The Strategist

Amazon Launches Its Own Air Delivery Service

03/10/2016 - 14:40

On Wednesday, Amazon online retailer has agreed to lease 20 cargo planes to deliver goods ordered on the company’s website. Thus, the seller laid the foundation for its own service for air delivery of goods. According to experts, lease of 20 aircraft will allow the online retailer to control the delivery of 15% of its parcels.

Adam Matan, wikipedia
Adam Matan, wikipedia
According to the statement issued on Wednesday, American online retailer Amazon has signed an agreement with the company Air Transport Services Group (ATSG) to lease aircraft for its own service of goods air delivery. Under the agreement, Amazon receives for rent 20 cargo aircraft Boeing 767 for a period of five to seven years. According to Amazon’s press-secretary Kelly Cheeseman, the company will commence operation of the leased aircraft on April 1st. In accordance with the agreement, Amazon also has the right to buy 19.9% stake in ATSG priced at $ 9.73 within five years. Once the agreement was announced, ATSG shares rose by 27% to a record $ 14.90.  

The fact, that Amazon is in talks about creating its own air delivery service, became public in December last year. Amazon intends to use its own aero service to avoid delays and disruptions that occur in collaboration with intermediaries, as well as reduce costs. Last year the company spent $ 11.5 billion on the delivery. "This is the first official confirmation from Amazon that it wants to create a network of air delivery and more logistics services", - said an analyst at Robert W Baird & Co. Colin Sebastian.

Information that Amazon was going to create a global delivery network has been churning for a few years. As Bloomberg reported, citing sources who wished to remain anonymous, Amazon has developed a project called "Dragon Boat", envisioning creation of a global delivery network, and controlling the flow of goods from factories in China and India to customers’ homes in the US or Europe. As commented by an analyst at Wedbush Securities Michael Pachter: "In 20 years, Amazon will have its own fleet of delivery. This is the first step towards this goal."

However, experts believe that Amazon’s launch of air delivery does not jeopardize situation for the largest players of delivery services market, such as United Parcel Service (UPS) and FedEx. According to RBC Capital Markets analyst John Barnes, UPS, the world's largest parcel delivery service, has at its disposal a fleet of 240 large cargo aircraft, FedEx - 370. According to Stephens’ analyst Jack Atkins, agreement with ATSG will allow Amazon to control 15% of their parcels. Baird Equity Research estimates the volume of the delivery and logistics market at about $ 400 billion.