ATSG confirms deal with Amazon to operate 20 B767s

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After weeks of speculation, Air Transport Services Group, Inc. (ATSG) announced today agreements with Amazon Fulfillment Services, Inc., an affiliate of Amazon.com, Inc., to operate an air cargo network to serve Amazon customers in the United States.

The commercial agreements will include the leasing of 20 B767 freighter aircraft to Amazon Fulfillment Services, Inc. by ATSG’s Cargo Aircraft Management (CAM), the operation of the aircraft by ATSG’s airlines, ABX Air and Air Transport International, and gateway and logistics services provided by ATSG’s LGSTX Services. The duration of the 20 leases will be five to seven years; the agreement covering operation of the aircraft will be for five years.

“Since last summer, we have been working closely with Amazon to demonstrate that a dedicated, fully customised air cargo network can be a strong supplement to existing transportation and distribution resources,” said Joe Hete, president and CEO of ATSG. “We are excited to serve Amazon customers by providing additional air cargo capacity and logistics support to ensure great shipping speeds for customers.”

ATSG

Amazon senior vice president of worldwide operations and customer service, Dave Clark added: “We offer Earth’s largest selection, great prices and ultra-fast delivery promises to a growing group of Prime members and we’re excited to supplement our existing delivery network with a great new provider, ATSG, by adding 20 planes to ensure air cargo capacity to support one and two-day delivery for customers.”

In conjunction with the commercial agreements, ATSG also has agreed to grant Amazon warrants to acquire over a five-year period up to 19.9 per cent of ATSG’s common shares at $9.73 per share, based on the closing price of ATSG common shares on 9 February 2016.

The announcement is the latest move that Amazon has made in an effort to vertically integrate its business and move its shipping operations in-house. Fulfillment costs are an increasingly onerous pressure on Amazon’s margins, and the e-tailing giant has grumbled publicly about service levels, particularly during peak seasonal periods.

Amazon’s move, while certainly bruising egos at UPS and FedEx – who handle Amazon’s fulfilment in the US – won’t mean the end of their services for some time, if ever, but none-the-less, Amazon has made it clear it won’t settle for the status quo.

Among Amazon’s other recent moves into this area was the unveiling of its latest prototype drone for branded delivery drones just ahead of Cyber Monday last November and a more recent move in January to register as an ocean freight forwarder, in a bid give it more control over shipping products from Chinese factories to US consumers.