Amazon to lease aircraft for delivery network

Aircraft leasing specialist Air Transport Services Group (ATSG), the world’s largest owner and operator of converted Boeing 767 freighter aircraft, has pulled off a major coup with the announcement that it is to work with online giant Amazon to create the retailer’s own aircraft delivery network.

ATSG is to lease a fleet of aircraft to Amazon, which the company will use to fulfil orders to US customers. The service will start operations on 1 April.

“Since last summer, we have been working closely with Amazon to demonstrate that a dedicated, fully customized 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.”

The terms of the commercial agreements will include the leasing of 20 Boeing 767 freighter aircraft to Amazon Fulfillment Services 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.

“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,” said Dave Clark, Amazon senior vice president of worldwide operations and customer service (pictured above).

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% of ATSG’s common shares at $9.73 per share, based on the closing price of ATSG common shares on February 9, 2016.

ATSG, which is based in Ohio, saw its stock soar almost 27% to a record high of $14.90 when the deal was made public.

No surprise

Amazon has been expanding its delivery infrastructure as it seeks to reduce shipping costs, and speed up delivery to customers. Its plans to expand its own logistics network will reduce its dependence on third party carriers United Parcel Service and FedEx, which during holiday season in particular has seen delays in delivery. Last year the company spent $11.5 billion on shipping.

FedEx said the move did not take them by surprise. “We work closely with Amazon and have been aware for some time about their need for supplemental air capacity related to inventory management,” said Patrick Fitzgerald, senior vice president of integrated marketing and communications at FedEx.

Amazon has been testing deliveries by drones but has not said when they would be in service.