News / Amazon spreads its wings in the air cargo sector as it buys into Atlas and ATSG

Nathan Coats

Amazon’s hold on the air cargo industry is set to double, as it gets set to take up to 40% of the shares of both ATSG and Atlas Air, providers of Amazon Air operations. 

And in SEC filings submitted at the end of last week, both aircraft operators detailed the e-commerce platform’s plans to add both 737-800 and 767 freighters to the fleet.  

ATSG subsidiary CAM will lease 10 extra 767-300Fs to Amazon, five this year and five next, while the leases on the first 767-200Fs will be extended by two years, and the initial 767-300F contracts will run for a further three years.

All 20 existing leases have renewal options for up to three more years.

The amended agreement, which provides for the operation of the 30 aircraft by ABX and ATI, and the performance of hub and gateway services by LGSTX, was also extended from its original term by five years through March 2026, with a renewal option for an additional period of three years. 

Atlas Air (AAWW), meanwhile, will this year lease five converted 737 freighter aircraft from lessor Gecas, and operate them via its Southern Air subsidiary. It marks Amazon’s first foray into 737s.

The CMI deal is for a seven-year term, with an option for Amazon to extend that to 10 years. Amazon may also place up to 15 more 737s with Southern before May 31 2021. 

As part of the deals, both ATSG and Atlas have signed up to 40% of their shares to Amazon. The e-commerce giant already had warrants to purchase up to 20% of each company when they signed the original lease deals in 2016.  

According to ATSG’s Schedule 14A, filed on Friday afternoon, the issue of additional warrants would give Amazon the right to buy up to 33.2% of the outstanding shares of common stock, based on its weighted average price over the 30 trading days preceding October 29, 2018. If Amazon takes more aircraft, or switches its 767-200s to 767-300s, ATSG will issue more warrants, representing up to 39.9% of the company. 

The move needs to be agreed by shareholders, however.

In the filing, ATSG noted: “The board believes that the transactions provided for in the company’s various agreements with Amazon and its subsidiaries are of significant value to the company and its stockholders and critical to its long-term plans, and that any termination of the 2018 investment agreement resulting from the failure of the company’s stockholders to approve the share amendment would have materially adverse consequences to the company.” 

Atlas has also granted Amazon incremental warrants that would allow it to acquire up to 39.9% of AAWW’s common shares. As part of the original 2016 agreement, Amazon would get 37,500 shares each time it paid $4.2m revenue to Atlas, up to a total of $420m, for incremental new business beyond the original agreement. Once those shares are vested, Amazon will receive 45,428 shares each time it pays Atlas $6.85m revenue for new business, up to a total of $1bn.