[EXCLUSIVE] Details on how Amazon will build its overnight air venture

Source: Public.Resource.Org

News of the ramping up of an Amazon logistics unit comes in the wake of something of an open secret that the e-commerce giant is conducting a trial air operation in the US, in partnership with Air Transport Services Group Inc, a publicly traded airfreight company. Less commonly known is that Amazon has been running more than one such operation – there is also one based at Seattle’s Boeing Field (BFI), serving a set of destinations in the Western US.

Amazon appears to be pleased with the trials, because several independent sources have confirmed to Cargo Facts that Amazon has made the decision to launch the overnight air operations, beginning with acquisition of a fleet of 767 freighters.

Amazon’s progress toward a full overnight air venture has taken what appears to be a methodical approach. The efforts started with its involvement with ATSG.

During a conference call in early November, following publication of Air Transport Services Group’s third-quarter results, CEO Joe Hete commented on the subject of managing express networks for customers, saying: “The trial ACMI express network that we launched in September for a US customer has been performing well. It started with two of our 767s and a sort operation here in Wilmington and will grow to five aircraft next week.”

Since that time, ATSG has declined to comment further, but both the air freight and express industry and the investment community, as well as the the tech media, have identified the mystery ATSG customer as e-commerce giant Amazon. We published an analysis of the Wilmington-based operation two weeks ago.

Since then Amazon has amped up its logistics efforts, source say.

First, it appears that, in addition to the Wilmington operation with ATSG, Amazon also set up a small air express trial based at Seattle’s King County International Airport (BFI, more commonly known as Boeing Field), using a 737 freighter operated by Northern Air Cargo on a triangular route connecting Seattle, San Bernardino (close to a large Amazon fulfillment center), and the small city of Boise (population 215,000) in Western Idaho.

Second, Cargo Facts has learned that Amazon is now committed to launching its own-controlled US domestic express operation, beginning with the acquisition of a fleet of twenty 767-300 freighters. None of the parties involved has been willing to comment on the record, and Cargo Facts has not been able to confirm the reports independently, but here is what we have learned so far:

o    Kalitta Air: Kalitta, which until now has been a 747-only freighter operator, bought two 767-300s and is having them converted to BDSF freighter configuration at the Bedek Aviation Group facility in Tel Aviv. CEO Conrad Kalitta said he planned to add “five or six more” in the future. When asked what had led him to add the new type to his fleet, he said “I think these aircraft will work perfectly for DHL support,” but Kalitta has since made clear that DHL is just one possible customer, and that “nothing is definitive yet.”

o   Atlas Air Worldwide Holdings: Atlas recently acquired two 767-300s and has had them converted to BDSF freighter configuration by Bedek. Atlas has said the two will be leased to DHL, but Cargo Facts believes Atlas is also in the process of buying two more 767-300s, and may be looking for as many as six more beyond that.

o   Air Transport Services Group: Like Kalitta and Atlas, ATSG does a significant amount of flying for DHL, but given that it has been Amazon’s partner in the trial, and that it has extensive experience in the operation of a major sortation facility, it is an obvious partner in any future Amazon air operation. So rumors that it, too, is on the hunt for 767 aircraft, are not surprising.

So where does all of the above leave us? Cargo Facts believes that a likely plan for setting up an own-controlled US domestic air network will start with ACMI-leasing freighters from carriers such as those mentioned above (and perhaps others), with the freighters operating out of a hub at Wilmington. This location served as DHL’s hub during its short-lived attempt to enter the US domestic market some years ago. This ACMI phase would be followed by a move to purchase or dry-lease freighters, and have them operated on a CMI basis, the cheapest alternative for a company with Amazon’s financial leverage.

And in the long run? Will Amazon eventually acquire its own AOC, and launch “Amazon Airlines?” We don’t know, but considering that Amazon is currently sitting on more than $3 billion of cash, we wouldn’t bet against it.

Click here for Part 1 of this report.

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