Amazon deepens ties with Cargojet

New strategic agreement makes provision for e-commerce giant to take equity stake in Canadian carrier.

Amazon has entered into a new strategic agreement with Cargojet which makes provision for the e-commerce giant to take an equity stake in the Canadian carrier.

“Cargojet has been a key player in our Canadian middle mile operations for several years. We’re thrilled to build a longer-term relationship that will allow us to provide even faster service to Amazon customers in Canada,” said Amazon’s vice president, Global Transportation,  Adam Baker.

In a statement,  Cargojet said the new deal  was in conjunction with its  existing commercial agreement  with Amazon  to provide overnight air cargo services and charters “and to incentivize growth in Amazon’s utilization of those services to support fast delivery for Amazon customers in Canada.”

It expects the agreement “to generate additional revenue growth and be meaningfully accretive to Cargojet’s earnings and cash flows over time.”

Commenting on the closer ties with Amazon, CEO, Ajay Virmani, said:

“The commercial relationship the Cargojet team continues to build with Amazon has now allowed us to further strengthen and align our long-term strategic commercial interests. Our continuous commitment to provide value added services enables us to earn all of our customers’ trust as the leading overnight air-network operator.”

The statement underlined that growth in e-commerce and recent industry announcements for even faster deliveries as well as seven days-a-week deliveries will drive Cargojet to further strengthen its premium domestic network.

Cargojet plans, over time, to add more non-stop flights allowing later departures and earlier arrivals to the 15 major cities that Cargojet already serves and to add new cities on its overnight network.

These service and frequency enhancements will be available to all Cargojet customers, and will expand Cargojet’s reach to approximately 95% of the Canadian population. This optimized network will further improve fleet utilisation, create additional opportunities, and continue to help Cargojet enhance its customer-neutral, cost effective network for all its customers, it said.

As part of the agreement, Cargojet will issue warrants to Amazon in two tranches. The first tranche of warrants allows Amazon to acquire up to 9.9% of Cargojet’s variable voting shares.

“The first tranche of warrants will vest over a period of six and a half years, with vesting tied to the delivery by Amazon of up to C$400 million in business volumes during the same term.”

Amazon will also receive additional warrants to acquire up to an additional 5 % of Cargojet’s variable voting shares with vesting tied to the delivery by Amazon of up to an additional C$200 million in business volumes after the first tranche of warrants is fully vested.

“The vesting period for the second tranche of warrants will continue for an additional year, making the aggregate term of all the warrants equal to seven and a half years from the date of the agreement.

The new strategic agreement with Cargojet is further evidence of Amazon’s ambitions to develop a strong air transport capability to support its next-day delivery services.

In June, it announced the lease of an additional 15 B737-800 freighters for deployment in the US, increasing the fleet of aircraft flying in its dedicated air network to 70 freighters by 2021.

Earlier in the year, Amazon broke ground on a new 3-million-sqft air cargo hub at Cincinnati/Northern Kentucky International Airport. First announced early-2017, the $1.5 billion facility is scheduled to open in 2021, lead to the creation of 2,000 jobs and help “get you your packages faster,” said CEO Jeff Bezos at the ground-breaking ceremony.

Amazon will open new air facilities this year at Fort Worth Alliance Airport, Wilmington Air Park, and Chicago Rockford International Airport.

According to local media reports, it is also poised to invest $100 million at Lakeland Linder International Airport (LAL) in Florida.

While the next couple of years will see Amazon gain access to more aircraft, it will  also increase its equity stakes in the leasing operators supplying it with freighters, Atlas Air Worldwide (AAWW) and Air Transport Services Group (ATSG).

Amended agreements with AAWW and ATSG provide scope for Amazon to increase its shareholdings in both companies to almost 40%.

Source: Lloyd´s