Amazon Primed to start own air delivery network with leasing deal

Reuters News
Posted: Mar 09, 2016 8:13 AM

By Sai Sachin R

(Reuters) - Inc <AMZN.O> said on Wednesday it had signed a deal to lease 20 Boeing <BA.N> 767 widebody freighter aircraft to ensure capacity to fulfill its promise of one and two-day deliveries in the United States.

The deal comes at a time when the world's biggest online retailer is offering ever-faster - and increasingly free - deliveries for millions of online orders as well as trying to assume more control over its supply chain and reduce costs.

Amazon currently relies on companies such as United Parcel Service Inc <UPS.N> and FedEx Corp <FDX.N> to deliver most of its packages, but analysts said the long-rumored plan to build its own air fleet posed little threat to the logistics giants.

"This is an incremental negative for FDX and UPS as it will likely remove some higher yielding express freight and parcel volume from each of the respective networks," RBC Capital Markets analyst John Barnes wrote in a client note.

UPS, the world's No. 1 package delivery company, operates about 240 large planes while FedEx has a fleet of about 370, Barnes noted. FedEx and UPS shares were down about 1.5 percent.

Benchmark Co LLC analyst Daniel Kurnos said it was too early to say whether Amazon's decision to lease planes was a game-changer, but he saw near-term benefits as the company would be able to fill some gaps in its network.

The leased planes will start to go into operation on April 1, Amazon spokeswoman Kelly Cheeseman said in an email.

Amazon has been testing deliveries by drones but has not said when it expects to have them in service.

The duration of the leases will be five-to-seven years, lessor Air Transport Services Group Inc <ATSG.O> said.

As part of the agreement, Amazon has the right to buy up to 19.9 percent of ATSG's stock over five years at $9.73 per share.

ATSG's stock soared almost 27 percent to a record high of $14.90.

(Reporting by Sai Sachin R in Bengaluru; Additional reporting by Ankit Ajmera; Editing by Anil D'Silva and Ted Kerr)