AIRBORNE FREIGHT CORP /DE/, DEF 14A, 1998-03-13

AIRBORNE FREIGHT CORP /DE/
DEF 14A, 1998-03-13
AIR COURIER SERVICES

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

AIRBORNE FREIGHT CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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Notes:

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AIRBORNE FREIGHT CORPORATION
3101 WESTERN AVENUE, P.O. BOX 662
SEATTLE, WASHINGTON 98111

NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS

TO BE HELD APRIL 28, 1998

Notice is hereby given that the annual meeting of the shareholders of
Airborne Freight Corporation, a Delaware corporation (the "Company"), has been
called and will be held on April 28, 1998, at 10:00 a.m., Seattle time, at
Cavanaugh's on Fifth Avenue, 1415 Fifth Avenue, Seattle, Washington for the
following purposes:

1. To elect three directors for terms of three years.

2. To consider and act upon a proposal to amend the Restated Certificate of
Incorporation of the Company to increase the number of authorized shares
of Common Stock from 60,000,000 to 120,000,000.

3. To consider and act upon a proposal to approve the Airborne Freight
Corporation 1998 Key Employee Stock Option Plan.

4. To hear and consider reports from officers of the Company.

5. To transact such other business as may properly come before the meeting
or any adjournments thereof.

The foregoing matters are described in more detail in the Proxy Statement
that is attached to this notice.

By order of the Board of Directors

/s/ David C. Anderson

DAVID C. ANDERSON,
Corporate Secretary/Counsel

SHAREHOLDERS ARE URGED TO FILL IN, SIGN AND RETURN THE ENCLOSED PROXY IN THE
ENCLOSED ENVELOPE WHETHER OR NOT THEY PLAN TO ATTEND THE MEETING.
<PAGE>

PROXY STATEMENT

AIRBORNE FREIGHT CORPORATION
3101 WESTERN AVENUE, P.O. BOX 662, SEATTLE, WASHINGTON 98111

ANNUAL MEETING OF SHAREHOLDERS, APRIL 28, 1998

DATE OF MAILING: MARCH 13, 1998

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Airborne Freight
Corporation, a Delaware corporation ("Airborne" or the "Company"), for use at
the annual meeting of shareholders to be held at Cavanaugh's on Fifth Avenue,
1415 Fifth Avenue, Seattle, Washington at 10:00 a.m., Seattle time, on
Tuesday, April 28, 1998, and at any adjournments thereof. Georgeson & Co. of
New York City has been employed to solicit proxies (through approximately 50
of its employees) by mail, telephone, or personal solicitation, for a fee to
be paid by the Company of not more than $8,000. Officers and regular employees
of the Company may solicit proxies by telephone, telegram, and personal calls,
the cost of which will be borne by the Company.

At the annual meeting, the holders of shares of Common Stock of the Company
will (1) elect three directors for terms of three years and until their
successors have been elected and have qualified, (2) consider and act upon a
proposal to amend the Restated Certificate of Incorporation of the Company to
increase the number of authorized shares of Common Stock from 60,000,000 to
120,000,000, (3) consider and act upon a proposal to approve the Airborne
Freight Corporation 1998 Key Employee Stock Option Plan, (4) hear and consider
reports from officers of the Company, and (5) transact such other business as
may properly come before the meeting or any adjournments thereof.

VOTING AT THE MEETING

Only holders of record, as of the close of business on February 23, 1998, of
shares of Common Stock of the Company will be entitled to notice of and to
vote at the meeting and any adjournments thereof. The Common Stock is the only
class of voting securities of the Company currently outstanding. On February
23, 1998, there were 50,116,274 shares of Common Stock outstanding (exclusive
of 512,078 treasury shares), all of which will be entitled to vote at the
annual meeting on April 28, 1998 (all information in this Proxy Statement has
been adjusted as necessary to reflect the two-for-one stock split in the form
of a stock dividend effected in February 1998). At the meeting, the presence
in person or by proxy of a majority of the outstanding shares is required for
a quorum.

In deciding all matters at the meeting, other than the election of
directors, each shareholder will be entitled to one vote for each share of
stock held on the record date. For the election of directors, cumulative
voting applies, so that each shareholder will have the right to vote the
number of shares owned on the record date for as many persons as there are
directors to be elected; to cumulate such shares and give one nominee as many
votes as the number of directors to be elected (three) multiplied by the
number of shares held; or to distribute such number of

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votes among as many nominees and in such amounts as the holder shall
determine. For shareholders voting by proxy, provision is made on the proxy
card for instructions as to the manner of allocating votes.

Election of the persons nominated to serve as directors requires a plurality
of all the votes cast for directors. This means that the three individuals who
receive the largest number of votes cast are elected as directors. Approval of
the proposal to amend the Restated Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 60,000,000 to 120,000,000
requires the affirmative vote of a majority of the outstanding shares.
Approval of the Airborne Freight Corporation 1998 Key Employee Stock Option
Plan (the "1998 Plan") requires the affirmative vote of a majority of the
shares represented in person or by proxy at the meeting and entitled to vote
on the proposal.

Shareholders may withhold their vote from one or more of the nominees for
director and may abstain from voting on the proposals to amend the Restated
Certificate of Incorporation and to approve the 1998 Plan. Votes that are
withheld in the election of directors will be excluded in determining whether
a nominee has received a plurality of the votes cast. If a shareholder
abstains from voting on the proposal to amend the Restated Certificate of
Incorporation or the proposal to approve the 1998 Plan, the abstention will
have the effect of a vote cast against the proposal.

Brokerage firms holding shares in street name for customers are required to
vote such shares in the manner directed by their customers. In the absence of
timely directions, firms who are members of the New York Stock Exchange will
have discretion to vote their customers' shares on election of directors.
However, the proposals to amend the Restated Certificate of Incorporation and
approve the 1998 Plan are non-discretionary, and brokers who receive no
instructions from their customers will not be able to vote those customers'
shares on those proposals. Under applicable Delaware law, such broker non-
votes will count as votes against the proposal to amend the Restated
Certificate of Incorporation and will have no effect on the proposal to
approve the 1998 Plan.

All shares represented by the enclosed proxy, if it is returned prior to the
meeting, will be voted in the manner specified by the shareholder. Unless a
shareholder provides specific instructions to withhold votes from, or to
allocate them to, one or more nominees for director, the persons named in the
proxy will be authorized to vote the shares represented thereby FOR the
election of the nominees for director and in their discretion to cumulate
votes and allocate them among the nominees to the extent and the manner
necessary to assure the election of all of the nominees. If any listed nominee
becomes unavailable, the persons named in the proxy may vote for any
substitute designated by the Nominating Committee of the Board; however,
management at this time has no reason to anticipate that this will occur. To
the extent specific instructions are not given with respect to the proposed
amendment to the Restated Certificate of Incorporation or the proposal to
approve the 1998 Plan, the shares represented by the proxy will be voted FOR
approval of these proposals.

You may revoke your proxy at any time before it has been voted by voting in
person at the meeting, by giving written notice of revocation to the Secretary
of the Company, or by giving a later dated proxy at any time before the
voting.

2
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To the best of the Company's knowledge, as of February 23, 1998,
shareholders owning over 5% of the outstanding Common Stock of the Company
were as follows:

HOLDERS OF COMMON STOCK

<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
NUMBER OF STOCK
NAME AND ADDRESS SHARES OUTSTANDING
---------------- --------- -------------
<S> <C> <C>
Westport Asset Management, Inc. 3,188,600 6.36%
253 Riverside Avenue
Westport, CT 06880

Vanguard/PRIMECAP Fund, Inc. 3,160,000 6.31%
P.O. Box 2600
Valley Forge, PA 19482

Capital Growth Management Limited Partnership 2,825,000 5.64%
One International Place
Boston, MA 02110
</TABLE>

Information in this table is based on reports on Schedule 13G, or amendments
thereto, filed with the Securities and Exchange Commission.

ELECTION OF DIRECTORS

The Company's Bylaws provide for no fewer than eight and no more than twelve
directors, as determined from time to time by the Board. The Company's Board
currently consists of nine members, divided into three classes with terms
expiring at the April annual meeting as follows:

CLASS A (THREE POSITIONS WITH TERMS EXPIRING IN 1998):
Andrew F. Brimmer
Harold M. Messmer, Jr.
Mary Agnes Wilderotter

CLASS B (THREE POSITIONS WITH TERMS EXPIRING IN 1999):
Robert G. Brazier
James H. Carey
Andrew B. Kim

CLASS C (THREE POSITIONS WITH TERMS EXPIRING IN 2000):
Robert S. Cline
Richard M. Rosenberg
William Swindells

At the annual meeting, three persons will be elected to fill the Class A
positions, generally for terms of three years, to hold office until the annual
meeting of shareholders in the year their terms expire (2001) and until their
respective successors have been elected and shall have qualified as provided
by the Bylaws. Messrs. Brimmer and Messmer and Ms. Wilderotter are present
directors of the Company and have been nominated to continue as directors.

3
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NOMINEES FOR DIRECTORS TO SERVE A THREE-YEAR TERM

CLASS A (TERMS TO EXPIRE IN 2001)

ANDREW F. BRIMMER, age 71, President, Brimmer & Company, Inc. (economic and
financial consulting).

Mr. Brimmer heads Brimmer & Company, Inc., an economic and financial
consulting firm which he established in 1976. He is a director of BlackRock
Investment Income Trust and other BlackRock Funds; Borg-Warner Automotive,
Inc.; CarrAmerica Corporation; E.I. duPont de Nemours and Company; and
Navistar International Corporation. Mr. Brimmer has been a director of the
Company since 1994 and is a member of the Audit Committee and the
Nominating Committee.

HAROLD M. MESSMER, JR., age 52, Chairman and Chief Executive Officer, Robert
Half International, Inc. (personnel services).

Mr. Messmer has been Chairman and Chief Executive Officer of Robert Half
International Inc., since 1987. Mr. Messmer is also a director of Health
Care Property Investors, Inc. and Spieker Properties, Inc. Mr. Messmer, a
director of the Company since 1989, serves as Chairman of the Nominating
Committee and a member of the Compensation Committee.

MARY AGNES WILDEROTTER, age 43, President and Chief Executive Officer, Wink
Communications (telecommunications).

Ms. Wilderotter has been President, Chief Executive Officer, and a
director of Wink Communications since January 1997. From August 1995 to
January 1997, she was Executive Vice President, National Operations of AT&T
Wireless Services and Chief Executive Officer of Claircom, its aviation
communications division. From October 1991 to August 1995, Ms. Wilderotter
was President of the California/Nevada/Hawaii Region for McCaw Cellular
Communications, Inc. She is a director of Electric Lightwave, Gaylord
Entertainment and Jacor Communications. Ms. Wilderotter has been a director
of the Company since 1996 and is a member of the Nominating Committee.

CONTINUING DIRECTORS -- NOT STANDING FOR ELECTION THIS YEAR

CLASS B (TERMS TO EXPIRE IN 1999)

ROBERT G. BRAZIER, age 60, President and Chief Operating Officer of the
Company.

Mr. Brazier has served as President of the Company since 1978 and as
Chief Operating Officer of the Company since 1973. Prior to that time he
was Senior Vice President-Operations of the Company and Vice President of
Sales and Operations of Pacific Air Freight, Inc. Mr. Brazier has been a
director of the Company since 1974 and is a member of the Executive
Committee.

JAMES H. CAREY, age 65, Managing Director, Briarcliff Financial Associates
(private financial advisory firm).

Mr. Carey has been Managing Director of Briarcliff Financial Associates
since 1991. He served as Chief Executive Officer of National Capital
Benefits Corporation, a viatical

4
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settlement company, from March 1994 to December 1995. Mr. Carey is a
director of the Cowen Group of Mutual Funds; the Midland Company; and
Nantucket Industries, Inc. He has been a director of the Company since 1978
and is a member of the Compensation Committee.

ANDREW B. KIM, age 61, President, Sit/Kim International Investment Associates,
Inc. (investment company).

Mr. Kim has served as President of Sit/Kim International Investment
Associates, Inc., since 1989. Mr. Kim is a director of Hyundai Dragon Fund
of Dublin, Ireland; Ilshin Investment Corp. and Dong-A Venture Investment
in Seoul, Korea; Asia Foods in Shanghai, China; and the Vertical Group of
New York. Mr. Kim has been a director of the Company since 1994 and serves
as Chairman of the Audit Committee.

CLASS C (TERMS TO EXPIRE IN 2000)

ROBERT S. CLINE, age 60, Chairman and Chief Executive Officer of the Company.

Mr. Cline has served as Chairman and Chief Executive Officer of the
Company since 1984. Prior to that time, he served as Vice Chairman,
Executive Vice President, Chief Financial Officer, Senior Vice President-
Finance and Vice President-Finance. He serves as a director of Safeco
Corporation and Metricom, Inc., and as a member of the advisory board of
Seafirst Bank. Mr. Cline, a director of the Company since 1973, is Chairman
of the Executive Committee.

RICHARD M. ROSENBERG, age 67, Chairman of the Executive Committee and Chairman
and Chief Executive Officer (Retired) of BankAmerica Corporation and Bank of
America, NT&SA.

Mr. Rosenberg served as Chairman, President, and Chief Executive Officer
of Bank of America from 1990 to 1996 when he retired. Mr. Rosenberg serves
as a director of BankAmerica Corporation; Northrop Grumman Corporation;
Potlatch Corporation; and SBC Communications. Mr. Rosenberg, a director of
the Company since 1988, is Chairman of the Compensation Committee and a
member of the Executive Committee.

WILLIAM SWINDELLS, age 67, Chairman and Chief Executive Officer, Willamette
Industries, Inc. (forest products).

Mr. Swindells has served as Chairman of the Board of Directors of
Willamette Industries, Inc., since 1985 and as its Chief Executive Officer
from 1985 to 1996 and since 1997. He is a director of Standard Insurance
Co. and Oregon Steel Mills. Mr. Swindells has been a director of the
Company since 1994 and is a member of the Audit Committee.

5
<PAGE>

BOARD OF DIRECTORS AND COMMITTEES

The full Board of Directors met four times during 1997. No incumbent member
attended fewer than 75% of the meetings of the Board of Directors and Board
committees of which he or she was a member during 1997.

BOARD COMMITTEES

The Board has a standing Audit Committee, Compensation Committee, Nominating
Committee and Executive Committee. Each committee, other than the Executive
Committee, consists exclusively of non-employee directors.

AUDIT COMMITTEE. The Audit Committee is currently composed of Mr. Kim,
Chairman; Mr. Brimmer; and Mr. Swindells. The committee is charged with
reviewing and approving the scope of the audit of the books and accounts of
the Company and its subsidiaries, recommending the employment and retention of
a firm of independent auditors to conduct such audit, reviewing the Company's
financial reporting and control systems and reporting to the Board thereon.
The committee met twice during 1997.

COMPENSATION COMMITTEE. The Compensation Committee is currently composed of
Mr. Rosenberg, Chairman; Mr. Carey; and Mr. Messmer. It is charged with the
review of and recommendation to the full Board on matters relating to salaries
of officers and all other forms of executive and key employee compensation and
benefits, as well as the level and form of compensation for non-employee
directors. The committee met three times during 1997.

NOMINATING COMMITTEE. The Nominating Committee is currently composed of
Mr. Messmer, Chairman; Mr. Brimmer; and Ms. Wilderotter. It is charged with
searching for and recommending to the Board potential nominees for Board
positions; evaluating the performance of the Chief Executive Officer; and
recommending, when appropriate, the appointment of a new Chief Executive
Officer and candidates for appointment to other offices. The committee met
once during 1997.

Any shareholder recommendations for nominations to the Board of Directors
for consideration by the Nominating Committee for the 1999 Annual Meeting
should be forwarded to Mr. Harold M. Messmer, Jr., Chairman, Nominating
Committee, Airborne Freight Corporation, P.O. Box 662, Seattle, Washington
98111, so as to be received no later than November 30, 1998.

EXECUTIVE COMMITTEE. The Executive Committee currently consists of Mr.
Cline, Chairman; Mr. Brazier; and Mr. Rosenberg. It is authorized to act in
lieu of the full Board on various matters between Board meetings.

6
<PAGE>

DIRECTOR COMPENSATION

Non-employee directors received an annual fee of $22,000 in 1997 plus $1,000
for each Board and Committee meeting attended.

The Company has a Directors Stock Option Plan ("Option Plan") and Director
Stock Bonus Plan ("Bonus Plan") for non-employee directors of the Company. The
Option Plan provides each such director annual grants of options to acquire
2,000 shares of the Company's Common Stock at an exercise price equal to the
closing sales price on the New York Stock Exchange on the date of grant. Under
the Bonus Plan, each director receives an annual award of shares of the
Company's Common Stock having a value of $3,000 on the award date. The
issuance of shares is deferred until the director retires or otherwise ceases
to be a director of the Company.

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STOCK OWNERSHIP OF MANAGEMENT

The following table sets forth information as to the shares of Common Stock
beneficially owned (or deemed to be beneficially owned pursuant to the rules
of the SEC) by each director of the Company, by the Chief Executive Officer
and the six other most highly compensated executive officers of the Company at
December 31, 1997 (the "named executive officers") and by all directors and
executive officers as a group:

<TABLE>
<CAPTION>
COMMON STOCK OF
THE COMPANY PERCENTAGE OF
BENEFICIALLY OWNED COMMON STOCK
NAME AS OF 2/23/98 OUTSTANDING
---- ------------------ -------------
<S> <C> <C>
DIRECTORS
Andrew F. Brimmer 6,599/1/, /2/ *
James H. Carey 7,799/1/, /2/ *
Andrew B. Kim 33,571/1/, /2/ *
Harold M. Messmer, Jr. 18,399/1/, /2/ *
Richard M. Rosenberg 18,399/1/, /2/ *
William Swindells 11,399/1/, /2/ *
Mary A. Wilderotter 2,175/1/, /2/ *

NAMED EXECUTIVE OFFICERS
Robert S. Cline/3/ 504,404/4/ 1.00%
Robert G. Brazier/3/ 692,774/4/ 1.38%
John J. Cella 84,998/4/ *
Carl D. Donaway 18,325/4/ *
Kent W. Freudenberger 88,117/4/ *
Roy C. Liljebeck 250,875/4/ *
Raymond T. Van Bruwaene 89,314/4/ *
All Directors and Executive Officers
as a Group (16 persons) 1,850,806/5/ 3.64%
</TABLE>
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* Less than 1% of Common Stock outstanding.

/1/ Includes shares subject to options granted under the Directors Stock
Option Plan as follows: Mr. Brimmer, 6,000; Mr. Carey, 6,000; Mr. Kim,
8,000; Mr. Messmer, 14,000; Mr. Rosenberg, 14,000; Mr. Swindells, 6,000;
and Ms. Wilderotter, 2,000.

/2/ Includes 399 shares (175 shares for Ms. Wilderotter) issuable under the
Director Stock Bonus Plan.

/3/ Mr. Brazier and Mr. Cline also serve as directors.

/4/ Includes shares subject to options granted under the Airborne Key Employee
Stock Option and Stock Appreciation Rights Plan as follows: Mr. Cline,
242,630; Mr. Brazier, 204,950; Mr. Cella, 54,210; Mr. Donaway, 15,130; Mr.
Freudenberger, 54,210; Mr. Liljebeck, 84,990; and Mr. Van Bruwaene,
54,210. Excludes shares subject to options that have been granted under
the 1998 Plan but are subject to shareholder approval at the annual
meeting.

/5/ Includes 787,710 shares subject to options or issuable under the Director
Stock Bonus Plan.

8
<PAGE>

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth information concerning annual and long-term
compensation paid or accrued during calendar years 1997, 1996 and 1995 for
services in all capacities to the Company by the named executive officers:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS:
COMPENSATION ------------
----------------- SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS/1/ OPTIONS/2/ COMPENSATION/3/
- --------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Robert S. Cline 1997 $541,538 $866,461 56,000 $24,258
Chairman, Chief Executive 1996 513,846 -- 56,000 10,668
Officer and Director 1995 486,538 -- 30,800 4,800

Robert G. Brazier 1997 466,538 653,153 38,000 19,670
President, Chief Operating 1996 443,154 -- 38,000 6,719
Officer and Director 1995 420,615 -- 26,600 1,650

Roy C. Liljebeck 1997 292,461 336,330 16,000 19,852
Executive Vice President 1996 279,000 -- 16,000 7,871
and Chief Financial 1995 266,000 -- 11,250 4,800
Officer

Raymond T. Van Bruwaene 1997 292,461 350,953 16,000 19,852
Executive Vice President, 1996 279,000 -- 16,000 7,871
Field Services Division 1995 266,000 -- 11,250 4,800

Kent W. Freudenberger 1997 292,461 324,632 16,000 19,852
Executive Vice President, 1996 279,000 -- 16,000 7,871
Marketing Division 1995 266,000 -- 11,250 4,800

John J. Cella 1997 292,461 283,697 16,000 19,852
Executive Vice President, 1996 279,000 -- 16,000 7,871
International Division 1995 266,000 -- 11,250 4,800

Carl D. Donaway 1997 292,461 339,255 16,000 19,852
President and Chief 1996 269,846 -- 16,000 7,663
Executive Officer, 1995 236,004 -- 9,340 4,800
ABX Air, Inc.
</TABLE>
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/1/ Amounts awarded under the Executive Incentive Compensation Plan or the
Executive Group Incentive Compensation Plan.

/2/ Number of shares of Common Stock underlying options awarded under the
Airborne Key Employee Stock Option and Stock Appreciation Rights Plan.

/3/ A portion of the amounts shown as All Other Compensation for 1997
represents contributions by the Company to the accounts of the named
executive officers under the Company's defined contribution plan,
including 401 (k) matching contributions ($11,764 for Mr. Brazier and
$15,089 for each of the other named executive officers). The balance of
the amounts shown in this column for 1997 represents premiums paid on term
life insurance for the named executive officers.

9
<PAGE>

OPTION GRANTS IN 1997

The following table shows information concerning stock options granted to
the named executive officers during calendar year 1997 under the Airborne Key
Employee Stock Option and Stock Appreciation Rights Plan:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER PERCENT OF ANNUAL RATES OF
OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM/2/
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED/1/ FISCAL YEAR (PER SHARE) DATE 5% 10%
- ---- ---------- ------------ ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Cline 56,000 13.07% $13.625 2/4/07 $ 479,847 $ 1,216,025
Robert G. Brazier 38,000 8.87% $13.625 2/4/07 325,610 825,160
Roy C. Liljebeck 16,000 3.73% $13.625 2/4/07 137,099 347,436
Raymond Van Bruwaene 16,000 3.73% $13.625 2/4/07 137,099 347,436
Kent W. Freudenberger 16,000 3.73% $13.625 2/4/07 137,099 347,436
John J. Cella 16,000 3.73% $13.625 2/4/07 137,099 347,436
Carl D. Donaway 16,000 3.73% $13.625 2/4/07 137,099 347,436
</TABLE>
- --------

/1/ Options for the named executive officers were granted on February 4, 1997.
Fifty percent of the options will become exercisable on February 4, 1999,
and the remaining options will become exercisable on February 4, 2000,
subject to certain contractual provisions that will apply in the event of
a change in control (see Employment Contracts). The exercise price of the
options was the fair market value of the Company's Common Stock on the
date of grant.

/2/ Based upon the $13.625 per share market price on the date of grant and
assumed appreciation over the term of the options at the respective annual
rates of stock appreciation shown. The named executive officers will
realize no value from options if the stock price does not increase
following their grant.

10
<PAGE>

AGGREGATE OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES

The following table shows information concerning stock options exercised
during calendar year 1997 by the named executive officers and the value of
unexercised options at the end of that year:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
SHARES END AT FISCAL YEAR-END/2/
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED/1/ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Cline 24,392 $534,337 231,298 127,400 $4,862,439 $2,288,300
Robert G. Brazier -- -- 234,650 89,300 5,167,206 1,608,350
Roy C. Liljebeck 18,520 486,150 71,366 37,624 1,339,058 677,668
Raymond T. Van Bruwaene 49,300 888,132 40,586 37,624 693,480 677,668
Kent W. Freudenberger 49,300 892,067 40,586 37,624 693,480 677,668
John J. Cella 30,780 555,869 40,586 37,624 693,480 677,668
Carl D. Donaway 30,180 346,421 3,460 36,670 88,481 659,065
</TABLE>
- --------

/1/ Represents the aggregate fair market value, on the respective dates of
exercise, of the shares of Common Stock received on exercise of options,
less the aggregate exercise price of the options.

/2/ Represents the aggregate fair market value on December 31, 1997 (based on
the closing price of $31.063 for the Company's Common Stock on the New
York Stock Exchange on that date), of the shares of Common Stock subject
to outstanding options, less the aggregate exercise price of the options.

11
<PAGE>

COMPARATIVE PERFORMANCE GRAPH

Set forth below is a graph comparing the cumulative total shareholder return
on the Company's Common Stock with the cumulative total return of the Standard
& Poor's Composite-500 Stock Index and the Standard & Poor's Transportation
Index for the five-year period ended December 31, 1997.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN/1/
AMONG AIRBORNE FREIGHT CORPORATION COMMON STOCK,
THE S&P COMPOSITE-500 INDEX, AND THE S&P TRANSPORTATION INDEX

PERFORMANCE GRAPH APPEARS HERE

<TABLE>
<CAPTION>
AIRBORNE S&P S&P
Measurement Period FREIGHT COMPOSITE- TRANSPORTATION
(Fiscal Year Covered) CORPORATION 500 INDEX INDEX
- --------------------- --------------- ---------- --------------
<S> <C> <C> <C>
Measurement Pt-12/31/1992 $100.00 $100.00 $100.00
FYE 12/31/1993 $190.00 $110.00 $119.00
FYE 12/31/1994 $113.00 $112.00 $100.00
FYE 12/31/1995 $148.00 $153.00 $139.00
FYE 12/31/1996 $132.00 $189.00 $159.00
FYE 12/31/1997 $351.00 $252.00 $206.00
</TABLE>

/1/The total return on the Company's Common Stock and each index assumes the
value of each investment was $100 on December 31, 1992 and that all
dividends were reinvested.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:

It is the responsibility of the Compensation Committee to set policies
governing compensation of the Company's executive officers and to make
recommendations to the Board as appropriate. These policies cover base
salaries, incentive compensation, stock options, and any other forms of
remuneration. In addition, the Committee evaluates performance of management,
considers management succession, and deals with other personnel matters
related to senior management.

The Company has designed pay programs for executive officers that provide a
strong link between the Company's performance and executive compensation. Each
component of executive

12
<PAGE>

pay is weighted and valued so that, in total, highly talented executives can
be attracted, retained and motivated to consistently improve the financial
performance of the Company.

The Committee periodically reviews the total compensation of the Chief
Executive Officer and the other executive officers. The Committee also
monitors general compensation practices of all other officers of the Company
and its subsidiaries. The Compensation Committee may retain the services of a
qualified compensation consulting firm to assist in the performance of these
duties. The role of such a consulting firm is to provide information to the
Committee with respect to the competitiveness of compensation paid to
executive officers of the Company compared to that of other companies of
similar size and scope.

A consulting firm was retained to obtain such information in 1997. The firm
provided data on cash compensation paid by comparison companies selected from
general industry, transportation, and the Northwest United States. Annual
revenues of the comparison companies were approximately $2.5 billion. They
were selected without regard to whether they are included in the S&P
Transportation Index.

Executive officers have the potential to receive annual incentive awards
under the Company's Executive Incentive Compensation Plan (the "EICP") (Chief
Executive Officer and President) and the Executive Group Incentive
Compensation Plan (the "EGICP") (remaining executive officers). The committee
considers how the mix of base salaries and awards under the EICP and EGICP
compares to the median compensation level of the comparison companies, but
does not target such compensation at the median level. The Company believes
that total cash compensation potentially available to Company executive
officers is competitive and provides the incentive necessary to motivate them
to meet or exceed goals set by the Board.

In 1997, executive officers earned cash compensation through a combination
of base salaries and incentive awards. The Chief Executive Officer's base
salary was increased to $555,000 as of July, 1997. The base salaries of other
executive officers also were raised at that time. Base salaries were raised to
keep compensation competitive with those of comparison companies.

In connection with the EICP and EGICP, the Committee approved an annual
operating plan at the beginning of 1997 that established targets for pre-tax
net profits and revenue growth. 1997 payouts under the EICP were based on a
weighting of 75% to pre-tax net profits and 25% to revenue growth. EGICP
payouts were weighted 63.75% to net profit, 21.25% to revenue growth, and 15%
to individual objectives for the Chief Financial Officer and 52.5% to net
profit, 17.5% to revenue growth, and 30% to individual objectives for the
remaining executive officers.

13
<PAGE>

EICP and EGICP payouts are calculated as a percentage of base salary. The
threshold for awards is attainment of 80% of the targets and the maximum
payout is available at 150% target attainment. However, regardless of revenue
growth and individual objectives, no awards are made unless the Company earns
at least 80% of the targeted level of pre-tax net profit. The payout
percentages for the executive officers are as follows:

<TABLE>
<CAPTION>
PERCENTAGE OF BASE
SALARY
------------------------
THRESHOLD TARGET MAXIMUM
--------- ------ -------
<S> <C> <C> <C>
Chief Executive Officer 30% 80% 160%
Chief Operating Officer 30% 70% 140%
Other Executive Officers 25% 60% 120%
</TABLE>

The Company exceeded maximum attainment for pre-tax net profits and revenue
growth in 1997 and, accordingly, maximum incentive awards were paid under the
EICP and above target awards were paid under the EGICP.

During each fiscal year, the Committee considers the desirability of
granting longer-term incentive awards to the Company's officers, including the
executive officers, under the Airborne Key Employee Stock Option and Stock
Appreciation Rights Plan. In 1997, stock options were granted to the executive
officers at an exercise price equal to the fair market value of the Company's
stock on the date of grant. In deciding the number of options to grant, the
Committee considered the anticipated value of the options, the number of
options outstanding or previously granted to the executives, and the aggregate
number of grants to all employees of the Company. The Committee believes that
these awards will have the desired effect of focusing the Company's senior
management on building consistent profitability and shareholder value, since
the awards directly ally the interests of management with an increase in the
market price of the Company stock. The Committee did not grant any stock
appreciation rights.

Under Federal income tax rules, the deduction for certain types of
compensation paid to the Chief Executive Officer and four other most highly
compensated officers of publicly held companies is limited to $1 million per
employee. In certain circumstances, performance based compensation is exempt
from the $1 million limit. The Committee believes all compensation earned by
such employees in 1998 will be deductible.

Richard M. Rosenberg, Chairman
James H. Carey
Harold M. Messmer, Jr.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is currently composed of Mr. Rosenberg, Chairman,
Mr. Carey and Mr. Messmer. Mr. Rosenberg is a director of BankAmerica
Corporation, the parent of Bank of America National Trust and Savings
Association, which conducts business as Bank of America and Seafirst Bank. The
Company has various demand deposit accounts, and participates in one or more
credit agreements, with each of Bank of America and Seafirst Bank.

14
<PAGE>

RETIREMENT PLANS

The Company maintains two qualified retirement plans that cover the named
executive officers and all other employees (other than certain union
employees) who satisfy certain eligibility requirements relating to minimum
age, length of service and hours worked. One of the plans is a defined
contribution plan and the other is a defined benefit pension plan. The Company
also maintains a nonqualified supplemental plan for its officers, including
the named executive officers.

DEFINED CONTRIBUTION PLAN. The Company's defined contribution plan includes
a profit sharing plan that provides for an annual discretionary contribution
which, pursuant to resolutions of the board, is currently equal to 7% of pre-
tax profits up to a predetermined level, plus 14% of pre-tax profits in excess
of that level. Each participant's account under the plan is credited with a
portion of such contribution based on the ratio of his or her salary to the
total salaries of all participating employees. At retirement, a participant's
targeted annual pension benefit under the Company's defined benefit pension
plan will be offset based on the amount in the participant's profit sharing
account (see Defined Benefit Pension Plan). The defined contribution plan also
includes a voluntary 401(k) salary deferral plan.

DEFINED BENEFIT PENSION PLAN. Subject to the offset described below and
statutory limits on benefits that may be provided under such a plan, the
defined benefit pension plan provides each participant with a targeted annual
pension benefit at retirement equal to (i) the number of years of service of a
participant (up to a maximum of 25 years), times (ii) the sum of 1.6% of the
participant's final average earnings up to the average covered Social Security
earnings level, plus 2% of the portion of the final average earnings that
exceeds that level.

A participant's benefit under the Company's defined benefit pension plan is
subject to an offset based on the amount in his or her profit sharing account
under the defined contribution plan. This is done as follows: At retirement,
the Company calculates how much of a participant's targeted annual pension
benefit can be provided by the amount that has accumulated in his or her
profit sharing plan account. This calculation is based on an interest rate
factor as described in the pension plan. The defined benefit pension plan then
provides the portion of the targeted annual pension benefit, if any, that the
amount in the profit sharing account is insufficient to provide.

SUPPLEMENTAL PLAN. The Company also maintains a Supplemental Executive
Retirement Plan (the "SERP") for the benefit of officers of the Company and
its eligible subsidiaries. The SERP is a nonqualified plan that is designed to
provide a retirement benefit equal to approximately 65% of an officer's final
average earnings (the SERP also provides for benefit payments upon the
occurrence of other events, including in certain cases a change in control of
the Company). The benefit accrues in equal annual increments over a period of
15 years. The SERP provides for normal retirement at or after age 62; however,
the benefits will be subject to offset based on retirement benefits the
officer will receive under the Company's qualified retirement plans and Social
Security (the offset is calculated based on normal retirement at age 65) and
under the retirement plans of any prior employer. The SERP is unfunded,
although the Company maintains commingled investment fund assets and insurance
on the lives of certain officers that could be used to fund eventual benefit
payments.

15
<PAGE>

The following table sets forth the targeted annual pension benefits
(calculated on the basis of a straight life annuity) payable upon retirement
at age 65 to the Company's officers (including the named executive officers)
based on specified years of service and levels of compensation. The amounts
shown take into account Social Security offsets based on the career average
Social Security wage base in effect in 1997. The amounts shown do not reflect
any offsets that may apply in individual cases on account of benefits under
the retirement plans of an officer's prior employer.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
- ------------ -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 27,421 $ 70,755 $114,088 $114,088 $114,088 $114,088 $114,088
300,000 49,088 114,088 179,088 179,088 179,088 179,088 179,088
400,000 70,755 157,421 244,088 244,088 244,088 244,088 244,088
500,000 92,421 200,755 309,088 309,088 309,088 309,088 309,088
600,000 114,088 244,088 374,088 374,088 374,088 374,088 374,088
700,000 135,755 287,421 439,088 439,088 439,088 439,088 439,088
800,000 157,421 330,755 504,088 504,088 504,088 504,088 504,088
900,000 179,088 374,088 569,088 569,088 569,088 569,088 569,088
1,000,000 200,755 417,421 634,088 634,088 634,088 634,088 634,088
</TABLE>

Remuneration is calculated based on average annual compensation in the five
highest consecutive years of the ten years prior to retirement. Based on
compensation through December 31, 1997, the final average earnings of the
named executive officers were as follows: Mr. Cline, $580,580; Mr. Brazier,
$499,713; Mr. Donaway, $264,486; and Messrs. Liljebeck, Van Bruwaene,
Freudenberger, and Cella, $301,607. All of the named executive officers have
accrued at least 20 years of service.

EMPLOYMENT CONTRACTS

Each of the named executive officers is elected annually and serves at the
pleasure of the Board, subject, however, to agreements with the Company that
generally assure that, in the event of a change in control of the Company, all
of the officers will have the right to remain employed, at not less than the
respective rates of compensation in effect as of the date of the change in
control, for at least three years thereafter.

The agreements with the named executive officers generally provide that, if
an officer is terminated without "cause" (defined as willful and continued
failure to perform duties after demand from the Board, or willful and gross
misconduct) within three years after a change in control, the Company must pay
the officer, in addition to all accrued compensation, the equivalent of three-
years' salary, bonus and other benefits. Also under the agreements, an officer
terminated after a change in control may elect to receive cash equal to the
difference between the exercise price of all stock options held by the officer
(whether or not then exercisable) and the market value of the stock on the
date of termination, or the highest price per share actually paid in
connection with any change in control of the Company, whichever is higher. In
the absence of this provision, under the Company's stock option plans, an
employee terminated other than for cause has three months to exercise any
options exercisable on the date of termination but any

16
<PAGE>

options not then exercisable are canceled. The 1994 Airborne Key Employee
Stock Option and Stock Appreciation Rights Plan provides that all outstanding
options become exercisable upon retirement and expire 18 months after the date
of retirement unless their terms expire sooner. The Company is required to
provide the same additional compensation and benefits described above in the
event a named executive officer resigns due to failure of the Company, after a
change in control, to provide the salary, other specific benefits and terms of
employment required by the agreement.

In return for the benefits under the agreements described above, each of the
named executive officers has agreed, among other things, not to serve as an
executive officer, director or consultant to any competitor of the Company for
at least one year after termination of employment with the Company. While
these contracts were designed to encourage these officers to stay with the
Company, and not to deter changes in control, it is possible that a party
wishing to obtain control of the Company with the intention of replacing
incumbent management could be influenced by the additional cost that the
Company would incur under these contracts.

PROPOSAL TO APPROVE AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

The Restated Certificate of Incorporation of the Company currently
authorizes an aggregate of 66,000,000 shares of capital stock, consisting of
6,000,000 shares of Preferred Stock (without par value) and 60,000,000 shares
of Common Stock (par value $1.00). The proposed amendment to the Restated
Certificate of Incorporation would increase the number of authorized shares of
Common Stock to 120,000,000 thus bringing the total number of authorized
shares of capital stock for all classes to 126,000,000. The additional shares
of Common Stock for which authorization is sought would be a part of the
existing class of Common Stock and, if and when issued, would have the same
rights and privileges as the currently outstanding shares of Common Stock.
This increase would be accomplished by amending Section 4.1 of Article Fourth
of the Restated Certificate of Incorporation to read as follows:

FOURTH 4.1 The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is one hundred twenty-six
million (126,000,000), of which six million (6,000,000) shares shall be
Preferred Stock without par value, issuable in one or more series, and one
hundred twenty million (120,000,000) shares shall be Common Stock, par
value One Dollar ($1.00) per share, amounting in the aggregate to One
Hundred Twenty Million Dollars ($120,000,000).

To become effective, the amendment must be approved by the holders of a
majority of the company's outstanding shares of Common Stock.

The increase would make additional shares of Common Stock available for
issuance for such purposes as the Board may determine to be advantageous,
including the raising of additional capital, future employee benefit plans,
acquisitions and possible stock dividends and stock splits. Except with
respect to shares reserved for stock option plans, as of the date of this
Proxy Statement the Board does not have any agreements, commitments or plans
with respect to the

17
<PAGE>

issuance of any additional shares of Common Stock. The proposal to increase
the number of authorized shares of Common Stock was approved by the Board of
Directors at its meeting on October 28, 1997 and is not being recommended in
response to any specific effort of which the Company is aware to obtain
control of or acquire the Company.

PROPOSAL FOR ADOPTION OF AIRBORNE FREIGHT CORPORATION
1998 KEY EMPLOYEE STOCK OPTION PLAN

GENERAL DESCRIPTION OF PLAN

The Board of Directors, by resolution at its meeting on October 28, 1997,
recommended for shareholder approval the Airborne Freight Corporation 1998 Key
Employee Stock Option Plan (the "1998 Plan"). In order to become effective,
the 1998 Plan must be approved by a majority of the Company's outstanding
shares of Common Stock represented in person or by proxy at the meeting and
entitled to vote on the proposal. The closing market price of the Company's
Common Stock on February 23, 1998 was $38.1875 per share.

If the 1998 Plan is approved by shareholders, the 1994 Airborne Key Employee
Stock Option and Stock Appreciation Rights Plan (the "1994 Plan") will be
suspended, so that no additional options or awards will be granted under the
1994 Plan.

The following is a summary of the 1998 Plan. For more precise information,
see the Airborne Freight Corporation 1998 Key Employee Stock Option Plan,
which is included as an addendum to this Proxy Statement.

The purpose of the 1998 Plan is to provide a method by which selected
individuals performing service for the Company may be offered an opportunity
to invest in capital stock of the Company, thereby increasing their personal
interest in the growth and success of the Company.

The 1998 Plan is administered, and participants in the 1998 Plan are
selected, by the Compensation Committee of the Board of Directors. The 1998
Plan provides for the granting of stock options over the next ten years to
officers and other key employees. Options granted under the 1998 Plan can be
either nonqualified stock options or options meeting the requirements of
incentive stock options under the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"). The aggregate number of shares subject to
grants in a calendar year may not exceed one and one-half percent (1 1/2%) of
the shares of Common Stock of the Company outstanding on December 31 of the
prior year. In addition, the number of shares subject to grants of stock
options during the entire term of the 1998 Plan cannot exceed 6,000,000 (plus
any shares subject to options outstanding under the 1994 Plan on January 1,
1998, to the extent those options terminate without having been exercised in
full). The number of shares subject to options granted in any one calendar
year to any one individual may not exceed 200,000.

The purchase price of stock covered by an option must be no less than the
fair market value of the stock on the date the option is granted. The option
will become exercisable at such time as the Compensation Committee specifies.
No incentive stock option will be exercisable for more than ten years after
the option is granted.

18
<PAGE>

Options will be subject to adjustments, including in some cases acceleration
of vesting, in connection with certain events involving the Company, such as a
merger, reorganization or recapitalization, or the acquisition by any person,
partnership, or corporation of more than 25% of the outstanding stock of the
Company.

The 1998 Plan will automatically terminate on December 31, 2007, unless
earlier terminated by the Board of Directors, and no option can be granted
after termination.

If the 1998 Plan is adopted, the Compensation Committee proposes to make use
of its discretionary authority under the 1998 Plan as it shall deem to be in
the best interests of the Company. It is the present intention to add the
proceeds received upon the exercise of options to the general funds of the
Company and use them for general corporate purposes. No monetary consideration
will be received for the granting of options.

JANUARY 1, 1998 GRANT

The Compensation Committee has concluded, based on the report of a qualified
compensation consulting firm, that the number of stock options the Company has
historically granted to executive officers has been significantly below the
level of option grants by comparable companies. Accordingly, the Compensation
Committee has approved, and the Board of Directors has ratified, the following
grants of non-qualified stock options to executives under the 1998 Plan
effective January 1, 1998:

<TABLE>
<S> <C>
Robert S. Cline 94,000 options
Robert G. Brazier 54,000 options
Roy C. Liljebeck 24,000 options
Raymond T. Van Bruwaene 24,000 options
Kent W. Freudenberger 24,000 options
John J. Cella 24,000 options
Carl D. Donaway 24,000 options
</TABLE>

These options will vest in four equal installments based upon attainment of
specified stock price increases over the fair market value grant price of
$31.063 on January 1, 1998. If the stock price equals or exceeds an
installment target for 10 of 20 consecutive trading days, that installment
vests. If the stock price target is not achieved, that installment lapses.
However, the Board may elect to vest an installment, even if the stock price
target is not met, if the Company's stock price performance equals or exceeds
the 75th percentile of the Dow Jones Transportation Index during the
installment period.

The installment targets and deadlines are:

<TABLE>
<CAPTION>
STOCK PRICE TARGETS
--------------------------------------
DEADLINE FOR
% INCREASE PRICE ATTAINMENT
---------- ------------ ---------------
<S> <C> <C>
20% $ 37.275/1/ January 1, 2000
30% $ 40.381 January 1, 2001
40% $ 43.488 January 1, 2002
50% $ 46.594 January 1, 2003
</TABLE>
- --------

/1/ This stock price target was achieved in February 1998.

19
<PAGE>

Unvested options lapse upon retirement, death, disability or other
termination of employment. Upon retirement, recipients will have 3 years to
exercise vested options. If the recipient dies or become disabled prior to
retirement, the recipient or estate will have one year to exercise vested
options.

If shareholder approval of the 1998 Plan is not obtained, these option
grants to the executive officers will be void.

FEDERAL INCOME TAX CONSEQUENCES

INCENTIVE STOCK OPTIONS. The Company intends that certain of the options
granted under the 1998 Plan will qualify as incentive stock options under
Section 422 of the Internal Revenue Code. Assuming that these options are so
qualified, the tax consequences to an optionee will vary depending on whether
certain holding period requirements are met. If an optionee acquiring stock
pursuant to an incentive stock option does not dispose of such stock until at
least one year after the transfer of such stock to the optionee and at least
two years from the date of grant of the option, then subject to the
alternative minimum tax rules discussed below, there will be no tax
consequences to the optionee or the Company when the incentive stock option is
granted or when it is exercised.

If stock acquired upon exercise of an option is sold by the optionee and, at
that time of the sale the holding period requirements described in the
preceding paragraph have not been met, the federal income tax consequences to
the optionee will be as follows: First the optionee will be required to report
on his or her federal income tax return for the year in which the sale occurs,
additional compensation income equal to the difference between the fair market
value of the stock at the time of exercise of the option and the exercise
price at which the stock was acquired (the Company will generally be entitled
to a compensation deduction in an equivalent amount). Next, for purposes of
determining gain or loss upon disposition of the stock, an amount equal to
this compensation income will be added to the exercise price at which the
stock was acquired, and the total will be the optionee's adjusted basis of the
stock. Gain or loss will be determined based upon the difference between the
optionee's adjusted basis of the stock and the net proceeds of the sale, and
the optionee will be required to report such gain or loss on his or her
federal income tax return for the year in which the sale occurs. If a loss is
realized, certain limitations may apply to restrict the immediate
deductibility of the loss by the optionee.

When a participant exercises an incentive stock option, the difference
between the fair market value of the stock on the date of exercise and the
exercise price results in an adjustment in computing alternative minimum
taxable income for purposes of Section 55 of the Internal Revenue Code, which
may trigger alternative minimum tax consequences for the participant. Any
alternative minimum tax that is payable may ultimately be credited against
future taxes owed.

NONQUALIFIED STOCK OPTIONS. The Company may also grant nonqualified stock
options under the Plan. In general, there will be no tax consequences to the
optionee or the Company when such an option is granted. Upon exercise of such
an option, the optionee will be required to report, on his or her federal
income tax return for the year in which the exercise occurs, additional
compensation income equal to the difference between the fair market value of
the stock at the time of exercise of the option and the exercise price at
which the stock was acquired (the Company will generally be entitled to a
compensation deduction in an equivalent amount).

20
<PAGE>

The foregoing summary of the effect of federal income tax consequences does
not purport to be complete. In addition, this summary does not discuss the
provisions of the income tax laws of any state or foreign country in which a
participant may reside.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires that certain of the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, file reports of ownership and changes of ownership with the
Securities and Exchange Commission and the New York Stock Exchange. Officers,
directors and greater than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all such forms they file.

Based solely on its review of the copies of such forms received by the
Company, and on written representations by the Company's officers and
directors regarding their compliance with the filing requirements, the Company
believes that, in 1997, all filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with.

SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at the Company's 1999
Annual Meeting of Shareholders must be received by the Company on or prior to
November 30, 1998, to be eligible for inclusion in the Company's Proxy
Statement and form of proxy to be used in connection with the 1999 Annual
Meeting.

OTHER MATTERS

Management is not aware at this time that any other matters are to be
presented for action at this meeting. If other matters come before the
meeting, the persons named in the enclosed proxy form will vote all proxies in
accordance with their best judgment unless the shareholder has indicated on
the proxy card that the shares represented thereby are not to be voted on such
other matters. No action will be required of shareholders regarding reports of
officers.

IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY AND THAT YOUR SHARES BE
REPRESENTED. SHAREHOLDERS ARE URGED TO FILL IN, SIGN AND PROMPTLY RETURN THE
ACCOMPANYING FORM OF PROXY IN THE ENCLOSED ENVELOPE.

March 13, 1998
Seattle, Washington

21
<PAGE>

ADDENDUM TO AIRBORNE FREIGHT CORPORATION PROXY STATEMENT

AIRBORNE FREIGHT CORPORATION
1998 KEY EMPLOYEE STOCK OPTION PLAN/1/

ARTICLE 1

PURPOSE

The purpose of the 1998 Key Employee Stock Option Plan (the "Plan") is to
provide a method by which selected individuals performing services for
Airborne Freight Corporation, a Delaware corporation (the "Company"), and its
Affiliates may be offered an opportunity to invest in capital stock of the
Company, thereby increasing their personal interest in the growth and success
of the Company and its Affiliates.

ARTICLE 2

DEFINITIONS

Capitalized terms used in the Plan shall have the meanings given those terms
in the attached Appendix A or in the section of the Plan referred to therein.

ARTICLE 3

ADMINISTRATION

3.1 COMMITTEE. The Plan shall be administered by the Committee. A majority
of the members of the Committee shall constitute a quorum and all
determinations shall be made by a majority of that quorum. Any determination
reduced to writing and signed by all of the members of the Committee shall be
as effective as if it had been made by a majority vote at a meeting duly
called and held.

3.2 POWERS; REGULATIONS. The Committee shall have full power and authority,
subject only to the provisions of the Plan (a) to administer or supervise the
administration of the Plan; (b) to interpret the provisions of the Plan and
the Option Agreements; (c) to correct any defect, supply any information and
reconcile any inconsistency in such manner and to such extent as it determines
to be necessary or advisable to carry out the purpose of the Plan; and (d) to
take such other actions in connection with the Plan as it determines to be
necessary or advisable. The Committee is authorized to adopt, amend and
rescind such rules, regulations and procedures not inconsistent with the
provisions of the Plan as it determines to be necessary or advisable for the
proper administration of the Plan, and each Option shall be subject to all
such rules, regulations and procedures (whether the Option was granted before
or after promulgation thereof). Without limiting the authority of the
Committee to interpret the provisions of the Plan, the Committee shall have
the right to determine that a transaction (or series of related transactions)
is not a Control Purchase, even though literally included within the
definition of that term, if the Committee determines that the transaction (or
series of related transactions) does not have the effect of significantly
changing or influencing the control of the Company on a permanent basis.
- --------

/1/ The provisions of the Plan have been adjusted as necessary to reflect the
two-for-one stock split in the form of a stock dividend effected in
February 1998.

A-1
<PAGE>

3.3 LIMITS ON AUTHORITY. Exercise by the Committee of its authority shall be
consistent with the intent that all Incentive Stock Options be qualified under
the terms of Section 422 of the Code, and that the Plan be administered in a
manner so that, to the extent possible, the grant of Options and all other
transactions with respect to the Plan, to Options and to any Common Stock
acquired upon exercise of Options, shall be exempt from the operation of
Section 16(b) of the Exchange Act.

3.4 EXERCISE OF AUTHORITY. Each action and determination made or taken by
the Committee (or by the Continuing Directors pursuant to the express
authority granted them in the Plan), including but not limited to any
interpretation of the Plan and the Option Agreements, shall be final,
conclusive and binding for all purposes and upon all persons. No member of the
Committee (or Continuing Director) shall be liable for any action or
determination made or taken by the member (or Continuing Director) or the
Committee in good faith.

ARTICLE 4

SHARES SUBJECT TO THE PLAN

4.1 GRANT LIMITS. Subject to the provisions of this Article 4, the maximum
number of shares of Common Stock for which Options may be granted during any
calendar year during the term of the Plan, from and including 1998 to and
including 2007, shall be one and one-half percent (1 1/2%) of the number of
shares of Common Stock outstanding on December 31 of the prior calendar year
(such maximum number of shares will be referred to as the "Plan Annual Grant
Limit"), subject to the following additional limitations:

(a) the maximum number of shares of Common Stock for which Options may be
granted during the entire term of the Plan shall be the sum of (i) six million
(6,000,000) shares, plus (ii) any shares of Common Stock subject to options
outstanding on the Effective Date under the 1994 Airborne Key Employee Stock
Option and Stock Appreciation Rights Plan, to the extent the options terminate
without having been exercised in full (such maximum number of shares will be
referred to as the "Overall Grant Limit"); and

(b) the maximum number of shares of Common Stock for which Options may be
granted to any Eligible Person during any calendar year shall be two hundred
thousand (200,000) (such maximum number of shares will be referred to as the
"Individual Annual Grant Limit").

Shares of Common Stock will be made available from the authorized but
unissued shares of the Company or from shares reacquired by the Company. If an
Option terminates for any reason without having been exercised in full, the
shares of Common Stock for which the Option has not been exercised shall again
be available for purposes of the Plan.

4.2 ADJUSTMENTS. If the Company subdivides its outstanding shares of Common
Stock into a greater number of shares (by stock dividend, stock split,
reclassification or otherwise) or combines its outstanding shares of Common
Stock into a smaller number of shares (by reverse stock split,
reclassification or otherwise), or if the Committee determines that any stock
dividend, extraordinary cash dividend, reclassification, recapitalization,
reorganization, split-up, spin-off, combination, exchange of shares, rights
offering, or other transaction or event that is not an

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Approved Transaction or Control Purchase affects the Common Stock such that an
adjustment is required in order to preserve the benefits or potential benefits
intended to be made available under the Plan, then the Committee shall, in
such manner as it determines to be equitable and appropriate, adjust any or
all of (a) the number of shares of Common Stock (or number and kind of other
securities or property) for which, and the time or times when, outstanding
Options may thereafter be exercised; (b) the purchase price for the shares (or
other securities or property) under outstanding Options; and (c) the number of
shares of Common Stock (or number and kind of other securities or property)
that will thereafter constitute the Plan Annual Grant Limit, the Overall Grant
Limit and the Individual Annual Grant Limit.

ARTICLE 5

ELIGIBILITY

In order to be eligible to participate in the Plan and to receive an Option,
a person (an "Eligible Person") shall be an employee of the Company or one of
its Affiliates other than an employee who is a 10% Stockholder.

ARTICLE 6

STOCK OPTIONS

6.1 GRANT OF OPTIONS. The Committee shall from time to time determine,
subject to the express limitations of the Plan (a) the Eligible Persons to
whom Options are to be granted; (b) the number of shares of Common Stock for
which the Options are exercisable and the purchase price of such shares; (c)
whether the Options are Incentive Stock Options or Nonqualified Stock Options;
and (d) all of the other terms and conditions (which need not be identical) of
the Options; provided, however, that each Option that by its terms qualifies
as an Incentive Stock Option shall be such unless the Committee expressly
provides otherwise.

6.2 PURCHASE PRICE. The price at which shares of Common Stock may be
purchased upon exercise of an Option shall not be less than the Fair Market
Value of the shares on the date the Option is granted.

6.3 LIMITATIONS ON INCENTIVE STOCK OPTIONS. The aggregate Fair Market Value
of the shares of Common Stock for which, during any calendar year, one or more
Incentive Stock Options under the Plan (and/or one or more options under any
other plan maintained by the Company or any of its Affiliates for the granting
of options intended to qualify under Section 422 of the Code) become
exercisable for the first time by a Holder shall not exceed the ISO Limit
(said value to be determined as of the respective dates on which the options
are granted to the Holder). If an Option that would otherwise qualify as an
Incentive Stock Option becomes exercisable for the first time in any calendar
year for shares of Common Stock that would cause such aggregate Fair Market
Value to exceed the ISO Limit, then the portion of the Option in respect of
such shares shall be deemed to be a Nonqualified Stock Option.

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6.4 TERM OF OPTIONS. Subject to the provisions of the Plan with respect to
termination of Options upon or following termination of employment, the
Committee shall determine the term of each Option, which term shall not be
more than ten (10) years from the date of grant in the case of an Incentive
Stock Option.

6.5 OPTION AGREEMENT. Each Option shall be evidenced by an agreement (the
"Option Agreement") containing the terms and conditions of the Option as
determined by the Committee. An Option Agreement may contain (but shall not be
required to contain) such terms and conditions as the Committee determines to
be necessary or appropriate to ensure that the penalty provisions of Section
4999 of the Code will not apply to any stock received by the Holder from the
Company.

6.6 EXERCISE OF OPTIONS.

(a) TIME EXERCISABLE. An Option shall become and remain exercisable to the
extent provided in its Option Agreement and in the Plan. After an Option is
granted, the Committee may accelerate the time or times at which the Option
may be exercised.

(b) MANNER OF EXERCISE. An Option shall be exercised by written notice to
the Company in compliance with the terms and conditions of its Option
Agreement and such procedures for exercise of Options as the Committee may
adopt from time to time. The method or methods of payment of the purchase
price of the shares to be purchased upon exercise of the Option shall be
determined by the Committee and set forth in its Option Agreement. Unless the
Committee expressly provides otherwise, such purchase price shall be paid by
(i) check, (ii) delivery of whole shares of Common Stock that are owned by the
Holder and have been outstanding for at least six (6) months, or (iii)
delivery, together with a properly executed exercise notice, of irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds required to pay the purchase price. The minimum number of
shares of Common Stock for which an Option must be exercised shall be one
hundred (100) (or, if less, the full number of shares for which it is
exercisable).

(c) VALUE OF SHARES. Shares of Common Stock delivered in payment of all or
any part of the purchase price payable upon exercise of an Option shall be
valued at their Fair Market Value on the exercise date of the Option.

(d) ISSUANCE OF SHARES. The Company shall issue the shares of Common Stock
purchased under an Option as soon as practicable after the Option has been
duly exercised; provided, however, that no fractional shares shall be issuable
under the Plan, and any fractional shares that would otherwise be issuable
shall be disregarded. Following exercise of an Incentive Stock Option, the
Committee shall cause the information statement required by Section 6039 of
the Code to be furnished to the Holder within the time and in the manner
prescribed by law.

6.7 LEGENDS. Each certificate representing shares of Common Stock issued
upon exercise of an Option shall contain any legends that the Committee
determines to be necessary or appropriate. The Company may cause the transfer
agent for the Common Stock to place a stop transfer order with respect to such
shares.

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6.8 NONTRANSFERABILITY. Unless the Committee determines otherwise at the
time an Option is granted (or at any later time when the Committee, by written
notice to the Holder, releases in whole or in part the restrictions under this
Section 6.8), an Option shall not be transferable other than by will or the
laws of descent and distribution and may be exercised during the lifetime of
the Holder thereof only by the Holder (or his or her court appointed legal
representative).

ARTICLE 7

GENERAL PROVISIONS

The provisions of this Article 7 shall apply to all Options, except to the
extent that one or more Option Agreements expressly provide otherwise.

7.1 TERMINATION OF EMPLOYMENT.

(a) IN GENERAL. If a Holder's employment with the Company or one of its
Affiliates terminates prior to the full exercise of an Option for any reason
other than death, Disability, Retirement or Cause, then the Option shall
thereafter be exercisable, to the extent the Holder was entitled to exercise
the Option on the date of such termination, for a period of three (3) months
following such termination (but not later than the end of the term of the
Option), at which time the Option shall terminate.

(b) RETIREMENT. If a Holder's employment with the Company or one of its
Affiliates terminates prior to the full exercise of an Option on account of
Retirement, then the Option shall (i) automatically become exercisable for all
of the shares under the Option, and (ii) thereafter be exercisable for a
period of three (3) years following such termination (but not later than the
end of the term of the Option or one (1) year following the death of the
Holder), at which time the Option shall terminate.

(c) DEATH OR DISABILITY. If a Holder's employment with the Company or one of
its Affiliates terminates prior to the full exercise of an Option on account
of death or Disability, then the Option shall (i) automatically become
exercisable for all of the shares under the Option, and (ii) thereafter be
exercisable for a period of one (1) year following such termination (but not
later than the end of the term of the Option), at which time the Option shall
terminate.

(d) TERMINATION FOR CAUSE. If a Holder's employment is terminated for Cause,
then all Options held by the Holder shall immediately terminate. Following
termination of a Holder's employment, if the Holder engages in any act that
would have constituted Cause if the Holder had remained employed by the
Company or any of its Affiliates, then the Committee shall be entitled to
terminate any Options held by the Holder.

(e) MISCELLANEOUS. The Committee may determine whether a leave of absence of
a Holder constitutes a termination of the Holder's employment; provided,
however, that neither (i) a leave of absence, duly authorized in writing by
the Company or any of its Affiliates for military service or sickness, or for
any other purpose approved by the Company or any of its Affiliates, if the
period of the leave does not exceed ninety (90) days, nor (ii) a leave of
absence in excess of ninety (90) days, duly authorized in writing by the
Company or any of its Affiliates, provided the Holder's

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right to return to the employ of the Company or the Affiliate is guaranteed
either by statute or by contract, shall be deemed a termination of the
Holder's employment. An Option shall not be affected by any change in the
Holder's employment so long as the Holder continues to be employed by the
Company or any of its Affiliates. If a Holder is employed by an Affiliate of
the Company that ceases to be an Affiliate, such event shall, for purposes of
any Option held by the Holder, be deemed to constitute a termination of the
Holder's employment for a reason other than death, Disability, Retirement or
Cause.

7.2 CERTAIN EVENTS.

(a) CONTROL PURCHASE. Effective upon a Control Purchase, if the Holder of an
Option is employed by the Company or any of its Affiliates at that time, the
Option shall automatically become exercisable for all of the shares under the
Option.

(b) APPROVED TRANSACTION. If an Approved Transaction occurs, the Committee
shall have the power to determine what effect, if any, the Approved
Transaction shall have upon outstanding Options, including, without limitation
the following powers:

(i) to cause the Options to be surrendered and canceled and payments to
be made to the Holders in exchange therefor;

(ii) to accelerate exercisability of the Options; and

(iii) to cause adjustments to be made in (A) the number of shares of
Common Stock (or number and kind of other securities or property) for
which, and the time or times when, outstanding Options may thereafter be
exercised, (B) the purchase price for the shares (or other securities or
property) under outstanding Options, and (C) the other terms of outstanding
Options.

7.3 RIGHT TO TERMINATE EMPLOYMENT. Nothing contained in the Plan or in any
Option Agreement, and no action of the Company or the Committee with respect
thereto, shall confer on any Holder any right to continue in the employ of the
Company or any of its Affiliates or interfere in any way with the right of the
Company or any of its Affiliates, subject to the terms and conditions of any
agreement between the Holder and the Company or any of its Affiliates, to
terminate at any time, with or without Cause, the employment of the Holder.

7.4 NONALIENATION OF BENEFITS. Except as permitted pursuant to Section 6.8,
no right or benefit under the Plan or any Option shall be (a) subject to
anticipation, alienation, sale, assignment, hypothecation, pledge, exchange,
transfer, encumbrance or charge (and any attempt to anticipate, alienate,
sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the
same shall be void); or (b) liable for or subject to the debts, contracts,
liabilities or torts of the person entitled to the right or benefit.

7.5 TERMINATION AND AMENDMENT

(a) TERMINATION. The Plan shall terminate on the tenth (10th) anniversary of
the Effective Date; provided, however, that the Board or the Committee may
terminate the Plan at any earlier time. No Options may be granted following
termination of the Plan, but the provisions of the Plan

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shall continue in effect until all Options terminate or are exercised in full
and all rights of all persons with any interest in the Plan expire.

(b) AMENDMENT OF PLAN. The Board or the Committee may from time to time
amend the Plan, whether before of after termination of the Plan, in such
respects as it shall deem advisable; provided, however, that any such
amendment (i) shall comply with all applicable laws and stock exchange listing
requirements, and (ii) with respect to Incentive Stock Options granted or to
be granted under the Plan, shall be subject to any approval by stockholders of
the Company required under the Code. No amendment of the Plan may adversely
affect the rights of the Holder of an Option in any material way unless the
Holder consents thereto.

7.6 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company with
respect to Options and the issuance of Common Stock upon the exercise thereof
shall be subject to all applicable laws, rules and regulations and such
approvals by any governmental agencies as may be required, including but not
limited to the effectiveness of any registration statement required under the
Securities Act, and the rules and regulations of any securities exchange or
over-the-counter market on which the Common Stock may be listed or quoted. The
Company shall have no obligation to register shares of Common Stock issuable
upon exercise of Options under the Securities Act or to register, qualify or
list such shares under the laws of any state or other jurisdiction or the
rules of any securities exchange or over-the-counter market.

7.7 WITHHOLDING. By accepting an Option, the Holder shall be deemed to have
agreed to pay, or make arrangements satisfactory to the Committee for payment
to the Company of, all taxes required to be withheld by the Company in
connection with the exercise of the Option or any sale, transfer or other
disposition of any shares of Common Stock acquired upon exercise of the
Option. If the Holder shall fail to pay, or make arrangements satisfactory to
the Committee for the payment of, all such taxes, then the Company or any of
its Affiliates shall, to the extent not prohibited by law, have the right to
deduct from any payment of any kind otherwise due to the Holder an amount
equal to any taxes of any kind required to be withheld by the Company or any
of its Affiliates with respect to the Option.

7.8 SEPARABILITY. With respect to Incentive Stock Options, if the Plan does
not contain any provision required to be included herein under Section 422 of
the Code, such provision shall be deemed to be incorporated herein with the
same force and effect as if such provision had been set out in full herein;
provided, however, that to the extent any Option that is intended to qualify
as an Incentive Stock Option cannot so qualify, the Option, to that extent,
shall be deemed to be a Nonqualified Stock Option for all purposes of the
Plan.

7.9 PLAN NOT EXCLUSIVE. Neither the adoption of the Plan by the Board nor
any submission of the Plan to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including
but not limited to the granting of stock options and the awarding of stock and
cash outside of the Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.

7.10 EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION. By accepting an
Option, the Holder shall be deemed to have agreed that the Option is special
incentive

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compensation that will not be taken into account, in any manner, as salary,
compensation or bonus in determining the amount of any payment or other
benefit under any pension, retirement or other employee benefit plan, program
or policy of the Company or any of its Affiliates.

7.11 NO STOCKHOLDER RIGHTS. No Holder or other person shall have any voting
or other stockholder rights with respect to shares of Common Stock under an
Option until the Option has been duly exercised, full payment of the purchase
price has been made, all conditions under the Option and the Plan to issuance
of the shares have been satisfied, and a certificate for the shares has been
issued. No adjustment shall be made for cash or other dividends or
distributions to stockholders for which the record date is before the date of
such issuance.

7.12 GOVERNING LAW. The Plan and all Options shall be governed by, and
interpreted in accordance with, the laws of the State of Washington.

7.13 COMPANY'S RIGHTS. The grant of Options shall not affect in any way the
right or power of the Company to make reclassifications, reorganizations or
other changes of or to its capital or business structure or to merge,
consolidate, liquidate, sell or otherwise dispose of all or any part of its
business or assets.

7.14 EFFECTIVE DATE; APPROVAL REQUIREMENTS. The Plan shall be effective as
of January 1, 1998 (the "Effective Date"). Issuance of Options after the
Effective Date shall be subject to the approval of the Plan by the
stockholders of the Company at the annual meeting of stockholders scheduled to
be held on April 28, 1998, or any adjournment thereof. The approval required
shall be a majority of the votes cast on the proposal to approve the Plan. No
Option shall be exercisable until this approval requirement has been
satisfied. If this requirement is not satisfied at such annual meeting, the
Plan and any Options granted prior thereto shall automatically be void and of
no effect.

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APPENDIX A

DEFINITIONS

"Affiliate" of the Company means any corporation that constitutes a "parent
corporation" or a "subsidiary corporation" within the meaning of Section 424
of the Code.

"Approved Transaction" means any of the following transactions consummated
with the approval, recommendation or authorization of the Board:

(a) any merger, consolidation, statutory or contractual share exchange,
or other transaction to which the Company or any of its Affiliates or
stockholders is a party if, immediately following the transaction, the
persons who held Common Stock (or securities convertible into Common Stock)
immediately before the transaction hold less than a majority of--

(i) the combined Common Equity of the Company; or

(ii) if, pursuant to the transaction, shares of Common Stock are
changed or converted into or exchanged for, in whole or part,
securities of another corporation or entity, the combined Common Equity
of that corporation or entity;

without taking into account any person's Common Equity of the Company or
the other corporation or entity that is not directly attributable (through
continued ownership, amendment, reclassification, conversion or exchange)
to the person's holdings of Common Stock (or securities convertible into
Common Stock) immediately before the transaction;

(b) any liquidation or dissolution of the Company; and

(c) any sale, lease, exchange or other transfer not in the ordinary
course of business (in one transaction or a series of related transactions)
of all, or substantially all, of the assets of the Company.

"Board" means the Board of Directors of the Company.

"Cause" means, in connection with the termination of the employment of a
Holder (a) repeated failures to carry out directions of the Board or the
Holder's supervisors with regard to material matters reasonably consistent
with the Holder's duties; (b) knowing violation of a state or federal law
involving the commission of a crime against the Company or any of its
Affiliates or a felony; (c) misuse of controlled substances; (d) any
misrepresentation, deception, fraud or dishonesty that is materially injurious
to the Company or any of its Affiliates; and (e) any act or omission in
willful disregard of the interests of the Company or any of its Affiliates
that substantially impairs the goodwill, business or reputation of the Company
or any of its Affiliates.

"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute or statutes thereto. Reference to any specific
section of the Code shall include any successor section.

"Committee" means the Compensation Committee of the Board.

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"Common Equity" means the capital stock of a corporation (or corresponding
securities of a noncorporate entity) ordinarily, and apart from rights
accruing under special circumstances, having the right to vote in an election
for directors (or for members of the governing body of the noncorporate
entity).

"Common Stock" means the Common Stock, par value $1.00 per share, of the
Company.

"Company" is defined in Article 1.

"Continuing Directors" means the persons who constitute "Continuing
Directors," as defined in Section 11.3(g) of the Certificate of Incorporation
of the Company, as amended.

"Control Purchase" means any transaction (or series of related
transactions), consummated without the approval, recommendation or
authorization of the Board, in which any person, corporation or other entity
(including any "person" as defined in Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act) purchases any Common Stock (or securities convertible into
Common Stock), pursuant to a tender offer or a request or invitation for
tenders (as those terms are defined in Section 14(d)(1) of the Exchange Act)
or otherwise, and thereafter is the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of securities of the Company representing more
than twenty-five percent (25%) of the combined Common Equity of the Company.

"Disability" means any condition that constitutes "disability" within the
meaning of Section 22(e)(3) of the Code.

"Effective Date" is defined in Section 7.14.

"Eligible Person" is defined in Article 5.

"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute or statutes thereto. Reference to any
specific section of the Exchange Act shall include any successor section.

"Fair Market Value" for the Common Stock (or any other security) on any day
means, if the Common Stock (or other security) is publicly traded, the last
sales price (or, if no last sales price is reported, the average of the high
bid and low asked prices) for a share of Common Stock (or unit of the other
security) on that day (or, if that day is not a trading day, on the next
preceding trading day), as reported by the principal exchange on which the
Common Stock (or other security) is listed, or, if the Common Stock (or other
security) is publicly traded but not listed on an exchange, as reported by The
Nasdaq Stock Market, or, if such prices or quotations are not reported by The
Nasdaq Stock Market, as reported by any other available source of prices or
quotations selected by the Committee. If the Common Stock (or other security)
is not publicly traded, or if the Fair Market Value is not determinable by any
of the foregoing means, the Fair Market Value on any day shall be determined
in good faith by the Committee on the basis of such considerations as the
Committee determines to be appropriate.

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"Holder" means an Eligible Person who has received an Option or, if rights
under the Option continue following the death of the Eligible Person or are
transferred in a manner permitted by Section 6.8, the person who succeeds to
those rights by will or by the laws of descent and distribution or by such
transfer.

"Incentive Stock Option" means an Option that is an incentive stock option
within the meaning of Section 422 of the Code.

"Individual Annual Grant Limit" is defined in Section 4.1.

"ISO Limit" means $100,000 or such greater or lesser amount as may be
specified from time to time in Section 422(d) of the Code.

"Nonqualified Stock Option" means an Option that is not an Incentive Stock
Option.

"Option" means an option with respect to shares of Common Stock awarded
pursuant to Article 6.

"Option Agreement" is defined in Section 6.5.

"Overall Grant Limit" is defined in Section 4.1.

"Plan" is defined in Article 1.

"Plan Annual Grant Limit" is defined in Section 4.1.

"Retirement" means any termination of a Holder's employment other than on
account of death, Disability or Cause after the Holder has either (a) attained
the age of fifty-five (55) years and accumulated at least twenty (20) years of
service with the Company and its Affiliates, or (b) attained the age of sixty
(60) years and accumulated at least ten (10) years of service with the Company
and its Affiliates.

"Securities Act" means the Securities Act of 1933, as amended from time to
time, or any successor statute or statutes thereto. Reference to any specific
section of the Securities Act shall include any successor section.

"10% Stockholder" means a person who owns (or is considered as owning within
the meaning of Section 424 of the Code) stock possessing more than 10% of the
total combined voting power of all classes of capital stock of the Company.

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AIRBORNE FREIGHT CORPORATION
3101 WESTERN AVENUE, P.O. BOX 662, SEATTLE, WA 98111

P R O X Y

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints James. H. Carey, Andrew B. Kim and Robert
S. Cline as Proxies, each with the power to appoint a substitute, and hereby
authorizes them to represent and to vote, in such manner as in their discretion
shall be deemed appropriate to carry out the authority as designated below, all
the shares of Common Stock of Airborne Freight Corporation (the "Company") held
of record by the undersigned on February 23, 1998, at the annual meeting of
shareholders to be held April 28, 1998, or any adjournments thereof.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. EXCEPT AS OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE NOMINEES NAMED ON THE REVERSE SIDE AND FOR
APPROVAL OF THE PROPOSAL TO AMEND THE RESTATED CERTIFICATE OF INCORPORATION OF
THE COMPANY TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM
60,000,000 TO 120,000,000 AND THE PROPOSAL TO APPROVE THE AIRBORNE FREIGHT
CORPORATION 1998 KEY EMPLOYEE STOCK OPTION PLAN.

Continued, and to be signed and dated, on reverse side.

AIRBORNE FREIGHT CORPORATION
P.O. BOX 11249
NEW YORK, N.Y. 10203-0249

<PAGE>

DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------

1. ELECTION OF DIRECTORS -
Class A (Term to expire 2001)

FOR all nominees listed below [_]

WITHHOLD AUTHORITY to vote for all nominees listed below [_]

EXCEPTIONS [_]

Nominees: Andrew F. Brimmer, Harold M. Messmer, Jr., Mary Agnes Wilderotter

(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND STRIKE OUT THE NOMINEE'S NAME ABOVE. IF YOU DESIRE
TO CUMULATE YOUR VOTES FOR ANY INDIVIDUAL NOMINEE(S), WRITE YOUR INSTRUCTION,
AS TO NUMBER OF VOTES CAST FOR EACH, ON THE SPACE PROVIDED BELOW. THE TOTAL
MUST NOT EXCEED THREE TIMES THE NUMBER OF SHARES YOU HOLD).

____________________________________________________________________________

2. To approve the proposal to amend the Restated Certificate of Incorporation of
the Company to increase the number of authorized shares of Common Stock from
60,000,000 to 120,000,000.

FOR [_] AGAINST [_] ABSTAIN [_]

3. To approve the Airborne Freight Corporation 1998 Key Employee Stock Option
Plan.

FOR [_] AGAINST [_] ABSTAIN [_]

4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting, or any adjournments
thereof.

Change of Address and/or Comments Mark Here [_]

Please sign as the name appears hereon. When shares are held by joint tenants,
both should sign. When signing as an attorney, executor, administrator, trustee,
or guardian, please give full title as such. If a corporation, please sign in
full corporate name by president or other authorized officer, if partnership,
please sign in partnership name by authorized person.

Dated:___________________________________, 1998

_______________________________________________
Signature

_______________________________________________
Signature if held jointly

VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK. [X]

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.