Amazon announced that the company will lease 20 Boeing 767 air freighters from Air Transport Services Group in an effort to expand its delivery network to the skies. Shares of ATSG were up nearly 20% on Wednesday as a result of the agreement with Amazon.
Barclays analysts opine:
As part of the commercial agreements, ATSG has agreed to grant Amazon warrants to acquire up to 19.9% of ATSG’s common shares at $9.73 per share over a 5 year period. Additional information is expected when ATSG files an 8-k later this week.
Our Take: There has been speculation that Amazon had been in discussions to lease jets in order to expand their logistics capabilities for some time According to cargo industry executives, Amazon is building out its own air cargo transport system in order to avoid delays from current carriers, especially during the holiday season. However, as previously mentioned in our joint note with Barclays North America Transportation team, , we think gaining greater control over shipping operations could lower the cost of shipping goods to the company’s ~123 different U.S. Fulfillment Centers (and ~23 sortation centers). Since intra-company shipping costs are classified in COGS, we think the agreement could ultimately have a positive impact on the company’s gross margin. However, we’d like to note that leasing the jets could cost as much as $350M a year, which is not insignificant, but pales in comparison to the company’s current shipping costs, which totaled $11.5B in 2015.
See the following visualizations to highlight relevant financial figures regarding the deal between Amazon and Air Transport Services Group.
Amazon.com Inc. (AMZN) Stock Price – Current Day
Air Transport Services Group Inc. (ATSG) Stock Price – Current Day
Amazon.com Inc. (AMZN) vs. S&P 500 Percent Change Over Time – 1 Year
Amazon.com Inc. (AMZN) Revenue Breakdown