Monday, 26 August 2019

Cargojet forms strategic agreement with Amazon for air transportation services

Cargojet has confirmed that it has entered into a new strategic agreement with Amazon.com to be the key air cargo carrier for Amazon's middle mile transportation in Canada. This agreement is in conjunction with Amazon's and Cargojet's existing commercial agreement for overnight air cargo services and charters and to incentivize growth in Amazon's utilization of those services to support fast delivery for Amazon customers in Canada. Under the new strategic agreement, Cargojet will issue warrants to Amazon to purchase variable voting shares that will vest based on the achievement of commercial milestones related to Amazon's business with Cargojet. Cargojet expects the agreement to generate additional revenue growth and be meaningfully accretive to Cargojet's earnings and cash flows over time.

Amazon utilizes Cargojet's overnight air network and charter aircraft services to move packages from Amazon facilities to other Amazon or last mile carrier locations before final delivery to customers. Speed and reliability in this component of the logistics network are critical for enabling consistent delivery performance for Amazon customers across Canada.



"Cargojet's entrepreneurial culture, combined with our core values of strong customer focus, have enabled Cargojet's customers to deliver and fulfil
on their e-Commerce promises. This agreement will support Cargojet further solidify its vision and strong leadership in the air cargo industry," said Chairman of the Board James R. Crane.

"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," added Chief Executive Officer Ajay Virmani.

"Cargojet has been a key player in our Canadian middle mile operations for several years," said Adam Baker, Vice President Global Transportation, Amazon. "We're thrilled to build a longer-term relationship that will allow us to provide even faster service to Amazon customers in Canada."

Growth in e-commerce and recent industry announcements for even faster deliveries as well as 7 days-a-week deliveries will drive Cargojet to further strengthen its premium domestic network.  Cargojet plans, over time, to add more non-stop flights allowing later departures and earlier arrivals to the 15 major cities that Cargojet already serves and to add new cities on its overnight network. These service and frequency enhancements will be available to all Cargojet customers and will expand Cargojet's reach to approximately 95% of the Canadian population. This optimized network will further improve fleet utilisation, create additional opportunities, and continue to help Cargojet enhance its customer-neutral, cost-effective network for all its customers.

As part of the agreement, Cargojet will issue the warrants to Amazon in two tranches. The first tranche of warrants allows Amazon to acquire up to 9.9 percent of Cargojet's variable voting shares at an exercise price of $91.78 per share, comprising the 30-day volume weighted average trading price ("VWAP") immediately prior to the date of the agreement.  The first tranche of warrants will vest over a period of six and a half years, with vesting tied to the delivery by Amazon of up to C$400 million in business volumes during the same term.

Amazon will also receive additional warrants to acquire up to an additional 5 percent of Cargojet's variable voting shares with vesting tied to the delivery by Amazon of up to an additional C$200 million in business volumes after the first tranche of warrants is fully vested. The vesting period for the second tranche of warrants will continue for an additional year, making the aggregate term of all the warrants equal to seven and a half years from the date of the agreement. The exercise price of the second tranche of warrants will be set two years after the date of the agreement using the 30-day VWAP immediately prior to the second anniversary of the agreement (or, if earlier, the date on which the first tranche of warrants is vested in full).


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