Atlas Air will stop flying freighter aircraft in Amazon’s domestic parcel network by the middle of next year and concentrate on international widebody service for its growing customer base, which will soon include Chinese e-commerce giants Shein and Temu, CEO Michael Steen said in an interview.
Both parties have agreed to terminate contracts under which Atlas provides crews, routine maintenance and insurance (CMI) for 25 converted freighters: eight Boeing 737-800s and 17 Boeing 767-300s. Amazon (NASDAQ: AMZN) is responsible for providing the aircraft. The contracts were to expire in March 2026.
At the same time, privately held Atlas Air Worldwide Holdings and the e-commerce giant have agreed to extend for three years the leases on 16 B767s operated by Atlas Air, Steen said. The aircraft are owned by Atlas’ leasing subsidiary, Titan Aviation, and were originally leased to Amazon for 10 years. The e-tailer, which separately hired Atlas to fly the aircraft, will be free to transfer the aircraft to another operator that signs a CMI contract.
Titan leases 19 total 767 aircraft to Amazon, including two that are operated by rival Air Transport Services Group (NASDAQ: ATSG). The three aircraft that weren’t extended have extension options.
Amazon directly controls the eight 737-800s, which are leased from AerCap and could also be placed with another cargo airline.
Steen said Atlas Air will reallocate resources to intercontinental operations, where the potential for profits is greater. Toward that end, the airline is adding eight widebody freighters in 2024.
Two 777 production freighters ordered from Boeing last year are scheduled to enter service in the fourth quarter for an undisclosed customer. Ocean shipping giant CMA CGM recently announced that its startup airline has struck a CMI agreement with Atlas Air to operate two Boeing 777 freighters on trans-Pacific routes, starting in the coming months. And Atlas Air recently acquired four previously owned Boeing 747-400 cargo jets that will join the fleet in the third quarter, two of which will be dedicated to Shein and Temu.
“So strategically, as we think about the return on investment on the assets that we’re deploying, we are definitely going for the larger widebody aircraft and the intercontinental market where growth is the strongest,” Steen told FreightWaves.
Global e-commerce wants big freighters
Atlas Air currently operates or leases 112 aircraft, including 48 B747-400s, 10 B747-8s, seven B777-200s, with the fleet reaching 120 aircraft by year’s end. Sister airline Polar Air Cargo operates nine widebody jets.
While the market is oversaturated with narrowbody regional freighters, the future is bright for operators of long-haul cargo jets, the CEO declared. Atlas Air currently occupies more than 10% of the global widebody freighter fleet and is well positioned to take advantage of growing demand for industrial goods and electronics, as well as a surge in e-commerce shipments.
Steen pointed to forecasts for compound annual growth rates of 3.5% to 4.5% versus 1% growth in capacity across the industry and a large retirement wave for aging freighters as reasons for investing in large freighters such as the 747 and 777. He has previously said that about 20% of the global fleet of 650 widebody freighters are older than 30 years and nearing retirement.
Structural changes in the passenger sector are also driving the need for more dedicated freighters. About 60% of global air cargo volume moves on all-cargo aircraft and 40% rides in passenger bellies, but according to Steen, only 47% of intercontinental belly hold capacity is usable for airfreight because airlines post-COVID have changed cabin interiors to accommodate more premium-class seating, driving passengers to carry more luggage and reducing space for containers and are reorienting networks to serve more leisure destinations where cargo demand is limited.
The boom in shipments from e-commerce platforms and fast-fashion companies in China has become a driving force behind the air cargo market’s recovery and shows no sign of slowing down. E-commerce represented about 19% of global retail sales in 2023 and is on track to capture 41% of the market by 2027, according to Boston Consulting Group.
Shein will be the second fast-fashion retailer to sign a long-term dedicated charter agreement with Atlas Air, following Spain-based Inditex. The new breed of fashion houses constantly introduce huge amounts of new products on their websites with very short inventory turnover time, making it important to quickly deliver orders to customers and stores before trends change. Atlas Air already operates dedicated freighters around the world for Alibaba’s logistics arm, while several freight forwarders and Mediterranean Shipping Co.’s new cargo airline use time-chartered aircraft to support their e-commerce customers.
“Their volumes are so large that they need dedicated freighters,” said Steen. “We are their flying warehouse, if you’d like.”
Shein and Temu already use Atlas Air for short-term charters, but they will have full control of aircraft starting in the third quarter.
Atlas Air is the largest operator of 747 freighters in the world and added to its lead with the four used 747-400s. Two of the cargo jets were acquired from Silkway West Airlines in Azerbaijan. Two former China Airlines aircraft were picked up from U.S. trader Jetran, as previously reported by trade publication Cargo Facts.
Nippon Cargo Airlines last week renewed an agreement with Atlas to operate five of NCA’s 747-400 freighters between Asia and North America amid growing demand. And YunExpress, a freight forwarder in China, in March signed a long-term charter agreement with Atlas for use of a second Boeing 777-200 freighter.
Pilot roster
The phaseout of flying for Amazon will also free up five 767s previously maintained as spares to operate full time for Atlas customers, including the U.S. Department of Defense, Steen said. The company plans to soon place some of the medium-widebody freighters with new customers that have signed long-term package leases, which include an aircraft, along with the crew, maintenance and insurance.
Steen dismissed suggestions the airline will shrink its pilot cohort because of the lost Amazon business, noting that it needs about 250 pilots and staff to support the eight large freighters and the incremental increase in 767 flying. He told employees during a company town hall earlier this week that there are no plans to furlough pilots who choose to stay, according to accounts of the meeting posted in pilot chat rooms.
“When we look at reports that a lot of pilots are going to be without a seat, I don’t think that’s going to be the case,” the Atlas chief said.
Relationship with Amazon changes
The change in Atlas’ partnership with Amazon makes it clear that at least a portion of the 767 fleet will be placed with ABX Air, one of two cargo airlines owned by Air Transport Services Group. In early May, ATSG announced that Amazon will provide 10 additional 767-300 freighters to operate on its behalf under a five-year contract and that ABX will begin flying them in June. ATSG did not say from where Amazon would obtain the aircraft, all of which are expected to be delivered by Dec. 1.
Amazon has the right to place up to 10 more aircraft with ABX, which currently operates four B767-200s for Amazon. Sister airline Air Transport International operates more than 40 767s on Amazon’s behalf.
Amazon owns nearly 20% of ATSG. It previously owned a stake in Atlas Air, but the shares were bought out by the new ownership group. Amazon also dry leases two 767-300s from Titan Aviation that are operated by ATSG carriers.
Amazon’s other providers of outsourced air cargo service in the United States are Sun Country Airlines, which operates 737-800s, and Hawaiian Airlines, with two Airbus A330-300 converted freighters.
Steen declined to provide specifics about the breakup with Amazon over the dedicated transportation agreements, which give Amazon the option to terminate with 180 days of written notice for circumstances such as a change of ownership or performance issues. Penalty clauses can apply to either party for early termination but are likely subject to negotiation. Atlas Air was taken private in early 2023 by a consortium of investors led by Apollo Global Management.
Amazon media representatives didn’t respond to inquiries about changes to the company’s air network. One analyst familiar with airlines that provide outsourced airlift for express delivery companies, who requested anonymity so as not to jeopardize business relationships, expressed skepticism that Atlas would voluntarily give up domestic flying to concentrate on widebody operations while acknowledging new ownership could value the return on investment differently.
Click here for more FreightWaves stories by Eric Kulisch.
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