The announcement by the online retail giant Amazon at the end of April that it was launching operations in Israel sent shock waves through the local retail industry. It wasn’t just the brick-and-mortar stores that looked on in trepidation, so did the many companies that play a role in the supply chain.
Now it turns out that Amazon has been quietly working with state-owned Israel Aerospace Industries. A maker of aircraft and even missiles, IAI might seem an unlikely partner for the U.S. company, but Amazon in fact operates a fleet of 40 aircraft that move the merchandise it sells.
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Amazon’s planes are passenger jets that have been reconfigured as cargo planes, and 80% of the conversions have been performed by IAI. Amazon hasn’t been contracting IAI for the work directly. The aircraft are operated by the two companies Air Transport Services Group and Atlas, which in turn hired IAI to do the work.
Most of the work is done at IAI facilities in Lod next to Ben-Gurion International Airport. If you saw the Boeing 767s from a distance you would have trouble distinguishing them from a passenger jet.
But on closer inspection, you can see that the windows have been removed and the doors have been replaced by one three times the size to accommodate cargo.
The site for converting planes is one of five operated by IAI, with a sixth recently opened in Mexico City via a subcontractor.
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All the Amazon planes are based on the Boeing 767 platform, says Noam Sharoni, head of the B767 conversion operations at IAI.
Amazon is a big enough company to buy whatever kind of aircraft it wants. Last year its revenues grew 30% to $233 billion and its operating profit jumped three times to $12.4 billion. But it still seeks to cut costs wherever it can, and one way to do that is to use converted jets rather than new ones.
A new cargo plane costs between $70 million and $80 million, while a used passenger jet costs no more than $30 million. Reconfiguring it to be used for cargo typically costs another third of the purchase price. It will have a useful life of another 20 years after the work is done.
Amazon is by no means the only company for which IAI does conversions. Other customers include DHL, Cargojet and the U.S. cargo airline Kalitta Air.
“We convert all kinds of planes, from a wide-bodied 747 jumbo jet, the ultimate for cargo, to the small and narrow-bodied 737, which fits Amazon’s needs for point to point cargo transport within the U.S.,” Sharoni said.
It takes about 120 days to complete a conversion, which includes rewiring the entire plane. Bathrooms for passengers are removed and windows are replaced by metal plates that are lighter and less liable to break. Floors are replaced with ones using stronger material and wheeled tracks that make it easier to move pallets on and off the plane.
A reinforced wall separating the cargo area from the cockpit is designed to protect the crew in case of a sudden emergency stop on the runway, which would cause the cargo to lurch forward at 90 kilometers per hour (56 miles per hour), IAI says.
The 767s can hold 68 tons of cargo, versus the 45 tons passenger planes are designed to hold.
When a plane is completed, it’s brought to Amazon’s hub in Cincinnati. It will typically fly three times a day seven days a week, helping to move the billions of items Amazon moves every year. In 2017, this was 5 billion pieces of merchandise just for the company’s 100 million Amazon Prime customers.
Amazon began its own fleet of planes three years ago. It had been using the services of FedEx and UPS, but as Amazon grew the two shipping companies could no longer handle the volume of business. In 2015 and 2016, for instance, Amazon found itself at the peak of the Christmas season unable to service all the orders it was receiving.
At IAI, as many as 120 people work on aircraft conversion projects, but the civilian segment of the business is a money loser for the company even if the entire conversion business is profitable.
The civilian side of the business is much smaller than the military side (to date IAI has reconfigured 86 aircraft), and the civilian operation must compete with companies in countries where labor costs are much lower. Opening an operation in Mexico is one way IAI hopes to better compete on costs as well as be closer to its American customers.
The conversion business is heavily regulated and only a small number of companies globally have the skills to meet all the approval processes. IAI officials say only three companies compete with it head to head, including Boeing itself. They estimate IAI’s share of the market at between 25% and 30%.