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ATSG expands leasing and equity deal with Amazon

Air Transport Services Group (ATSG) will lease an additional 10 Boeing 767-300 Freighters to Amazon, while granting the e-commerce giant additional warrants that will allow Amazon to own a greater share of ATSG.

The two companies also agreed to extend leases for the 20 767Fs that ATSG currently provides to Amazon, and to extend an existing maintenance services agreement.

"The Amazon Air capacity we are building enables Prime delivery speeds for customers from Seattle, Washington to Miami, Florida,” says Dave Clark, Amazon's senior vice-president of worldwide operations. “By expanding the Amazon Air network through our partnership with ATSG we’re able to ensure we have the capacity to quickly and efficiently deliver packages to customers for years to come.”

Amazon will lease the additional 10 767Fs from ATSG leasing subsidiary Cargo Aircraft Management (CAM), and the aircraft will be operated by an ATSG airline. Five of the 767Fs will be delivered in 2019, and the rest in 2020. The aircraft will be leased for 10 years, with the option of extending for another three years.

Amazon has agreed to extend leases on the 20 767Fs that ATSG has provided since 2016 and 2017. The five-year leases on 12 767-200Fs will be extended by two years into 2023, with an option to extend for another three years. The seven-year leases on eight 767-300Fs will be extended by three years until 2026 and 2027, also with the option to extend for an additional three years.

The two companies also agreed to extend a maintenance services agreement that applies to aircraft leased to Amazon by CAM by five years through March 2026, with an option to extend for another three years.

Separately, ATSG will issue additional warrants to Amazon that will grow its potential stake in ATSG equity to 33.2%. Following an agreement in 2016, Amazon already holds or has the right to purchase ATSG stock that will give it a 19.9% stake in ATSG if exercised before the expiration in March 2021.

ATSG says the new warrants announced today, with an exercise price of $21.53 per share, will expire if not exercised within seven years.

In addition, Amazon will be awarded additional warrant rights if it chooses to lease up to 17 more ATSG aircraft before January 2026, provided the two companies reach binding agreements on future leases before April 2019. These additional warrant rights, also with an exercise price of $21.53 per share, will increase Amazon's potential ownership in ATSG to 39.9%.

ATSG says the potentially issuable warrants will require an increase in the number of ATSG common shares, which will require shareholder approval at the next annual shareholders meeting in May 2019.

“We view the prospect of a strong, growing customer like Amazon becoming a significant equity holder as a positive for all ATSG stakeholders,” says ATSG president and chief executive Joe Hete. “Our mission is to provide Amazon with exceptional service while creating equity value for all of our shareholders.”

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