✈️ Amazon: Turbulence Ahead for Air Cargo Incumbents

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Hey Global Investor, here’s what you need to know before the US markets open.

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✈️ Amazon: Turbulence Ahead for Air Cargo Incumbents?

Amazon has taken a minority stake in one of its air freight partners for $132M. Air Transport Services Group (ATSG) is an important cog in the wheel of Amazon’s plans for dominance in the skies.

Background: Jeff Bezos famously does not believe in depending on others when it comes to executing on his strategy for Amazon. He would rather subsume the function into the organization itself rather than rely on external parameters that may end up becoming operational bottlenecks.

Here’s a case in point: instead of depending on third-party logistics providers to accomplish shipping and delivery of packages, the company built its own warehouses and distribution centers in various parts of the country.

Bezos’ penchant for control and driving efficiency into the delivery process is at the center of such an approach. The unwavering belief that Amazon can do a far better job in ensuring a high level of customer satisfaction while keeping costs low is a key driver.

It’s not surprising therefore that Amazon is slowly but surely building its armada in the sky, as aviation logistics incumbents FedEx and UPS watch with some level of trepidation.

What Happened?: In 2016, Amazon made its initial foray into building an air fleet. As part of the plan, the company had entered into an agreement with ATSG to lease 20 Boeing 767s to be operated as Amazon Air. This was an internal push to meet its targets for Prime, one-day and two-day deliveries. ATSG today operates 33 aircraft for Amazon, a number which is expected to increase to 46 this year.

ATSG had issued warrants to Amazon under the agreement. Think of a warrant as an instrument that allows the warrant holder to buy the underlying stock at a fixed price by a specified date. Amazon just exercised its warrants to acquire a total of 14.36M shares in ATSG. Once approved, Amazon will hold a 19.5% stake in ATSG and get board representation. It also holds additional warrants to bump up its stake in ATSG to 40%.

Atlas Air, the other cargo carrier Amazon works with also has warrants outstanding from e-commerce giant. As a taste of what’s to come, earlier this year, Amazon purchased 11 Boeing 767s from Delta and WestJet. The company is spending $1.5B to build its own air-cargo hub in the Cincinnati International Airport. Its handling capacity: 100 Amazon-branded planes and 200 flights per day.

While Atlas Air and ATSG handle a significant portion of Amazon’s packages, Amazon Air is being prepped to bring some of the air cargo operations in-house. It’s no secret that FedEx and UPS are watching these developments with considerable alarm as Amazon targets them in this battle for a different kind of dominance in the skies.

Market reaction: ATSG closed the day at $29.92, up 5.5%; in pre-market trading, shares are up 2.24%. AMZN ended the day down 1.62%, closing at $2,951.95; shares are up 1.88% in pre-market trading.

Company Snapshot 📈

AMZN $2,951.95 −48.51 (1.62%)

Analyst Ratings 50 Analysts BUY 96%  HOLD 4%  SELL 0%

Newsworthy 📰

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Bounce: GameStop stock surges to nearly $200 in Monday market rally (GME +41.21%)

BTD: Cathie Wood says the underlying bull market is strengthening and she’s finding great buying opportunities in the sell-off (ARKK -5.82%)

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Fun Fact of The Day 🌞

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