Amazon signs strategic partnership with Mississauga, Ont.-based cargo carrier Cargojet

Marco Green
August 25, 2019

Cargojet said Amazon will receive an initial tranche of warrants exercisable at C$91.78 a share for up to a 9.9% stake.

Under the agreement, Mississauga, Ont. -based Cargojet will issue warrants to Amazon for variable voting shares that will vest based on milestones of business that Amazon gives Cargojet.

CargoJet, which provides time sensitive overnight air cargo services, saw its share of the air freight market grow from 50 per cent to 95 per cent in 2015 when it won the lucrative Canada Post contract away from Kelowna Flightcraft.

Cargojet said it expects the agreement with Amazon will "generate additional revenue growth and be meaningfully accretive to Cargojet's earnings and cash flows over time".

Amazon already uses Cargojet's charter aircraft services to move packages from Amazon warehouses to distribution centres for final delivery, but the deal announced Friday is created to encourage it to use the network even more. Speed and reliability in this component of the logistics network are critical for enabling consistent delivery performance for Amazon customers across Canada. The financial agreement is created to strengthen Amazon's commitment to using Cargojet's services, Cargojet said.

"The commercial relationship the Cargojet team continues to build with Amazon has now allowed us to further strengthen and align our long-term strategic commercial interests".

"Our continuous commitment to provide value-added services enables us to earn all of our customers' trust as the leading overnight air-network operator".

Cargojet provides overnight air deliveries that support Amazon's "middle-mile" Canadian network, which links the e-tailer's facilities with other locations prior to the execution of the final delivery to customers. The stock was trading at $106.00 at 9:46 a.m. ET, an increase of almost 17 per cent.

Cargojet plans to add new cities to its network, and increase service frequency to the 15 cities it now serves. The shares will vest over a period of 7.5 years once certain commercial targets are reached.

"The announcement that Amazon will be taking an equity stake in Cargojet, combined with committed volumes over a 7.5-year period, address the one key risk related to Cargojet - namely whether Amazon would partner with another Canadian carrier to offer overnight delivery service", Spracklin wrote in a note to clients. The exercise price of this tranch will be set two years after the date of the agreement.

Other reports by Click Lancashire

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