Tuesday, January 3, 2017

AMAZON AIR CARGO BUYS REPAIR SHOP

Amazon takes more control of its supply chain--

Amazon Air-Cargo Operator Buys Repair Shop

Air Transport Services Group operates 15 jets for retailer


Amazon is ramping up its Prime Air cargo airline.
Amazon is ramping up its Prime Air cargo airline. Photo: Ted S. Warren/Associated Press
One of the two providers to the fledgling Amazon.com Inc. air-cargo operation has acquired an aircraft-maintenance business that ultimately could compete with Boeing Co. in converting passenger planes for cargo use.
Air Transport Services Group Inc. said Tuesday that it had bought Pemco World Air Services Inc., which maintains planes for a number of carriers and specializes in the Boeing 767 jets, the centerpiece of Amazon’s outsourced Prime Air cargo airline.
Pemco doesn’t convert 767s for cargo use but does modify smaller jets such as the Boeing 737, a market that the plane maker and others expect to expand because of demand in China.
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Quint Turner, ATSG’s chief financial officer, said it might be several years before the economics work for converting newer 737 models such as the 737-800, but expects there could be other opportunities for older versions such as the 737-300 and -400.
Mr. Turner said Pemco can support ATSG’s planned cargo airline in China that it hopes to launch this year, subject to regulatory approvals. The company has joined with China’s United Star Express Airlines in the Tianjin-based venture, and has a minority stake in a Sweden-based air-cargo carrier.
Boeing last year launched a program to convert its workhorse 737-800 passenger jet to cargo use with an initial 55 orders and commitments from some Chinese customers and the aircraft-leasing arm of General Electric Co., with first deliveries set for the end of the year.
ATSG, which already services planes for carriers including Delta Air Lines Inc., is diversifying even as its Amazon service ramps up.
Mr. Turner said it is now operating 15 planes for Prime Air, with the remaining five of the initial 20-jet lease deal due to arrive by July.
Rival Atlas Air Worldwide Holdings Inc. currently operates a single 767 for Amazon but this will also rise to 20.
Nine of ATSG’s Amazon jets are flown by its ATI unit, with the other six operated by the ABX Air subsidiary whose pilots went on strike briefly late last year after a long-running dispute about working practices.
Mr. Turner said he expects ATI to be the primary operator of the Prime Air planes.
ATSG said it anticipates the Pemco deal will be accretive to earnings this year, and though it didn’t disclose terms, Mr. Turner said the price was in line with its investment of around $16 million to $17 million in each of the joint ventures in China and Sweden.
The company’s overseas expansion has fueled speculation that Amazon could expand Prime Air beyond the U.S.
Pemco spent six months in chapter 11 protection in 2012 and is being sold by an affiliate of Sun Capital Partners Inc., the private-equity group.
Write to Doug Cameron at doug.cameron@wsj.com
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