Amazon takes stake in Cargojet, its third freighter carrier investment

posted on 27th August 2019 by Justin Burns
Amazon takes stake in Cargojet, its third freighter carrier investment

E-commerce giant Amazon has entered into a new strategic agreement with Cargojet that will see it take a stake in the Canadian operator.

It is the third freighter carrier that Amazon has invested in as it already has stakes in ATSG and Atlas Air.

This agreement is in conjunction with Amazon’s and Cargojet’s existing commercial agreement for overnight air cargo services and charters and to incentivise growth in Amazon’s utilisation of those services to support fast delivery for Amazon customers in Canada.

Under the new strategic agreement, Cargojet will issue warrants to Amazon to purchase variable voting shares that will vest based on the achievement of commercial milestones related to Amazon’s business with Cargojet. Cargojet expects the agreement to generate additional revenue growth and be meaningfully accretive to Cargojet’s earnings and cash flows over time.

Cargojet will issue the warrants to Amazon in two tranches. The first tranche of warrants allows Amazon to acquire up to 9.9 per cent 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$400 million in business volumes during the same term.

Amazon will also receive additional warrants to acquire up to an additional five per cent of Cargojet’s variable voting shares with vesting tied to the delivery by Amazon of up to an additional C$200 million in business volumes after the first tranche of warrants is fully vested.

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.

“Cargojet’s entrepreneurial culture, combined with our core values of strong customer focus, have enabled Cargojet’s customers to deliver and fulfill on their e-Commerce promises. This agreement will support Cargojet further solidify its vision and strong leadership in the air cargo industry,” said Cargojet chairman of the board, James R. Crane.

“The commercial relationship the Cargojet team continues to build with Amazon has now allowed us to further strengthen and align our long-term strategic commercial interests. Our continuous commitment to provide value added services enables us to earn all of our customers’ trust as the leading overnight air-network operator,” added Cargojet CEO, Ajay Virmani.

“Cargojet has been a key player in our Canadian middle mile operations for several years,” said Adam Baker, vice president global transportation, Amazon. “We’re thrilled to build a longer-term relationship that will allow us to provide even faster service to Amazon customers in Canada.”

Cargojet says growth in e-commerce and recent industry announcements for even faster deliveries as well as seven days-a-week deliveries will drive it to further strengthen its premium domestic network.

Cargojet plans, over time, to add more non-stop flights allowing later departures and earlier arrivals to the 15 major cities that Cargojet already serves and to add new cities on its overnight network.

These service and frequency enhancements will be available to all Cargojet customers, and will expand Cargojet’s reach to approximately 95 per cent of the Canadian population. This optimized network will further improve fleet utilisation, create additional opportunities, and continue to help Cargojet enhance its customer-neutral, cost effective network for all its customers.