    46,081      2,547           -       42,618
Other income (expense):
  Interest, net                         (10,876)   (12,549)         -           -      (23,425)
  Other                                   3,984          -         49           -        4,033
                                     ---------- ----------  ---------  ----------   ----------
  Earnings before income taxes          (12,902)    33,532      2,596           -       23,226
Income taxes                             (4,208)    12,238        910           -        8,940
                                     ---------- ----------  ---------  ----------   ----------
  Net earnings before change in
   accounting                            (8,694)    21,294      1,686           -       14,286
Cumulative effect of change in
 accounting                                   -     14,206          -           -       14,206
                                     ---------- ----------  ---------  ----------   ----------
  Net earnings                      ($    8,694)$   35,500  $   1,686  $        -   $   28,492
                                     ========== ==========  =========  ==========   ==========


                                    Airborne                  Non-
Year ended December 31, 1999      Express, Inc. Guarantors guarantors Elimination Consolidated
----------------------------      ------------- ---------- ---------- ----------- ------------
                                                         (in thousands)
Revenues                             $3,072,947 $1,171,003  $     163 ($1,104,989)  $3,139,124
Operating expenses:
  Transportation purchased            1,891,610    178,934          -  (1,104,822)     965,722
  Station and ground operations         836,758    138,911          -           -      975,669
  Flight operations and maintenance       3,102    513,213     (2,811)       (167)     513,337
  General and administrative            187,605     52,348        136           -      240,089
  Sales and marketing                    75,890      1,306          -           -       77,196
  Depreciation and amortization          52,950    156,284        156           -      209,390
                                     ---------- ----------  ---------  ----------   ----------
                                      3,047,915  1,040,996     (2,519) (1,104,989)   2,981,403
                                     ---------- ----------  ---------  ----------   ----------
  Earnings from operations               25,032    130,007      2,682           -      157,721
Other income (expense):
  Interest, net                          (8,323)    (8,939)         -           -      (17,262)
  Other                                   6,929          -          -           -        6,929
                                     ---------- ----------  ---------  ----------   ----------
  Earnings before income taxes           23,638    121,068      2,682           -      147,388
Income taxes                             12,077     43,170        940           -       56,187
                                     ---------- ----------  ---------  ----------   ----------
  Net earnings                       $   11,561 $   77,898  $   1,742  $        -   $   91,201
                                     ========== ==========  =========  ==========   ==========


                                    Airborne                   Non-
Year ended December 31, 1998      Express, Inc.  Guarantors guarantors Elimination Consolidated
----------------------------      -------------  ---------- ---------- ----------- ------------
                                                          (in thousands)
Revenues                             $3,002,876  $1,055,174 $     351  ($ 984,617)  $3,073,784
Operating expenses:
  Transportation purchased            1,785,015     143,844         -    (984,502)     944,357
  Station and ground operations         783,297     131,622         -           -      914,919
  Flight operations and maintenance       6,948     473,693    (2,727)       (115)     477,799
  General and administrative            205,540      42,802       155           -      248,497
  Sales and marketing                    69,941       1,413         -           -       71,354
  Depreciation and amortization          50,873     133,445       208           -      184,526
                                     ----------  ---------- ---------  ----------   ----------
                                      2,901,614     926,819    (2,364)   (984,617)   2,841,452
                                     ----------  ---------- ---------  ----------   ----------
  Earnings from operations              101,262     128,355     2,715           -      232,332
Other income (expense):
  Interest, net                          (3,846)     (9,036)        -           -      (12,882)
  Other                                   2,135           -         -           -        2,135
                                     ----------  ---------- ---------  ----------   ----------
  Earnings before income taxes           99,551     119,319     2,715           -      221,585
Income taxes                             40,707      42,641       952           -       84,300
                                     ----------  ---------- ---------  ----------   ----------
  Net earnings                       $   58,844  $   76,678 $   1,763  $        -   $  137,285
                                     ==========  ========== =========  ==========   ==========


Statement of Cash Flows Information:
                                               Airborne                    Non-
Year ended December 31, 2000                Express, Inc. Guarantors  guarantors  Consolidated
----------------------------                ------------- ----------  ----------  ------------
                                                              (in thousands)
OPERATING ACTIVITIES:
Net earnings                                   ($   8,694)$   35,500   $   1,686    $   28,492
Adjustments to reconcile net earnings to net
cash provided by operating activities:
 Cumulative effect of change in accounting              -    (14,206)          -       (14,206)
 Depreciation and amortization                     52,638    153,485         283       206,406
 Deferred income taxes                             11,444      9,235           -        20,679
 Postretirement obligations                         8,326      7,482           -        15,808
 Other                                              5,833          -           -         5,833
                                                --------- ----------   ---------    ----------
  Cash provided (used) by operations               69,547    191,496       1,969       263,012

Change in:
Proceeds from receivable securitization
 facility                                               -          -     150,000       150,000
Receivables                                       121,808     (2,940)   (148,509)      (29,641)
Inventories and prepaid expenses                    1,873      3,577        (771)        4,679
Refundable income taxes                           (19,916)         -           -       (19,916)
Accounts payable                                   14,710     19,948       3,878        38,536
Accrued expenses, salaries and taxes
 payable                                           10,273     (2,963)         74         7,384
Intercompany transactions                        (154,197)   154,379        (182)            -
                                                --------- ----------   ---------    ----------
     Net cash provided by operating activities     44,098    363,497       6,459       414,054

INVESTING ACTIVITIES:
 Additions to property and equipment              (31,786)  (337,204)     (3,585)     (372,575)
 Disposition of property and equipment             27,396    (22,683)          -         4,713
 Proceeds from sale of securities                   1,913          -           -         1,913
 Other                                            (13,579)    (3,215)          -       (16,794)
                                                --------- ----------   ---------    ----------
 Net cash used by investing activities            (16,056)  (363,102)     (3,585)     (382,743)

FINANCING ACTIVITIES:
 Proceeds on bank notes, net                        8,000          -           -         8,000
 Repurchase of common stock                       (20,662)         -           -       (20,662)
 Principal payments on debt                             -       (442)          -          (442)
 Proceeds from common stock issuance                1,259          -           -         1,259
 Dividends paid                                    (7,754)         -           -        (7,754)
                                                --------- ----------   ---------    ----------
 Net cash used by financing                       (19,157)      (442)          -       (19,599)
                                                --------- ----------   ---------    ----------
 Net increase (decrease) in cash                    8,885        (47)      2,874        11,712

 Cash at beginning of year                         28,638         99         (59)       28,678
                                                --------- ----------   ---------    ----------
 Cash at end of year                            $  37,523 $       52   $   2,815    $   40,390
                                                ========= ==========   =========    ==========


                                              Airborne                    Non-
Year ended December 31, 1999                Express, Inc. Guarantors  guarantors  Consolidated
----------------------------                ------------- ----------  ----------  ------------
                                                               (in thousands)
OPERATING ACTIVITIES:
Net earnings                                    $  11,561 $   77,898   $  1,742     $   91,201
Adjustments to reconcile net earnings to net
cash provided by operating activities:
 Depreciation and amortization                     52,950    135,849        156        188,955
 Deferred income taxes                             (3,240)    10,113         16          6,889
 Postretirement obligations                        14,509        688          -         15,197
 Provision for aircraft engine overhauls                -     20,435          -         20,435
 Other                                                529          -          -            529
                                                --------- ----------  ---------     ----------
  Cash provided by operations                      76,309    244,983      1,914        323,206

Change in:
Receivables                                       (13,490)    (2,386)        10        (15,866)
Inventories and prepaid expenses                    1,063     (3,773)      (586)        (3,296)
Refundable income taxes                            (1,679)         -          -         (1,679)
Accounts payable                                   (3,091)    (7,888)        66        (10,913)
Accrued expenses, salaries and taxes
 payable                                          (22,715)    (9,845)        26        (32,534)
Intercompany transactions                         (74,208)    75,647     (1,439)             -
                                                --------- ----------  ---------     ----------
     Net cash (used) provided by operating
      activities                                  (37,811)   296,738         (9)       258,918

INVESTING ACTIVITIES:
 Additions to property and equipment              (49,582)  (244,714)       (23)      (294,319)
 Disposition of property and equipment             33,218    (31,525)         -          1,693
 Gain on sale of securities                         4,603          -          -          4,603
 Expenditures for engine overhauls                      -    (18,735)         -        (18,735)
 Other                                             (4,072)    (1,381)         -         (5,453)
                                                --------- ----------  ---------     ----------
 Net cash used by investing activities            (15,833)  (296,355)       (23)      (312,211)

FINANCING ACTIVITIES:
 Proceeds on bank notes, net                       66,000          -          -         66,000
 Principal payments on debt                             -       (410)         -           (410)
 Proceeds from common stock issuance                5,480          -          -          5,480
 Dividends paid                                    (7,778)         -          -         (7,778)
                                                --------- ----------  ---------     ----------
 Net cash provided (used) by financing             63,702       (410)         -         63,292
                                                --------- ----------  ---------     ----------
 Net increase (decrease) in cash                   10,058        (27)       (32)         9,999

 Cash at beginning of year                         18,580        126        (27)        18,679
                                                --------- ----------  ---------     ----------
 Cash at end of year                            $  28,638 $       99  ($     59)    $   28,678
                                                ========= ==========  =========     ==========


                                              Airborne                  Non-
Year ended December 31, 1998                Express, Inc. Guarantors guarantors   Consolidated
----------------------------                ------------- ---------- ----------   ------------
                                                               (in thousands)
OPERATING ACTIVITIES:
Net earnings                                    $  58,844 $   76,678  $   1,763     $  137,285
Adjustments to reconcile net earnings to net
cash provided by operating activities:
 Depreciation and amortization                     50,872    116,949        208        168,029
 Deferred income taxes                              4,203      5,306         29          9,538
 Postretirement obligations                        12,352      1,494          -         13,846
 Provision for aircraft engine overhauls                -     16,497          -         16,497
 Other                                             (1,590)         -          -         (1,590)
                                                --------- ----------  ---------     ----------
  Cash provided by operations                     124,681    216,924      2,000        343,605

Change in:
Receivables                                           811     (1,421)       (19)          (629)
Inventories and prepaid expenses                   16,386    (19,996)     2,135         (1,475)
Accounts payable                                    4,136      1,925      2,973          9,034
Accrued expenses, salaries and taxes
 payable                                           (1,689)    (3,867)        24         (5,532)
Intercompany transactions                         (88,113)    94,445     (6,332)             -
                                                --------- ----------  ---------     ----------
     Net cash provided (used) by operating
      activities                                   56,212    288,010        781        345,003

INVESTING ACTIVITIES:
 Additions to property and equipment              (51,191)  (233,707)      (583)      (285,481)
 Disposition of property and equipment             31,852    (29,254)         -          2,598
 Expenditures for engine overhauls                      -    (22,846)         -        (22,846)
 Other                                             (2,618)    (1,966)         -         (4,584)
                                                --------- ----------  ---------     ----------
 Net cash used by investing activities            (21,957)  (287,773)      (583)      (310,313)

FINANCING ACTIVITIES:
 Proceeds on bank notes, net                       (1,000)         -          -         (1,000)
 Repurchase of common stock                       (38,835)         -          -        (38,835)
 Principal payments on debt                             -       (381)         -           (381)
 Proceeds from common stock issuance                6,509          -          -          6,509
 Dividends paid                                    (7,829)         -          -         (7,829)
                                                --------- ----------  ---------     ----------
 Net cash used by financing                       (41,155)      (381)         -        (41,536)
                                                --------- ----------  ---------     ----------
 Net (decrease) increase in cash                   (6,900)      (144)       198         (6,846)

 Cash at beginning of year                         25,480        270       (225)        25,525
                                                --------- ----------  ---------     ----------
 Cash at end of year                            $  18,580 $      126  ($     27)    $   18,679
                                                ========= ==========  =========     ==========`