MEMPHIS, Tenn. (AP) - FedEx says it signed a seven-year, US$10.5 billion (S$13 billion) deal to keep hauling air mail for the US Postal Service.

The deal calls for FedEx to carry Express Mail and Priority Mail between US airports.

The new deal starts in October, replacing a contract set to expire in September. FedEx said it has been providing a similar service for 12 years.

FedEx Corp. said on Tuesday that the new contract gives the Postal Service flexibility to respond to future changes.

The Postal Service is in a financial crunch and is restructuring its retail, delivery and mail processing operations. Since 2006 it has reduced annual costs by US$15 billion, cut 193,000 workers and consolidated more than 200 mail processing locations.

FedEx shares closed up 67 cents at US$93.17.