Amazon secures options to more than double ATSG-leased fleet, boost ownership in company

ATSG’s leasing subsidiary, Cargo Aircraft Management (CAM), will lease ten additional freighter-converted 767-300Fs to Amazon, with five delivered per year in 2019 and 2020, Amazon announced last night. Leases will last ten years and include an option for a three-year extension. Amazon is also extending leasing agreements for the twelve 767-200BDSFs and eight 767-300BDSFs it currently leases from CAM by two and three years, respectively.

Growth of Amazon Air, however, could continue well beyond the ten additional units as the deal also includes warrant incentives for Amazon to add up to seventeen additional freighters from ATSG – beyond the new commitments and the twenty 767Fs ATSG currently leases to Amazon, for a total of up to forty-seven aircraft.

All leased freighters will be operated on Amazon’s behalf by an ATSG-affiliate carrier in an arrangement similar to the twenty-aircraft deal Amazon and ATSG inked in 2016. As part of that agreement, Amazon has warrants for the purchase of a stake in ATSG shares that would represent ownership of up to 19.9%. The extent to which these rights have been exercised remains unclear, but the warrants do not expire until March 2021.

The ten-aircraft deal will also give Amazon warrants to potentially increase its ownership of ATSG beyond 19.9%, to up to 33.2%. This tranche of warrants is tied to an exercise price of $21.53 per share – more than double the price of 2016 warrants, which were issued at $9.73 per share. Should Amazon choose to lease up to seventeen additional freighters before January 2026, additional warrants could potentially expand Amazon’s ownership in ATSG from 33.2% to 39.9%.

Growth of the Amazon Air fleet was not unexpected. Last month, Air Transport Services Group (ATSG) and Atlas Air Worldwide Holdings each met their respective contractual obligations to dry-lease twenty freighter-converted 767Fs to Amazon and operate them on a CMI basis for the e-commerce giant. Industry insiders and financial analysts figured it was only a matter of time before Amazon sought to grow the operation beyond forty freighters. Last week, analysis by Cargo Facts suggested that more than forty freighters were already operating on Amazon’s behalf.

This ten-aircraft deal comes just one day after ATSG announced CAM had secured rights to twenty 767-300ERs slated to come out of passenger service with American Airlines over the next three years. As the aircraft are released by American Airlines, CAM will have many or all of them converted to freighter configuration, and upon redelivery, will lease them to other operators. At least some of the ex-American Airlines feedstock could end up on lease to ATSG’s own carriers, operating on behalf of customers like Amazon.

Following this new deal, the question becomes, will fifty freighters (potentially sixty-seven, if Amazon exercises its options for additional freighter leases) be enough for the Amazon Air operation? We note that Amazon’s 2016 agreements with ATSG and Atlas were announced within two months of one another – might history repeat itself? Amazon has given no indication that it intends to lease additional aircraft, nor does Atlas have a visible portfolio of 767 feedstock. But in an industry known for speed, such conditions could change rapidly.

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