Leasing 20 freighters to secure its parcel deliveries may seem a bold stroke; the fact that Amazon has signed another contract for 20 more freighters – with the option of taking an equity position in the ACMI provider – is prompting more speculation in the air cargo industry.

The ink on the contract for 20 Boeing 767 freighters from Air Transport Service Group (ATSG) was barely dry when Amazon pounced again, striking an agreement with Atlas Air Worldwide Holdings (AAWW) to lease 20 more 767 cargo aircraft. The agreement calls for the lease of the freighters on a 10-year term from AAWW subsidiary Titan Aviation Leasing, with an operating agreement for crew, maintenance and insurance for seven years from Atlas Air.

Operations are expected to commence in the latter half of this year and build up to the full complement through 2018.

At this point Amazon and Atlas have not said where the freighters will be deployed. The growing popularity of its Prime service, which promises free, two-day deliveries for consumers, beyond its home market suggests that Amazon may be looking to establish air networks in other large volume regions, notably Europe. This would dovetail with allegations that the internet giant is interested in securing Hahn airport in Germany as hub for an air network. At this point, Amazon has 29 fulfillment centers in seven European countries.

In early May, the company unveiled a pan-European fulfillment programme for the distribution requirements of small companies that offer their wares through the Amazon marketplace. This involves the storage and shipping of inventory across Europe.

Another question is where the freighters will come from. Atlas does not have 20 767 cargo aircraft at the moment, and the ones on its books are committed to DHL, a large customer and joint venture partner in Polar Air Cargo. DHL top management has declared that it has no concerns over the Atlas-Amazon deal.

Atlas management has indicated that it has already acquired some of the 767-300s, and is “well along with procuring the remainder.”

According to one report, Amazon is not done with securing aircraft. The internet giant is allegedly looking to have as many as 60 freighters at its disposal.

767 freighters are in short supply, as freighter leasing firms and operators have been clamouring for the type. The surge in parcel traffic has prompted a run on 767s as well as smaller types, down to 737s. Conversion firms are fully booked to turn retired passenger models into all-cargo configuration.

“Try to get your hands on a 767 freighter. There’s not one available today,” said Stan Wraight, executive director of Strategic Aviation Solutions International.

Another large question is the ultimate strategic goal of Amazon’s freighter leases. This has been fuelled further by the fact that, as with ATSG, the Atlas agreement includes warrants for Amazon to take an equity position in the carrier and possibly, in the long run, have a voting seat on the board of AAWW.

As with ATSG, Amazon has described the latest move in terms of its own distribution needs.

“We are excited to welcome a great provider, Atlas Air, to support package delivery to the rapidly-growing number of Prime members who love ultra-fast delivery, great prices and vast selection from Amazon,” said Dave Clark, senior vice president of worldwide operations.

The company has highlighted bottlenecks in commercial lift capacity at peak times as a reason for securing dedicated capacity. In addition, it is seeking to reduce its logistics costs. Last year, it spent US$13.4 billion on this, and the first quarter of this year shows a 33.6% rise in total fulfillment costs. In an earnings call on April 28, Amazon CFO Brian Olsavsky said that Prime subscriptions went up 51% last year.

Amazon has denied any aspirations to market its capacity to third parties and compete with the likes of DHL and FedEx. For his part, FedEx boss Fred Smith felt compelled during the integrator’s most recent financial results presentation to dismiss a likely threat from that end, arguing that the costs would be prohibitive for Amazon.

Still, doubts linger. Earlier this year some analysts expressed concern over Amazon’s spend on logistics capabilities. The profit that the online retailer tabled for the first quarter probably allayed some fears, but the prospect of a fleet of 40, if not 60, widebody freighters is not filling analysts and investors with happy anticipation.

By Ian Putzger

Air Freight Correspondent | Toronto