In March 2016, Air Transport Services Group announced a series of agreements with Amazon Fulfillment Services, an affiliate of Amazon.com, to operate a dedicated air cargo network in the US to support Amazon Prime one-and two-day deliveries. This involves the lease to Amazon Fulfillment Services of 20 Boeing 767 freighters from ATSG subsidiary airlines ABX Air and Air Transport International and gateway and logistics services provided by ATSG’s LGSTX Services. The leases are from five to seven years and the aircraft operations agreement is for five years. In addition, ATSG also agreed to grant Amazon warrants to acquire up to 19.9% of ATSG’s common shares over a five-year period.
Three months later, Amazon signed a similar agreement with Atlas Air Worldwide Holdings for the lease of 20 Boeing 767-300 freighters on a crew, maintenance and insurance (CMI) basis from subsidiary Atlas Air, as well as dry leasing by the Titan Aviation leasing unit. The dry leases will have a term of 10 years, while the CMI operations will be for seven years (with extension provisions for a total term of 10 years).
When these arrangements were followed in January 2017 by a further announcement that AMES would acquire PEMCO World Air Services, there seemed to be a general assumption that ATSG were also acquiring additional 767 conversion capacity as the Amazon Prime operation expanded beyond the US. The assumption was probably assisted by the fact that PEMCO’s owners, Avion Services Holdings, a subsidiary of Sun Capital Partners, gave no reason for the decision to sell, having acquired the company out of bankruptcy in 2012.
However, Todd France, Vice President Business Development at AMES, emphasises that the acquisition is not a direct consequence of, or related to, the Amazon deal. Instead, it is a response to greater customer demand for his company’s MRO services, and PEMCO’s capabilities are a good fit with the current portfolio. They both have similar capabilities across Airbus, Boeing and McDonnell Douglas types, with AMES having more widebody experience and PEMCO having more narrowbody experience. In addition, both have experience of freighter conversions (although only PEMCO carries out the work), which brings with it knowledge of engineering repair and design, and extensive manufacturing and kitting capabilities. These will be expanded after the inevitable sharing of best practices and some realignment, as will AOG field teams, line and turnaround maintenance and component repair and overhaul.
For the latter, AMES has a 9,300m² component repair facility at its base in Wilmington, OH, which operates as a separate business unit. Capabilities include wheels and brakes, batteries, electrical/avionics, oxygen systems and wire harnesses. Although primarily involved with freighter aircraft, there is a 465m² temperature-controlled interiors shop that can take care of seats, galleys and lavatories, including repair and repainting. It can handle nearly all of the airframe components for Boeing 767 aircraft. This will become a valuable asset for PEMCO in Tampa, FL, which currently outsources some of this work, as will a huge warehouse of spare parts as AMES is also active in materials sales.
The physical separation of the two bases is not a problem as it can be covered in two hours flying time, allowing for g eater flexibility in the use of hangar slots, depending on customer location. For components, that distance represents less than a day for truck transport of components.
On the airframe side, AMES expanded in June 2014 by moving into a new 9,755m² hangar, alongside three older hangars totalling 19,500m² (see MRO Management, September 2014). Much of the work involves the two ATSG subsidiary airlines and aircraft leased by another ATSG subsidiary, Cargo Aircraft Management. However, third-party work has been increasing. In addition, the company has a unique capability in carrying out the replacement of the rear pressure bulkhead on the Boeing 767, a life-limited part.
PEMCO has 30,000m² of hangar bays, which can accommodate 10-12 narrowbody aircraft, or up to six widebody aircraft simultaneously. MRO work increased in 2016, offsetting a static freighter conversion market caused by candidate conversion aircraft having their leases extended (see MRO Management, December 2016). Of course, Boeing 737 freighter conversions have long been a strength and the company is running conversion lines in a number of locations to meet customer demand.
As can be seen, the Chinese market is particularly strong and driven by the same consumer demand trends as Amazon Prime. PEMCO has converted more than 70% of China-based Boeing 737-300/400s in service, delivering more than 50 aircraft since 2006. In 2015, ATSG announced a project to operate 737 freighter services with United Star Express, a joint venture with four other partners including Okay Airways and Vipshop, an online discount retailer, but this has yet to start operations.
At the announcement of the takeover, ATSG President and CEO Joe Hete said: "Based on PEMCO’s existing domestic and international scale, this acquisition will expand access to maintenance service for customers of ATSG’s expanding fleet of Boeing 767 cargo aircraft. It is consistent with our goal to diversify ATSG’s revenue and earnings, for an investment in the same price range as our planned and completed stakes in cargo airlines in China and Europe. The combination of PEMCO’s conversion and MRO sales of both Airbus and Boeing products with AMES’ existing offerings will create a sustained, growth-oriented aircraft maintenance product and services portfolio."
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