Atlas Providing Amazon with Wet- & Dry-Lease Fleet
Questions the FAA Might Consider
Amazon is the #1 entrepreneurial success of recent vintage American ventures. It is seeking ways in which it can dramatically improve its distribution efficiency. The Amazon Prime Drone saga is an example of its strategic over-the-horizon thinking and of its aggressiveness.
The Seattle-based retailer announced its new relationship with Atlas Air Worldwide Holdings (AAWW) and the leasing of 20 B-767-300 Fs. To be precise, AAWW’s Titan Aviation leasing unit will dry lease the freighters to Amazon. Worldwide’ s operating subsidiary, Atlas Air, will provide crew, maintenance and insurance on a CMI basis. Presumably, the Atlas FAA Part 121 certificate will be the point of responsibility to the FAA. Thus, one of the important details of the Prime Air recent paint job is shown in this picture, where it is noted that the plane is being operated by Atlas Air.
The wet lease between Amazon and Atlas/Titan/Worldwide is required under the FARs and their interpretations to have the certificate holder to exercise operational control. Basically, the carrier must have final decision power to release aircraft as to weather, operational and airworthiness decisions. The lessee may set the schedule, but if the Atlas management/pilot decides that there are substantial risks for a departure or an arrival at the preferred airport, Amazon may not override that decision.
In its press release, Amazon’s William J. Flynn, President and Chief Executive Officer explained,
“We are excited to begin serving Amazon and its customers… Our first flight represents a significant milestone for our company, and it marks the start of a strategic, long-term relationship.”
The Wall Street Journal explained the arrangement’s real intention as follows:
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.
Amazon has been focused on accelerating its delivery speeds and to increase its supply chain capacity for its customers. It has global distribution of more than 125 fulfillment centers and over 20 sortation centers where the company uses high-end algorithms, robotics, machine learning and other technological innovations to increase delivery speeds for customers. Clearly, the Prime Air fleet is another step in that direction.
It is not as though FedEx and UPS are considered inefficient providers of air and ground deliveries. Most quantitative analyses find the Memphis and Louisville hubs to move packages well. Their major airport hubs have excellent geographic locations, better than average weather, excellent runways and the advance NextGen AT systems.
From a distant perspective, it would not seem as though either carrier would be an albatross on Amazon’s need for speed. Both operators have the number of connecting flights to create a positive volume scale of efficiency and their fleets have the most advanced NextGen equipage which should enhance their reliability.
In the absence of technical advantages, why is Amazon creating its “own” fleet? One with a suspicious mind might infer that its intent is increased control (the Seattle company has a general reputation for dominating its suppliers; it’s one of the strategies which has brought it success!), a problematic term in the FAA’s vocabulary. Here are some questions which the FAA might consider:
- How might the FAA use its SMS approach to proactively address any “control” issues?
- Will Amazon participate in the Atlas/FAA SMS dialogues?
- Will the FAA take particular interest in Amazon’s interaction in Atlas’ Operational Control Center?
- How might the FAA track indicia of control?
- Does it matter that Atlas is giving it almost 20% of Air Transport Services equity to Amazon?
After all while the big Prime Air livery is the most visible marking, the N number (Titan) and the operational notice by the cockpit exterior (Atlas) constitute the legal nexus with the FAA. It will be interesting to see how the FAA surveils this delicate control issue.