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  • OTRI.USA
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  • OTVI.USA
    15,915.300
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  • TSTOPVRPM.ATLPHL
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  • TSTOPVRPM.CHIATL
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  • TSTOPVRPM.DALLAX
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Air CargoAmerican ShipperE-commerce & FulfillmentModern ShipperNews

Amazon airline ATSG touts red-hot business for cargo jet leases

Online retailer’s investment in Air Transport Services Group could be final in May

Executives at Air Transport Services Group, which provides aircraft and outsourced cargo transport for Amazon’s private airline, say the rise in pandemic-related e-commerce is stimulating heavy demand for flying and leasing Boeing 767 freighters, and that new long-term leases will provide ongoing revenue long after the current freight peak subsides.

The provider of bundled air transport services is completely sold out with 15 leases this year, including 11 for Amazon (NASDAQ: AMZN), and already has firm orders for nine of the midsize widebody aircraft next year, Chief Commercial Officer Mike Berger said Wednesday during an investor presentation. The company, headquartered in Wilmington, Ohio, has capacity for a few more leases in 2022 and is seeing interest from several customers for leases beginning as far out as 2025, he added.

Last year, Air Transport Services Group (NASDAQ: ATSG) delivered 11 newly converted 767-300 aircraft, including five with UPS. 

Not only is the aviation services company placing record numbers of new freighters into service, but it is turning around 767s it gets back for new leases faster than ever, CEO Rich Corrado said during last month’s earnings call.

ATSG’s revenue grew 8% last year to $1.6 billion. Operating income grew 16.6% to $206 million, and adjusted pretax earnings grew 10% to $497 million. Revenue fell below expectations in the fourth quarter because of lower demand for its passenger and military personnel charters. 

Many of the planes leased by subsidiary Cargo Aircraft Management are going to new international customers, such as MasAir in Mexico, Astral Aviation in Kenya and Raya Airways in Malaysia.

“We’re confident that we’ll be able to deploy more of our 767s outside the U.S. in this and future years,” Corrado said.

In January, CAM agreed to buy two 767 passenger jets from Air Canada, convert them to freighters and lease them back to Air Canada, which has decided to add an all-cargo division for the first time.

The company is purchasing 13 767s for freighter conversion this year, on top of the eight aircraft already in or awaiting conversion at the end of 2020, it said in its earnings report. 

The e-commerce wave is turbocharging ATSG’s business. 

Global airfreight capacity has shrunk by nearly 20% because of reduced passenger flying, but demand to ship industrial and retail goods, food products, and COVID vaccines is soaring. Leading the demand curve is e-commerce as people following stay-at-home guidance spend more money on goods than services. As a core carrier for Amazon Air and express delivery giant DHL, ATSG is directly benefiting from the shift to online shopping.

The airfreight market is forecast to grow to $377 billion at a compound annual rate of 5.6% through 2027, market research firm Valuates said Thursday.

Amazon earlier this month invested more than $131 million for a 19.5% share in ATSG. CFO Quint Turner said he expects the U.S. Department of Transportation to approve the share purchase by the second half of May and that the proceeds will be used to pay down debt. The company’s strong cash flow is sufficient to cover expansion needs, Turner added, and it is prohibited until the second quarter of 2022, under terms of the federal aid from last year’s CARES Act, from rewarding investors in the form of stock buybacks or dividends.

Amazon recently purchased 11 aircraft on its own for the first time, and Cargo Facts reported this week that it had awarded ATSG subsidiary Air Transport International the contract to operate the first 767-300 out of conversion. 

ATSG’s business model of leasing aircraft to integrated logistics companies and other carriers, and then layering on services such as crews to fly the aircraft, maintenance and ground handling, diversifies revenue and insulates the company from cyclical changes that impact pure charter operators.

“The pandemic spurred demand for leased assets, so long after the pandemic is over we’re going to continue to get long-term returns on the base assets that we lease,” Corrado said Wednesday at Sidoti & Co.’s virtual investor conference. 

Securing assets

There is plenty of potential feedstock for ATSG, which owned 106 aircraft at the end of 2020, to expand its fleet. About two-thirds of the 300 767s still operating as passenger aircraft would make good conversion candidates based on their age, Berger said.

Several airlines, such as Delta Air Lines (NYSE: DAL), WestJet and Austrian Airlines, retired their 767s last year as they downsized to save money during the industry’s depression. Aviation experts say carriers are likely to only bring back smaller, younger and more technologically advanced aircraft that deliver greater yield, which could put many 767s in the secondary market.

One of the limiting factors for expanding the global pool of all-cargo aircraft is the finite number of conversion facilities at maintenance and engineering shops. 

“We’re in good shape in terms of conversion slots” because ATSG has been an anchor customer of Israel Aircraft Industries for two decades and has access to four lines in Tel Aviv at all times, Berger said.

U.S. e-commerce grew about 40% last year and now represents about 20% of total retail sales, compared to about 14% in 2019. But Berger said during the earnings call that global e-commerce activity is catching up too in areas where ATSG is starting to grow. 

ATSG, for example, is leasing more aircraft into Latin America and Africa, where e-commerce is growing 36% and 20%, respectively.

“As we penetrate new markets, that’s what makes us really excited,” he said. “It’s not only our dry lease piece, it’s where they’re going to and who our customers are serving. And that plays right into where the growth engine is and that’s e-commerce and m-commerce across the board.”

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

RELATED NEWS: 

ATSG enjoys banner year leasing converted 767 freighters

Air Canada finalizes decision to convert aircraft to freighters

Analysis: Amazon Air and ATSG grow together

Amazon Air to expand fleet with 12 freighters

Air Transport Services Group starts business to train pilots

Eric Kulisch, Air Cargo Editor

Eric is the Air Cargo Market Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals from the American Society of Business Publication Editors for government coverage and news analysis, and was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. Eric is based in Portland, Oregon. He can be reached for comments and tips at ekulisch@freightwaves.com

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