ATSG to provide 20 cargo planes for Amazon

Air Transport Services Group has confirmed that it has reached agreements with Amazon Fulfillment Services to operate an airfreight network to serve the giant online retailer’s customers in the United States.    Air Transport Services Group has confirmed that it has reached agreements with Amazon Fulfillment Services, an affiliate of Amazon.com, to operate an air-cargo network to serve the giant online retailer’s customers in the United States. 
   “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,” Joe Hete, ATSG’s president and chief executive officer, said in a statement Wednesday.
   “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’s senior vice president of worldwide operations and customer service.
   The commercial agreements will include the leasing of 20 Boeing 767 freighters 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,” Wilmington, Ohio-based ATSG said.
   Along with the cargo aircraft lease agreements, ATSG has agreed to grant Amazon warrants to acquire over a five-year period up to 19.9 percent of ATSG’s common shares at $9.73 per share, based on the closing price of ATSG common shares on Feb. 9.
   This move by Amazon was widely viewed by the logistics industry as an attempt by the retailer to put pressure on its existing express transportation services providers, namely UPS and FedEx, over service and pricing, but it’s not expected to supplant these two giant operators from working with Amazon.
   “While this agreement [with ATSG] may allow Amazon to take some freight back in-house to fit its customer value proposition in a few specific areas, we believe integrators, like UPS and FedEx, will still be an important part of Amazon’s delivery solution,” William Blair Equity Research said in a client note. “It certainly makes sense for Amazon to adjust its logistical capabilities to meet its customers’ needs (e.g., Sunday delivery) and thereby use some of its own air and ground capacity where UPS or FedEx likely would not be interested anyway unless it were at a certain price point. Thus, we still believe UPS and FedEx maintain a strong and important relationship with Amazon.”