Amazon to Lease 20 Boeing 767s for Its Own Air Cargo Network

SEATTLE (The Seattle Times/TNS) -

It’s official. Giant retailer Amazon now has its own air cargo delivery operation.

After running a secretive trial since last summer leasing five Boeing 767s from freight carrier Air Transport Services Group out of Wilmington, Ohio, Amazon has agreed to let ATSG run a dedicated air cargo network and expand the operation to 20 widebody cargo jets.

The move represents a big step-up in Amazon’s drive to provide quasi-immediate gratification to shoppers. By linking its fulfillment centers in major markets through a sizable fleet of cargo airplanes, it can speed up delivery and avoid being hostage to third-party logistics hiccups that are outside of its control, especially during the critical shopping season.

There’s been speculation that as Seattle-based Amazon invests more in transportation it might encroach on the businesses of Fedex and UPS, and perhaps even emerge as a competitor to those companies by providing transportation services itself. But in a recent earnings call a top Amazon executive said that the company sought to complement those services, not replace them.

“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, in a statement Wednesday.

The deal with ATSG gives Amazon 20 Boeing 767 jets on leases running five to seven years, which is typical in the air leasing world. Amazon also has the right to acquire just shy of one fifth of ATSG for just over $600 million.

ATSG subsidiary airlines ABX Air and ATI will operate the aircraft for Amazon and ATSG will also provide logistical services at its Wilmington hub.

The ambitious move is aimed at tightening Amazon’s control over the logistics of its own package delivery system and ensuring that it can provide prompt delivery to its customers even at peak periods.

In the months leading up to the holiday season’s package delivery rush last year, Amazon ran a trial operation — dubbed project Aerosmith — with ATSG flying five leased 767 freighter jets from Wilmington to its major fulfillment centers around the U.S.

It seems the Aerosmith trial was successful enough to convince Amazon to make the operation permanent and scale it up, substantially raising the stakes.

“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, ATSG chief executive. “We are excited to serve Amazon customers by providing additional air cargo capacity and logistics support to ensure great shipping speeds for customers.”

Over the next five years, Amazon has the option to buy 19.9 percent of ATSG’s shares at $9.73 per share, the closing price on Feb. 9.

In trading Wednesday afternoon, ATSG shares had jumped $1.98, or 16.8 percent, to $13.75.