Air Transport Services Group: A Cheaper Way To Invest In Amazon's Growth

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Summary

  • Air Transport Service Group is the largest lessor of freighter aircraft.
  • Expanding relationship with Amazon is a catalyst for ATSG's growth.
  • Moves made by the Commerce giant and research hints at 5x growth in the no. of aircraft operated by 2028.
  • A321 P2F is a booming market and ATSG is an early player.
  • Major cargo carriers operate an aging fleet of 757s. Replacements are due and passenger aircraft (767s, A321s, etc.) price drop widens the opportunity for ATSG.

Introduction

Value investors often shy away from major eCommerce players like Amazon (AMZN), Shopify (SHOP), and several others due to their high valuations. In my search for companies that would indirectly benefit from the eCommerce boom, I came across Air Transport Services Group (NASDAQ:ATSG). This article outlines the opportunities in ATSG for the long-term investor.

Background

ATSG is the world's largest lessor of freighter aircraft and operates through multiple subsidiaries.

Source: Investor Presentation

The company provides dry lease of aircraft, ACMI - aircraft, crew, maintenance & insurance, or wet lease, CMI, aircraft maintenance services, passenger to freight conversion among other services in the domain.

Source

Expansion of business relationships with Amazon has brought recent focus on Air Transport Services Group.

ATSG recently announced an agreement to lease 12 additional Boeing (BA) 767-300 converted freighter aircraft to Amazon. All 12 will be leased to Amazon for 10 years, with options for Amazon to extend the leases for three additional years.

Cargo Aircraft Management, ATSG's aircraft leasing subsidiary, today leases 27 Boeing 767 aircraft to Amazon, including six leased during 2019.

The Amazon Angle

Image Source

Amazon's current flight network appears designed largely to augment the services of DHL International (OTCPK:DPSGY), FedEx (FDX), and UPS (UPS), such as by filling critical links between its fulfillment and sorting centers, rather than being designed to replace them outright.

Amazon Air flights constitute a large share of cargo operations by:

  • Air Transport Services Group
  • Atlas Air Worldwide (AAWW)
  • Sun Country Airlines

Having multiple air subcontractors spread Amazon's risk. The eCommerce giant has been impacted by Atlas Air's contentious contract talks with the Teamsters union for a long time. Last year, disaffected pilots conducted work slowdowns and sick-outs that led to service disruptions.

Source

Considering the fact that Amazon has made deals with ATSG (and AAWW

This article was written by

Hidden Opportunities profile picture
2.58K Followers
Venkat Raghavan is a management consultant and individual investor with experience providing transformation assistance to finance, healthcare and manufacturing industries. With a strong background in helping transform organizations and streamline their business, investing is a passion for the author, and he enjoys identifying undiscovered opportunities and sharing insights. The author aims to focus on companies with great potential that aren't under the spotlight.The author occasionally contributes articles to Rida Morwa's service High Dividend Opportunities.

Disclosure: I am/we are long ATSG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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