Amazon expands with Cargojet through two freighter deal

Amazon Air will expand its relationship with Canada-based freighter operator Cargojet through a deal to operate two freighters on behalf of the e-commerce giant.

The Air Transportation Services Agreement will see Cargojet operate two Amazon-owned B767-300BDSF aircraft as part of the Amazon Air network on a CMI basis within Canada starting mid-2021.

The move follows Amazon’s decision to start investing in owning its own aircraft last year.

Cargojet expects the agreement to generate additional revenue growth to Cargojet’s earnings and cash flows over time. The agreement has a four-year term with three successive two-year renewal options.

“We are very excited to expand our long-term relationship of providing a portfolio of services which support the rapid growth of e-Commerce in Canada.  This new four-year Agreement with renewal options is a testament to our relentless focus on exceeding customer expectations,” said Ajay Virmani, president and chief executive of Cargojet. 

The deal comes as the two have been working together over recent years with Cargojet providing overnight air cargo services and charter flights.

Amazon utilises Cargojet’s overnight air network and charter aircraft services to move packages from Amazon facilities to other Amazon or last mile carrier locations before final delivery to customers.

Meanwhile, in 2019, Cargojet said it will issue warrants to Amazon to purchase variable voting shares that will vest based on the achievement of commercial milestones related to the two companies’ business together.

The first tranche of warrants allows Amazon to acquire up to 9.9% of Cargojet’s variable voting shares at an exercise price of $91.78 per share.

The first tranche of warrants will vest over a period of six and a half years, with vesting tied to the delivery by Amazon of up to C$400m in business volumes during the same term.

Amazon will also receive additional warrants to acquire up to an additional 5% of Cargojet’s variable voting shares with vesting tied to the delivery by Amazon of up to an additional C$200m.

Amazon has also invested in freighter operators ATSG and Atlas in the US.

Cargojet operates its network with its own fleet of 27 Cargo aircraft.