Amazon Leased 20 Boeing 767 Aircrafts To Handle U.S. Delivery Service

March 10
11:32 PM 2016

Amazon on Wednesday announced the deal to lease 20 Boeing 767 freight aircraft from Air Transport Services Group Inc. (ATSG). With this deal, Amazon will start its own air delivery service in the United States.

As for now, Amazon has already operated its own fleet of couriers with trucks and drivers to deliver packages. In December, during the busiest season of delivery, Amazon added thousands of trucks to its U.S. fleet to handle growing request of package deliveries.

Amazon planned to gain more control over its supply chain and reduce cost in cargo operations. Last December, the company acquire 25% shares of a French delivery service company Colis Privé. The company also operated its own air freight service in Europe. It leased plane that flew back and forth from Germany, Poland and the UK to deliver packages and parcels.

Amazon has long planned to have similar air delivery operation in North America. On Wednesday, Tech Crunch reported that Air Transport Services Group (ATSG), an air cargo transportation provider, announced that Amazon has agreed to lease 20 of widebody cargo aircraft for 5-7 years.

The Seattle-based e-commerce giant confirmed the deal, which was signed on Tuesday. The deal came as Amazon offered its customers faster and free deliveries for millions of online orders. As part of the deal, Amazon also has the right to purchase up to 19.9% of ATSG's stock over five years at $9.73 per share.

Analysts said this plan will pose a threat to leading delivery companies. Reuters reported that RBC Capital Markets analyst John Barnes in his client note said, "This is an incremental negative for FDX and UPS as it will likely remove some higher yielding express freight and parcel volume from each of the respective networks."

Prior to the leasing agreement, Amazon relied on carriers such as United Parcel Service (UPS), and FedEx to deliver its packages. UPS is the worldwide-leader in delivery service and operates 240 large planes, while FedEx has 370 planes in its fleet. In using service from both companies, Amazon spent $11.5 billion on shipping cost last year.

FedEx said on Wednesday the leasing announcement was not a surprise, and acknowledged Amazon as its valuable customers. Daily Mail quoted Senior VP of integrated marketing and communication at FedEx Patrick Fitzgerald's remarks, 'We work closely with Amazon and have been aware for some time about their need for supplemental air capacity related to inventory management.'

Shares of ATSG was up almost 27% and hit the highest record at $14.90, before normalize to about 16%. Meanwhile FedEx and UPS shares were down about 1.5%

Amazon is determined to reduce its delivery cost by operating its own air delivery service. The company leased 20 widebody Boeing 767 cargo aircraft from ATSG to build its own air fleet.

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