Amazon (NASDAQ:AMZNC)’s long-rumored interest in Wilmington, Ohio-based Air Transport Services Group
(NASDAQ:ATSGC) was confirmed March 8 with a regulatory filing indicating the online retailer now owns 10% of ATSG.
It’s all part of a deal in which Amazon said it would lease 20 Boeing 767 plans from ATSG that it would use to deliver customer orders within the United States.
Peeling Back The Onion
For one thing that 10% ownership could turn into as much as a 19.9% share of ATSG over the next five years, fueling analyst speculation that Amazon’s long-range goal is to create its own global shipping service.
Furthermore, in January, Amazon’s China subsidiary obtained an ocean-shipping license from the U.S. Federal Maritime Commission. This lets Amazon operate as an ocean freight forwarder.
“In 20 years, Amazon will have its own delivery fleet,” analyst Michael Pachter, told Bloomberg News, adding, “This is a baby step toward that goal.”
Nothing To See Here Says AmazonFor its part, Amazon said it has no goal to create a global shipping enterprise to compete with UPS, FedEx or anyone else.
In addition, Amazon CFO Brian Olsavsky told analysts during a recent earnings call that the application for the shipping license was designed to add “more logistics to supplement existing shipping options.”
None the less, the news caused shares in ATSG to jump 16.7%, a record high for the company. Volume was 4.3 million shares compared to the 90-day average of 515,000 shares.
The agreement with Amazon runs five years and is limited to service in the U.S. It’s interesting to note that ATSG officials said, in February that they would like to see the trial with the then-unnamed customer eventually include Europe or China.
An Historic Turnaround For ATSG
ATSG was devastated when it lost DHL as a customer in 2009. At the time ATSG flew a lot of planes for DHL and fallout from that loss nearly destroyed the economy of Wilmington and Clinton County.
Amazon's entry as an ATSG customer and shareholder is huge. By the time Amazon exercises all current options it could be the largest single holder of ATSG shares.
The Impact On Amazon
According to Forbes, Amazon’s recent foray into transport – which could eventually include hundreds to thousands of Amazon planes, trucks and cargo ships could be seen as bad for the near-term bottom line.
On the other hand, Wall Street may decide that investing for the future is important enough to give the company a pass.