ATSG keen to extend mystery express network contract

US-based lessor of mid-size freighters Air Transport Services Group (ATSG) would like to extend its short term express network contract with a mystery US-based company “for a longer period of time”.
In BB&T Transportation Services Conference, the Boeing 757 and 767 freighter specialist said that it was now operating five 767 freighters on behalf of the unnamed customer – which many in the industry believe to be internet retail giant Amazon.
The contract, which started in mid-September with two freighters out of ATSG’s Wilmington, Ohio, hub is now a seven days a week operation that is due to run through March, beyond the traditional peak season.
Quint Turner, ATSG’s chief financial officer, said: “What is amazing to the customer is how quickly we were able to put that up network,” adding: “What that evidences is how we can draw on the experience we have in Wilmington, the decades of experience we have in operating these express networks.”
Turner added: “It is our assessment that the trial, from a performance standpoint, has been successful, the service levels were high and – as you would expect from a short-term contract – and we would like to extend our provision of services to that customer for a longer period of time.”
ATSG said that it has the “full slate of services,” to offer the unnamed client, “not just the aircraft but the operation of the aircraft and the sorting based on the heritage of providing sorting services”.
Express parcel giant DHL is major customer of ATSG’s ABX Air and Air Transport International leasing arms, managed through its Cargo Aircraft Management (CAM) subsidiary.
ATSG would not be drawn on the name of the trial network customer amid industry speculation that it is Amazon. Joe Hete, ATSG president and chief executive, observed: “In terms of news articles, not everything can be cast in concrete.”
Hete also gave an update on ATSG’s “pathway to China”, its 25% stake in a joint venture freighter operation which is due to launch at the end of this year, following the issuing of an Air Operator’s Certificate by the Chinese aviation authority CAAC.
United Star Express, which will initially provide services for the growing e-commerce industry within China, is a joint venture between Chinese 737 passenger and cargo carrier Okay Airline, subsidiary ATSG West Ltd and online discount retailer Vipshop Holdings.
Said Hete: “China’s e-commerce growth is projected to grow between 40%-50% over the next five years, and is the largest mobile technology market in the world. Right now the market is served primarily by Boeing 737s and by a handful of 757s.
“The market will ultimately grow similarly to what the US did, in using 767 size aircraft. For example, SF Express has five [767 freighter] aircraft that it will put into service sometime in 2016.”
Hete said that United Star Express will have a totally separate AOC, “which we expect to receive sometime in the second half of 2016 and to start flying with 737s”.
He added: “The key strategic value with Okay Airways between now and when we get the AOC is that if business crops up that we can contract for, then Okay will operate it and transition over to the AOC once we have received certification.”
ATSG believes that its focus on mid-size freighter assets such as the 757 and 767 is strategically sound, because these aircraft – particularly the 767 – are of the right capacity for the e-commerce market in geographies such as China.
Integrator FedEx’s decision to order 100 production line 767-300Fs from Boeing has validated ATSG’s choice of aircraft while increasing the demand for passenger to freighter conversions of the 767.
Said Hete: “The used or converted marketplace [for the 767] is obviously the place to go if you need something today, and we are the largest in terms of available assets."
He added: "For our customer trial network we put up five aircraft in a fairly short period of time, there was nobody who had that number of assets available.”
He continued: “But there are other people who want to jump into the 767 marketplace…other people look at it because there is no barrier to entry and say, hey I want to go play in that sandbox too.”
ATSG estimated that the cost of a straight off the production line B767-300 freighter is between $70m-$75m, while a passenger conversion has a total ready to fly price tag of around $25m.

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