AMZN Amazon.com Inc

By Joshua Jamerson 

Atlas Air Worldwide Holdings Inc. said Thursday it would provide air cargo services to Amazon.com Inc., further building out the online retailer's delivery network.

Atlas Air's shares rose 29% to $49.40 in midday trading as Amazon edged down 0.3% to $668.68.

The move, which includes the lease of 20 Boeing Co. 767 freights to Amazon, comes after the tech giant made a similar agreement in March, when it said it planned to shuttle merchandise around the U.S. using as many as 20 767s from Air Transport Services Group. News of that deal sent the Air Transport Services' stock soaring 24% at the time.

Atlas Air Worldwide also said it granted Amazon warrants to acquire up to a 30% stake in the company at a price of $37.50 a share, after the issuance of Atlas Air's common stock. Amazon could acquire 20% over five years and then an additional 10% over seven years. Atlas Air said Thursday that Amazon can take a seat on its board when Amazon exercises warrants for an initial 10% sake in the air cargo operator.

Similarly, the online retailer had said in March it would work to secure warrants giving it almost 20% of Air Transport Services equity and a board seat. Those warrants were priced at $9.73 per share over five years.

The agreement with Atlas air Worldwide includes operation of 20 Boeing Co. 767 freighters for Amazon by Atlas subsidiary Atlas Air Inc. The operation of the freighters with crew, maintenance and insurance will last for seven years. Atlas Air said Amazon agreed to a so-called dry leasing by its Titan Aviation leasing unit, which have a term of 10 years. In a dry lease agreement, only the plane is given.

Dave Clark, Amazon's senior vice president of world-wide operations, said the agreement would "support package delivery to the rapidly growing number of Prime members who love ultrafast delivery."

The agreement is expected to begin in the second half of the year and continue to ramp up through 2018.

The Seattle retailer has taken steps to reduce its reliance on carriers such as United Parcel Service Inc. and FedEx Corp. It has built a ground network of couriers and new warehouses near or within urban centers for faster and cheaper delivery.

The Wall Street Journal reported in December that Amazon was seeking aircraft from companies including Atlas Air and Air Transport Services.

Atlas Air, which reported better-than-expected earnings on Thursday, said the partnership with Amazon would add to its earnings and cash flows over time.

In the first quarter, Atlas said it earned $471,000, or 2 cents a share, compared with a year-earlier profit of $29.2 million, or $1.17 a share. Excluding items, Atlas Air said it earned 31 cents a share. Analysts polled by Thomson Reuters projected 25 cents a share.

Revenue fell to $418.6 million from $444.8 million. Analysts expected $420 million.

Doug Cameron contributed to this article.

Write to Joshua Jamerson at joshua.jamerson@wsj.com

(END) Dow Jones Newswires

May 05, 2016 12:27 ET (16:27 GMT)

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