ATSG to Acquire 20 767s and Convert Them to Freighters; Destination Unclear Though Amazon May Want Some

Air Transport Services Group, Inc. ATSG, said last night that one of its subsidiaries will acquire 20 Boeing Co. BA 767-300 passenger aircraft and convert them to all-cargo planes over the next three years.

The extended-range planes, which based on ATSG's data will have a range of 3,100 nautical miles with a maximum payload of 125,900 pounds, will be acquired from Jetran, LLC, an aircraft leasing, financing, and engine modification firm, ATSG said. Six of the planes will be converted next year, up to nine in 2020, and no fewer than five in 2021, the company said. An ATSG spokesman said the company hasn't yet determined how the aircraft will be deployed.

Cargo Aircraft Management, ATSG's aircraft leasing subsidiary, will purchase the planes, manage their conversion and lease them out. Based on customer demand, the unit may choose to lease one or more of the planes in passenger configuration to ATSG's passenger charter business, or in what is known as "ACMI" service for the unit's government and commercial customers to be converted. Under an ACMI designation, a certificated air carrier supplies the aircraft and crew, handles the maintenance, and provides the necessary insurance coverage.

The 767s are widebody planes that are considered medium-sized and with medium range. They are suitable for shipments of goods ordered online. E-tailer Amazon.com, Inc., AMZN leased 20 of the aircraft from ATSG to support Amazon's expansion of its air network buildout. In all, Seattle-based Amazon uses 40 767 freighters for next-day deliveries across the country - with the remaining 20 from Purchase, N.Y.-based cargo carrier Atlas Air Worldwide Holdings, Inc. AAWW.

Amazon has been looking for more aircraft as its delivery needs expand. Its primary air hub in Cincinnati, expected to be partly completed in 2020, will be able to accommodate up to 100 planes.  Earlier this year, Amazon put out a request for proposal for six additional planes, the Seattle Times recently reported. However, there has been limited supply of converted 767 freighters, and Amazon may turn to Airbus Industrie, the European manufacturing consortium and Boeing's arch-rival, for planes with a similar configuration, according to the article. A similar Airbus model would be the A-330.

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In a note today, Kevin Sterling, analyst for Seaport Global Securities, said "it's a matter of when, not if," that Amazon expands its relationships with Atlas and ATSG. Though yesterday's deal indicates that ATSG is preparing for that day, ATSG may look at other customer opportunities beyond Amazon, Sterling added. The analyst expects ATSG to remain aggressive in pursuing other deals for freighter conversions.

According to Boeing's most recent 20-year global air cargo forecast, released earlier this year, converted passenger planes will account for 63 percent of the freighter aircraft to be delivered to the world's air fleets. Boeing expects world air cargo traffic to grow 4.2 percent a year through 2037, effectively doubling over that span. The traffic forecast is calculated in revenue ton-kilometers, defined as one revenue ton flown one kilometer.

 ATSG, based in Wilmington, Ohio, said it will have 59 of the converted planes in its fleet when the conversions are completed. That estimate assumes ATSG will not acquire any more of the planes for conversion. The company did not disclose the purchase price or the conversion cost. The 20 planes were built between 1993 and 2003, and are currently operated by American Airlines Group AAL.

First flown by United Airlines in September 1982, the 767 was Boeing's first widebody twinjet. Japanese airline All Nippon AIrways took delivery of the first converted freighter version in 2008.

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