World's Largest Aircraft Lessor Expands Globally To Meet Capacity Demand

Even as retail stores across the nation reopen and compete with e-commerce sales, e-commerce continues its fight upward. According to data from the National Retail Federation, the positive year-over-year growth of U.S. online sales in 2021 will sit between 18% and 23%, contributing to overall retail sales growth of up to 13.5%. 

In an interview with FreightWaves, Mike Berger, chief commercial officer for Ohio-based Air Transport Services Group (ATSG), spoke candidly about the growth of e-commerce and how it has affected ATSG's air cargo integrator customers, the largest of which are Amazon, DHL and UPS. 

While ATSG is the world's largest lessor of freighter airplanes, mostly 767s carrying cargo and military passengers, it also owns three airlines, should customers need help flying the aircraft. ATSG also owns two aviation maintenance facilities and a logistics operation, which Berger calls the company's "Swiss army knife," providing services for customers like ground handling, gateway operations, material handling and de-icing. 

In 2020, ATSG reported revenues of $1.571 billion, 106 in-service aircraft and 5,300 employees worldwide. However, this record year is attributed to pre-pandemic levels of e-commerce growth. Because ATSG must book its leasing commitments six to 12 months in advance, it was self-insulated from the immediate effects of the pandemic felt by much of the industry. 

"The pandemic propelled e-commerce in so many ways, allowing more players to enter the market," said Berger. "It also had a major impact on passenger travel, especially internationally. Passenger airplanes couldn't be utilized to carry cargo, which created opportunity for main deck air cargo operators to fill that void, because there's a high demand for their capacity in order to facilitate trade around the world."

Historically, ATSG's biggest customer has been the U.S. Department of Defense and Department of State, but by the end of 2021, Amazon will hold that distinction.

"Our relationship with Amazon started back in 2016 and has really flourished from there," Berger continued. "We'll lease 42 airplanes and will fly 46 for them by the end of the year. Its business, as well noted, did extremely well during the pandemic and continues to do so. It's really a lifeline to consumers in terms of the facilitation of goods and basic needs. Who would have thought that people would be ordering water and household items like cleaning goods, toilet tissue and paper towels online?"

The increasing reliance on e-commerce has motivated new entrants to capitalize on a market opportunity, but unlike the trucking segment, breaking into the air cargo side of the industry is expensive. Berger said ATSG cannot deploy a $25 million or $30 million asset to just any startup without understanding its business plan and financials.

ATSG has had to adapt to the loss of cargo capacity via international passenger flights, even as domestic air travel patterns are returning to a semblance of normalcy.

"But not much cargo moves in the passenger aircraft within the U.S.," said Berger. "It's just not done. It's flying on cargo airplanes for the major integrators, but there's a lot of cargo that moves internationally on passenger planes. Hong Kong to Sydney, for example, is a huge lane where Qantas and Cathay Pacific would fly multiple flights everyday back and forth. That belly freight would be used for cargo, but those schedules haven't come back anywhere near to what they were before COVID. The need for cargo freight in those types of scenarios is in huge demand."

To help DHL meet this demand for international aircraft capacity for the Hong Kong to Sydney lane, ATSG flew that lane for DHL for nearly 10 months. While ATSG continues to focus on its core customers, it's looking to expand further globally to help meet the demand for e-commerce. While its core airplane has been the 767, in the next couple years, it will begin acquiring the Airbus A330 and Airbus A321 to expand its medium-wide, as well as narrow-body aircraft. 

"When we're looking at the statistics in regards e-commerce sales, as it relates to the overall retail sales, in certain countries, we know it's still in its infancy. For example, e-commerce sales in India is less than 5% of the total retail sales. If you look at Latin America, it's about 7% of total retail sales. As the evolution continues, that's going to drive more and more trade and cross-border e-commerce. We think we're in a great position to capitalize on that."