Atlas Air will stop flying freighter aircraft in Amazon’s domestic parcel network by the center of next yr and think about international widebody service for its growing customer base, which can soon include Chinese e-commerce giants Shein and Temu, CEO Michael Steen said in an interview.
Each parties have agreed to terminate contracts under which Atlas provides crews, routine maintenance and insurance (CMI) for 25 converted freighters: eight Boeing 737-800s and 17 Boeing 767-300s. Amazon (NASDAQ: AMZN) is answerable for providing the aircraft. The contracts were to run out in March 2026.
At the identical time, privately held Atlas Air Worldwide Holdings and the e-commerce giant have agreed to increase for 3 years the leases on 16 B767s operated by Atlas Air, Steen said. The aircraft are owned by Atlas’ leasing subsidiary, Titan Aviation, and were originally leased to Amazon for 10 years. The e-tailer, which individually hired Atlas to fly the aircraft, can be free to transfer the aircraft to a different operator that signs a CMI contract.
Titan leases 19 total 767 aircraft to Amazon, including two which are operated by rival Air Transport Services Group (NASDAQ: ATSG). The three aircraft that weren’t prolonged have extension options.
Amazon directly controls the eight 737-800s, that are leased from AerCap and is also placed with one other cargo airline.
Steen said Atlas Air will reallocate resources to intercontinental operations, where the potential for profits is larger. Toward that end, the airline is adding eight widebody freighters in 2024.
Two 777 production freighters ordered from Boeing last yr are scheduled to enter service within the fourth quarter for an undisclosed customer. Ocean shipping giant CMA CGM recently announced that its startup airline has struck a CMI agreement with Atlas Air to operate two Boeing 777 freighters on trans-Pacific routes, starting in the approaching months. And Atlas Air recently acquired 4 previously owned Boeing 747-400 cargo jets that may join the fleet within the third quarter, two of which can be dedicated to Shein and Temu.
“So strategically, as we expect in regards to the return on investment on the assets that we’re deploying, we’re definitely going for the larger widebody aircraft and the intercontinental market where growth is the strongest,” Steen told FreightWaves.
Global e-commerce wants big freighters
Atlas Air currently operates or leases 112 aircraft, including 48 B747-400s, 10 B747-8s, seven B777-200s, with the fleet reaching 120 aircraft by yr’s end. Sister airline Polar Air Cargo operates nine widebody jets.
While the market is oversaturated with narrowbody regional freighters, the longer term is brilliant for operators of long-haul cargo jets, the CEO declared. Atlas Air currently occupies greater than 10% of the worldwide widebody freighter fleet and is well positioned to reap the benefits of growing demand for industrial goods and electronics, in addition to a surge in e-commerce shipments.
Steen pointed to forecasts for compound annual growth rates of three.5% to 4.5% versus 1% growth in capability across the industry and a big retirement wave for aging freighters as reasons for investing in large freighters comparable to the 747 and 777. He has previously said that about 20% of the worldwide fleet of 650 widebody freighters are older than 30 years and nearing retirement.
Structural changes within the passenger sector are also driving the necessity for more dedicated freighters. About 60% of worldwide air cargo volume moves on all-cargo aircraft and 40% rides in passenger bellies, but in response to a study by McKinsey, only 47% of intercontinental belly hold capability is usable for airfreight because airlines post-COVID have modified cabin interiors to accommodate more premium-class seating, driving passengers to hold more luggage and reducing space for containers. Meanwhile, airlines are also reorienting networks to serve more leisure destinations where cargo demand is restricted.
The boom in shipments from e-commerce platforms and fast-fashion firms in China has grow to be a driving force behind the air cargo market’s recovery and shows no sign of slowing down. E-commerce represented about 19% of worldwide retail sales in 2023 and is on the right track to capture 41% of the market by 2027, in response to Boston Consulting Group.
Shein can be the second fast-fashion retailer to sign a long-term dedicated charter agreement with Atlas Air, following Spain-based Inditex. The brand new breed of fashion houses always introduce huge amounts of latest products on their web sites with very short inventory turnover time, making it necessary to quickly deliver orders to customers and stores before trends change. Atlas Air already operates dedicated freighters all over the world for Alibaba’s logistics arm, while several freight forwarders and Mediterranean Shipping Co.’s recent cargo airline use time-chartered aircraft to support their e-commerce customers.
“Their volumes are so large that they need dedicated freighters,” said Steen. “We’re their flying warehouse, in case you’d like.”
Shein and Temu already use Atlas Air for short-term charters, but they are going to have full control of aircraft starting within the third quarter.
Atlas Air is the most important operator of 747 freighters on this planet and added to its lead with the 4 used 747-400s. Two of the cargo jets were acquired from Silkway West Airlines in Azerbaijan. Two former China Airlines aircraft were picked up from U.S. trader Jetran, as previously reported by trade publication Cargo Facts.
Nippon Cargo Airlines last week renewed an agreement with Atlas to operate five of NCA’s 747-400 freighters between Asia and North America amid growing demand. And YunExpress, a freight forwarder in China, in March signed a long-term charter agreement with Atlas to be used of a second Boeing 777-200 freighter.
Pilot roster
The phaseout of flying for Amazon may also liberate five 767s previously maintained as spares to operate full time for Atlas customers, including the U.S. Department of Defense, Steen said. The corporate plans to soon place among the medium-widebody freighters with recent customers which have signed long-term package leases, which include an aircraft, together with the crew, maintenance and insurance.
Steen dismissed suggestions the airline will shrink its pilot cohort due to the lost Amazon business, noting that it needs about 250 pilots and staff to support the eight large freighters and the incremental increase in 767 flying. He told employees during an organization town hall earlier this week that there are not any plans to furlough pilots who decide to stay, in response to accounts of the meeting posted in pilot chat rooms.
“After we take a look at reports that a variety of pilots are going to be and not using a seat, I don’t think that’s going to be the case,” the Atlas chief said.
Relationship with Amazon changes
The change in Atlas’ partnership with Amazon makes it clear that at the least a portion of the 767 fleet can be placed with ABX Air, one among two cargo airlines owned by Air Transport Services Group. In early May, ATSG announced that Amazon will provide 10 additional 767-300 freighters to operate on its behalf under a five-year contract and that ABX will begin flying them in June. ATSG didn’t say from where Amazon would obtain the aircraft, all of that are expected to be delivered by Dec. 1.
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Amazon has the correct to position as much as 10 more aircraft with ABX, which currently operates 4 B767-200s for Amazon. Sister airline Air Transport International operates greater than 40 767s on Amazon’s behalf.
Amazon owns nearly 20% of ATSG. It previously owned a stake in Atlas Air, however the shares were bought out by the brand new ownership group. Amazon also dry leases two 767-300s from Titan Aviation which are operated by ATSG carriers.
Amazon’s other providers of outsourced air cargo service in america are Sun Country Airlines, which operates 737-800s, and Hawaiian Airlines, with two Airbus A330-300 converted freighters.
Steen declined to offer specifics in regards to the breakup with Amazon over the dedicated transportation agreements, which give Amazon the choice to terminate with 180 days of written notice for circumstances comparable to a change of ownership or performance issues. Penalty clauses can apply to either party for early termination but are likely subject to negotiation. Atlas Air was taken private in early 2023 by a consortium of investors led by Apollo Global Management.
Amazon media representatives didn’t reply to inquiries about changes to the corporate’s air network. One analyst conversant in airlines that provide outsourced airlift for express delivery firms, who requested anonymity in order to not jeopardize business relationships, expressed skepticism that Atlas would voluntarily hand over domestic flying to think about widebody operations while acknowledging recent ownership could value the return on investment in another way.
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