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Cargojet Announces New Equity Offering to Finance Aircraft Purchases
In a press release on Tuesday, Cargojet announced a $275 million equity offering aimed at growing the airline’s cargo operations. A syndicate of underwriters has agreed to purchase 1,642,000 common voting and/or variable voting shares for C$213.25 per share. With the new offering, along with the over-allotment option provided by the underwriters, the airline is expected to raise over $300 million.
Cargojet aims to put the funding to quick use, and will acquire five Boeing 767 freighter aircraft in 2021 and 2022 along with two Boeing 777 freighter aircraft in 2023. Cargojet’s Boeing 777 freighters will be a new fleet type for the airline, and will assist in growing the carrier’s international network. It is unknown which destinations their Boeing 777 freighters will be flown. Currently, Cargojet has 25 aircraft in its fleet, including eight Boeing 757 freighters and 17 Boeing 767 freighters, according to planespotters.net.
Additionally, Cargojet will use the funding to improve its facilities and build a new hangar in Canada. The airline cites additional e-commerce traffic as reasoning for infrastructure investment. With the funding, Cargojet will seek new opportunities internationally driven by “strategic investments” in the United States.
The cargo airline also plans to utilize the cash to discharge financial leases, including balloon payments on six aircraft and pay down revolver balances, as part of its strategy to maintain a clean balance sheet.
What is Cargojet?
Cargojet is one of the largest cargo carriers in Canada. They provide cargo services all over Canada with their primary hub in Hamilton, Ontario. For flights to North Canada, the airline partners with First Air. Before COVID-19, Cargojet flew freight to Cologne, Germany in Europe, and Bogota, Colombia; and Lima, Peru in South America.
During COVID-19, Cargojet was enlisted by DHL to provide international services using three Boeing 767’s. In April and October 2020, Cargojet started routes from DHL’s hub in Cincinnati, Ohio, to destinations in Mexico like Guadalajara and Monterrey, along with destinations in the United Kingdom like London and the East Midlands. Originally temporary, some of these routes will be permanent as DHL has expanded its ACMI contract with Cargojet. ACMI contracts involve the leasing of aircraft to another airline.
Last year, Amazon partnered with Cargojet and granted the warrant to acquire a 9.9% stake in the company for six years. Later on, it was given additional rights to purchase an incremental 5% stake in the company. Cargojet continues to support Amazon by delivering packages in Canada. Additionally, Drake, the famous Canadian rapper, partnered with Cargojet to charter a private Boeing 767 jet.
Growth of Cargo During COVID-19
During the COVID-19 pandemic, cargo revenue for airlines and cargo carriers has been positive, unlike passenger revenue. Cargojet cites growth in e-commerce domestically and the lack of international passenger services as the main reasons for the recent success of the airline and reasons for future growth.
In the last week, Atlas Air and DHL have announced orders for cargo aircraft to supplement growth in the cargo industry. Atlas Air has ordered four Boeing 747-8F’s, which will be the last Boeing 747’s produced. Meanwhile, DHL acquired eight additional Boeing 777F’s.
Other carriers are converting former commercial aircraft into freighter aircraft to expand their fleets. For example, Amazon acquired 11 Boeing 767’s, which will join its fleet this year. These aircraft include seven former Delta Airlines Boeing 767’s and four former Westjet Boeing 767’s.
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