Amazon just leased 20 cargo planes to build its own in-house delivery network
The deal is signed with Air Transport Services Group, an aircraft leasing company based in Wilmington, Ohio. It will help Amazon build out its in-house delivery network, allowing it to take care of its own deliveries and rely less on third-party shippers like UPS and FedEx.
"We offer Earth's largest selection, great prices and ultra-fast delivery promises to a growing group of Prime members and we're excited to supplement our existing delivery network with a great new provider, ATSG, by adding 20 planes to ensure air cargo capacity to support one and two-day delivery for customers," Dave Clark, Amazon's SVP of worldwide operations and customer service, said in a statement.
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 UPS and FedEx 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 FedEx 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.
In fact, Amazon CFO Brian Olsavsky said in a recent earnings call that Amazon's plan is to supplement existing shippers, not to replace them, with its in-house delivery network.
"What we found in order to properly serve our customers at peak, we've needed to add more of our own logistics to supplement our existing partners. That's not meant to replace them," Olsavsky said.
But at the same time, there's been a series of reports that showed Amazon's in-house logistics plan may be much bigger, with Bloomberg revealing leaked documents that described the plan as "Sellers will no longer book with DHL, UPS, or FedEx but will book directly with Amazon."
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 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.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.
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