Cargojet is tightening its bonds with the world’s leading online retailer in a deal that could see Amazon buy up to 15% of the Canadian cargo carrier’s voting shares.
The deal means that Cargojet will issue warrants to Amazon to buy shares in two tranches, if the two companies reach set commercial targets. It also provides incentives for Amazon to use more of Cargojet’s capacity over time.
Cargojet provides the so-called “middle mile” overnight air services for Amazon shipments, connecting Amazon centres or shippers with the people who ultimately deliver packages to consumers. Cargojet provides scheduled and charter air cargo services.
“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,” said Cargojet Chief Executive Officer Ajay Virmani. “Our continuous commitment to provide value added services enables us to earn all of our customers’ trust as the leading overnight air-network operator.”
The increase in online shopping has led to explosive growth in the overnight air cargo business. Cargojet reported revenues of $119 million between April and June this year, up 9.3% from the same time in 2018.
In mid-July, during so-called Prime Week, an on-line sale for Amazon’s most valued customers, Cargojet handled an extra 1 million pounds of cargo over an average week, and added 23 flights to meet the demand. In order to exercise its warrants and buy Cargojet stock, Amazon will have to provide up to $600 million in deliveries over the next seven and a half years.
Cargojet sees an opportunity in the coming years, with package delivery being offered seven days a week and filling its planes year-round. It also believes the renewed free-trade agreement with the United States and Mexico will allow Canadian consumers to do more cross-border e-commerce, increasing demand for cargo shipments.
The airline plans to add more non-stop flights to the network in the next few years, along with later departures and earlier arrivals in 15 cities. Cargojet also plans to add cities to its overnight network, to reach 95% of the Canadian population.
The carrier has major operations in Hamilton, Ontario and Winnipeg, and flies a growing network of 18 Boeing 757 and 767 aircraft, with plans to add another three aircraft in the next two years.