UPS United Parcel Service

By Joshua Jamerson 

Air cargo carrier Air Transport Services Group Inc. struck a deal with Amazon.com Inc. to operate a freight operation for the online retailer, crowning an effort by Amazon to reduce its reliance on traditional carriers.

The deal, between Air Transport Services and Amazon Fulfillment Services Inc., an Amazon affiliate, includes the leasing of 20 Boeing 767 freighter aircraft.

Dave Clark, Amazon senior vice president of world-wide operations and customer service, said Wednesday that the new air cargo network would supplement its existing delivery network by boosting its air cargo capacity to support one- and two-day delivery for customers in the U.S.

Amazon has sought to reduce its reliance on traditional carriers by trying to lease airplanes and establish its own freight operations, The Wall Street Journal has reported.

Under the deal's terms, Air Transport Services would lease the freighters for five to seven years, and operate the network for five years. Air Transport Services said it also agreed to grant Amazon warrants to acquire up to 19.9% of its common shares at $9.73 per share over a five-year period.

Shares of Air Transport Services rose 19% to $13.97 in morning trading in New York. The stock earlier hit an all-time high of $14.90.

Air Transport Services is the largest operator of widebody 767 freighters, with 47 of the jets. The aircraft-leasing firm started domestic flights with two aircraft that were widely believed to be for Amazon in September and added three more aircraft in November.

The announcement is further confirmation of steps Amazon is taking to establish pieces of its own delivery and logistics network, something that has weighed on shares of both United Parcel Service Inc. and FedEx Corp. in recent months as investors fear the e-commerce giant may turn into a disruptive competitor.

While it would likely take years for Amazon to establish its own delivery network, the e-commerce giant is currently a major customer for both UPS and FedEx, helping drive volume growth at the delivery giants. Nonetheless, investors also fear Amazon might have ambitions to someday become a competitor in the market, poaching customers from the delivery giants.

There is a broad desire at Amazon to take greater control over its shipping and package delivery operations amid rising transport costs, despite the drop in fuel prices. In some cases, the company is using its own trucks, drivers and a fleet of couriers for so-called last mile delivery, the final and most-expensive leg of an order's trip.

FedEx shares fell 1.7% to $140.15, while UPS shares declined 1.4% to $99.19.

--Laura Stevens contributed to this article.

Write to Joshua Jamerson at joshua.jamerson@wsj.com

(END) Dow Jones Newswires

March 09, 2016 11:37 ET (16:37 GMT)

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