Mon

09

Jan

2017

Amazon - On the Road to Being a Real Airline Operator

Amazon on the west side of the globe and Alibaba on the east side. Both e.commerce giants are moving forward to cement their positions as the world’s leaders in this lucrative business.
Amazon has now taken a further step in their plans to control the air transport mode within the United States for e-commerce deliveries by their partner, ATSG having bought PEMCO World Air Services.

Drones complement Amazon’s fast growing fleet of transport vehicles  -  illustrations: Amazon
Drones complement Amazon’s fast growing fleet of transport vehicles - illustrations: Amazon

Was Prime Air just a start of more to come?
Forming Prime Air and joining up with the Air Transport Services Group (ATSG) and Atlas Air was the first move in what many now see as a well thought out long-term strategy on the part of Amazon in order to be “masters” of their future supply chain. ATSG in which Amazon is allowed to have a 19.9% equity holding within the coming five years, has committed itself to supplying and operating a total of twenty B767 freighters exclusively for the parcels giant on U.S. national routes.
The same sort of deal was agreed also with Atlas Air Holdings, whereby Atlas Air also will operate twenty B767Fs for Amazon and in return give them (Amazon) the right to acquire up to 20% of Atlas common shares. This deal also gives Amazon an option to gain a further 10% - totally 30% in the coming years.

Which of the two, Atlas or ATSG will become Amazon’s long-term airline?
It is seen as a clever move by the Amazon top men when doing the same deal with two different aircraft operators.
“The proof of the pudding is in the eating,” good cooks say. Amazon has between five and seven years, that’s the average length of the new deals struck, to decide whether they chose ATSG or Atlas and increase their equity holding in one or the other.
ATSG’s acquisition of PEMCO will give them direct access to heavy aircraft maintenance as PEMCO also is licensed for B767 aircraft overhaul. The Tampa-based maintenance and repair company is also very active in China where they are responsible for most of the small passenger to freighter (P2F) conversions mainly on the Boeing 737 fleet. A lucrative market during the past years where PEMCO has converted almost 60 B737s for Chinese cargo operators. ATSG also has its own maintenance base and the addition of PEMCO’s heavy experience is just what they need for the B767F fleet which will fly for Amazon.

 

Are Atlas and ATSG becoming too dependent on Amazon?
The general air freight market is not increasing and so called ACMI operations for other carriers and the U.S. military have dropped back considerably. This leaves both operators needing more firm business with a long-term outlook. The Amazon deal means steady cash flow and constant work for their fleets during the coming years.
Atlas will, along with daughter Polar Air, have to look closely at their B747 freighter fleet and decide whether it’s worthwhile continuing operating a fleet of over 20 B747Fs in the future, or if they should invest more effort and money into the Amazon B767 freighter network. It could well be that under the new American presidency, that future U.S. military operations may require U.S. freight carriers being pulled back into increased military operations.
However, would Amazon consider utilizing Atlas B747Fs on a future transatlantic or trans-pacific network?
ATSG with their ABX Air and Air Transport International operations may turn out to be more flexible in this sense.

Image of Amazon’s patented warehouse to be stationed at altitudes of 13,000 to 14,000 meters above ground  -  company courtesy
Image of Amazon’s patented warehouse to be stationed at altitudes of 13,000 to 14,000 meters above ground - company courtesy

Drone deliveries are no longer just dreams
As the sketch in our article shows, Amazon is taking the future of drone delivery very seriously. They have a patent for what they term as airborne warehouses in the form of “blimps” which would be stationed high over main cities and release drones with packages to end users.
Future music? Yes of course, but who would have thought some years back that Amazon would basically operate its own fleet of aircraft!
Time moves on!

John Mc Donagh

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