Amazon to spend $1.49 billion on air cargo hub, fans talk of bigger ambitions

By By Jeffrey Dastin Features Reuters

A wide body aircraft emblazoned with Amazon's Prime logo is unloaded at Lehigh Valley International Airport in Allentown, Pennsylvania, U.S. December 20, 2016. REUTERS/Mark Makela (Copyright Reuters 2017)

Amazon.com Inc plans to invest $1.49 billion to build a large air cargo hub in northern Kentucky, state officials said on Tuesday, stoking expectations it may one day opt to directly compete with FedEx Corp and United Parcel Service Inc.

Continue Reading Below

The world's biggest online retailer has agreed to a 50-year lease for about 900 acres of property from Cincinnati/Northern Kentucky International Airport - close in size to the global hubs of top cargo airlines.

Amazon is handling more shipping in-house so it can deliver packages to customers faster, as well as cut costs and uncertainty associated with relying on third parties. It has said its moves are designed to supplement, not replace cargo carriers.

Analysts suspect it has larger ambitions.

"We estimate a $400 billion-plus market opportunity for Amazon in delivery, freight forwarding, and contract logistics," Colin Sebastian, an analyst for Baird Equity Research, said in a note to clients.

Amazon, which has not announced a start date for the hub, said it expects to create more than 2,000 jobs when the site opens.

Continue Reading Below

The northern Kentucky location - not far from UPS's major hub - puts Amazon's aircraft in shooting distance of top cities. The company said last year it would lease 40 Boeing Co 767 planes, 16 of which are currently in service.

It also lets Amazon's trucks reach 11 fulfillment centers in state. And a large operation of Deutsche Post DHL there lets Amazon transfer packages easily abroad, said Brian Clancy, managing director of advisory firm Logistics Capital & Strategy LLC.

As part of the investment, Amazon anticipates it will spend nearly $462 million on building and improvements over an unspecified number of years, according to a report by the Kentucky Economic Development Finance Authority.

The authority's board tentatively approved $40 million in tax incentives for Amazon over ten years if it meets hiring commitments, with average wages including benefits targeted at $26 per hour, the report said.

So far, Amazon has loaded its aircraft with big but lightweight boxes, according to data reviewed by Reuters and interviews with airport officials around the United States. This has helped it dodge fees from cargo partners, which are increasingly pricing by volume rather than weight.

Amazon's new site compares with about 1,220 acres UPS has in Louisville. FedEx has more than 900 in its Memphis hub, a 2010 airport plan showed.

(Reporting by Jeffrey Dastin in San Francisco; Editing by Edwina Gibbs)