Cargo Facts Newsletter, October 2012

The Air Freight and Express Industry Newsletter of Record • www.CargoFacts.netOctober 2012 • Vol. 32 No. 10

www.acmg.aero

News Inside:Southern Air seeks Chapter 11 protection ............................... 3Rumors, speculation & commentary ........................................ 3Short segments Carrier, lessor & handler news .......................................... 4 Conversion, MRO & manufacturer news ............................. 7 Express & postal news ...................................................... 15 Regulatory news ................................................................ 15 Route news ........................................................................ 16Freighter aircraft transactions & developments ...................... 6First flight for a new freighter type .......................................... 8Asian perspective ................................................................... 10European perspective ............................................................ 11World’s busiest cargo carriers ............................................... 12Modal shift hits FedEx ............................................................ 14Latin American perspective ................................................... 18Treading water in August ....................................................... 18

The first freighter-converted MD-80 took off from Miami International Airport on 21 September following conversion by Aeronautical Engineers Inc. FAA certification is expected by the end of October, with delivery of the first unit to launch customer Everts Air Cargo scheduled for mid-November. See p. 8 for more on the latest aircraft type to join the world’s freighter fleet.

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US-based all-cargo ACMI and charter operator Southern Air Holdings filed a petition for Chapter 11 protection while it restructures its debt obliga-tions. The very short version of the story, in Southern’s words, is that “Currently, the Debtors do not have sufficient funds with which to operate their businesses on a going forward basis.” The full story, of course, is somewhat longer than that…

Southern Air Holdings traces its lin-eage back some seventy years to 1947, when an airline called Southern Air Transport (SAT) was formed. SAT had its ups and downs, and eventually restructured as Southern Air in 1999. More recently, a small Seattle-based carrier called Cargo 360 was formed, but was shortly thereafter acquired by private equity firm Oak Hill Capital Partners. Then, in 2007, Oak Hill also acquired Southern Air, and effectively merged it with the Cargo 360 operations under the newly-created umbrella of

Southern Air Holdings. Both Southern Air and Cargo 360 continue to exist as legal entities, but operationally they are effectively one carrier, known as Southern Air.

southern air seeks Chapter 11 proteCtion

BreakINg NewsBreakINg News

Southern Air says its ACMI agreement with DHL will be the cornerstone of its future. But to get to that future it will not only have to successfully restructure under Chapter 11 protection, but also find a way to compete in a rapidly-changing air cargo market.

reach an agreement in that time, a strike may still take place, but it will come at the end of December when there is little traffic to be shifted to air. Second, the euro crisis, which seemed to be on the way to resolution, is now back on the boil, so there is little likelihood of a sudden need to restock shelves in Europe. Third, while the recent personal electronics product launches can hardly be called failures (Apple did sell 5 million iPhone 5s virtually overnight), sales did not live up to expec-tations, and will provide less of a demand boost than was hoped. Of course this does not mean there will not be some seasonal demand increase, but hopes for a big spike should be abandoned, particularly given the latest developments in China and Japan (see below).

Diplomatic battle hits air freight volumes: The sim-mering dispute between Japan and China over a handful of uninhabited islands in the East China Sea is having a major impact on trade between the two nations, with mass boycotts of Japanese products in the People’s Republic. Airlines tell Cargo Facts that bookings for freight have slipped in the past month and the outlook for October is seriously down over the same month in 2011. “We have seen freight bookings come to a virtual halt,” said an em-ployee of All Nippon Airways in Beijing. Meanwhile, an official at Dalian airport, an important city for Japanese manufacturers in northeast China, told Cargo Facts: “We have noticed a severe drop in volumes headed to Tokyo for the last two weeks.” But it is not just trade (and there-fore cargo) that has suffered. Passenger traffic has fallen drastically, and carriers from both countries are cutting flights and postponing the launch of new routes.

With all data in for August, the best way to sum up the month is probably to say “things were less bad than they were earlier.” IATA published full air freight statis-tics for August, showing that continuing worries about the worldwide economy have kept consumers’ wallets firmly in their pockets, and reducing the need to ship consumer goods by air. This is not to say that there has been a steep fall in demand this year, but rather that there has been no rebound from the stagnation in 2011 that followed the sharp rebound in 2010. Total worldwide freight traffic was down 0.8% y-o-y in August, but there were signifi-cant differences among the world’s geographical regions. Carriers from the Asia-Pacific region were hit hardest, with freight traffic down 5.5%, while Middle Eastern carriers reported traffic up 11.3%. In between were European car-riers (down 0.7%) and North American carriers (up 2.0%). In the economically smaller regions, African carriers did quite well, with traffic up 10.2%, while Latin American carriers saw their freight traffic decline 3.9%. For the first eight months of 2012, IATA reported international freight traffic down 2.6%, domestic traffic up 1.0%, leading to a 2.1% drop in total freight traffic.

Hopes for a peak season spike in air freight demand are fading. While there was no expectation that a mi-raculous worldwide economic recovery would lead to double-digit increases in demand (and much larger in-creases in yield), several events/trends in recent months had buoyed hopes for at least a moderate peak. However, as we have reported, the almost-certain US East Coast ocean port strike was postponed for 90 days. If port op-erators and the unions representing port workers cannot

BreakINg Newsrumors, speculatIoN & commeNtary

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(continued on page 22)

www.CargoFacts.net • October 2012 �

The Air Freight and Express Industry Newsletter of Record

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(24061 and 24795) scheduled to be returned next year to MARTINAIR (part of the Air France-KLM Group) from which ACG currently leases them [FATs 000449 and 450]. Air Cargo Germany CEO Michael Bock said that the return of the BCFs to Martinair would not shrink ACG’s fleet: “We intend to replace these aging aircraft either by getting two younger B747-400Fs or the sister model B747-400ERF.” He did not specify a source for these newer freighters, but it is worth noting that in addition to three 747-8Fs, AirBridge has three more 747-400ERFs in its fleet and may want to move some of them to ACG when the two remaining 747-8Fs it has on order are delivered. With the fleet increasing from four to six freighters, ACG said it expected annual revenue to increase from 230 million in 2011 to €430 million next year. Separately, ACG said it would launch three weekly frequencies on a Frankfurt-Beijing-Frankfurt route next month, as well as increasing its Chicago service from two to three weekly frequen-cies, and its Mexico City service from once to twice weekly.

Australian flag carrier QANTAS and Dubai-based EMIRATES signed an agreement to create a ten-year alliance, in which Qantas would have access to Europe, the Middle East, and Africa through Emirates’ network, and Emirates would have access to the domestic Australian market. In addition, the two carriers would cooperate on service from Australia to Asia and between Australia and New Zealand. No details of how the agreement would affect the carriers’ cargo operations have been released, but Emirates cargo boss Ram Menen was recently quoted in Cargonews Asia as saying: “The partnership between Emirates and Qantas Group will see the Australian carrier operate via Emirates’ Dubai hub, to and from London. Emirates SkyCargo and Qantas are in discussions to cre-ate synergy between our networks that will further enhance our reach and connectivity, and bring benefits to both organizations, as well as our customers.” Emirates has vast (and rapidly-growing) belly capacity in the world’s largest widebody passenger fleet. It also has four 777Fs of its own and leases five 747-400 freighters (three -400ERFs operated by TNT and two -400Fs ACMI-leased from Atlas Air). Qantas, on the other hand, is scaling back its long-haul passenger operations (and consequently its belly freight capacity), but does ACMI-lease three 747-400Fs from Atlas Air and has one 767-300F of its own as well as four 737-300Fs operated in domestic service by Australian Air Express in which Qantas is a joint venture partner. We point out that while Qantas and Emirates have agreed to create the alliance, they are already facing opposition from other carri-ers in the Asia-Pacific region. Singapore Airlines, Air New Zealand, and Virgin Australia have filed petitions requesting the Australian competition regulator withhold interim authorization for the alliance until a final deci-sion is made in 2013.

In other QANTAS news, the carrier’s cargo arm QANTAS FREIGHT launched an iPhone app and mobile site for smartphones, which it says will allow customers to access real-time information on shipments from anywhere, at any time. Qantas Freight says features of the app include in-stant notification when shipments pass chosen milestones such as being accepted for uplift, clearing Customs and being ready for collection, as well as notification about changes in departure or arrival status of flights.

Turkey-based MYCARGO AIRLINES signed a Memorandum of Understanding with Liege Airport, making Liege the carrier’s hub for European operations, and has launched five-times-weekly A300B4F service between Liege and Istanbul. MyCargo began life as ACT Airlines, but was rebranded following the acquisition of “a large minority share” by China-based HNA Group (parent of Hainan Airlines, Yangtze River Express, and Hong Kong Airlines) and Hong Kong-based Bravia Capital. At the time

ETHIOPIAN AIRLINES took delivery of the first of two 777Fs (41846) on long-term lease from GECAS [FATs 000460 – 461]. Addis Ababa-based Ethiopian also currently operates two MD-11Fs and two 757-200Fs. In addition to the remaining 777F it will lease from GECAS, the carrier also has four 777Fs on firm order with BOEING, with all five to enter the fleet by the end of 2014. Cargo Facts believes Ethiopian’s first 777F will, at least initially, operate between Addis Ababa and Liege, a route the carrier has served in the past with a 747-200F ACMI-leased from Southern Air.

China Eastern to reduce its freighter fleet. CHINA EASTERN AIRLINES reported a reasonably strong overall first half performance from its passenger operations, but said the operating loss from its cargo operations (through the China Cargo Airlines joint venture) ballooned from US$39 million in 1H11 to $63 million this year, despite increases in both cargo traffic and cargo revenue. As a result, according to Company Secretary James Wang, the carrier will reduce the number of freighter types in its fleet. He did not say which types would go, but given the odd mix of freighters China Eastern inherited through the amalgamation of the cargo businesses of Shanghai Airlines and Great Wall Airlines with its own cargo operations, there are plenty of targets to choose from. Through its China Cargo Airlines joint venture, the carrier currently operates eighteen freighters, including six 777Fs, five 747-400 freighters (two -400ERFs, two -400Fs, and one -400BCF), three MD-11Fs, three A300-600Fs, and one 757-200F. Obviously, the 777Fs (which are on long-term lease from GECAS) will stay. Which of the remaining twelve will go? It could be any, or all, but if we had to guess we would probably point to the MD-11Fs (six of which have already been removed from the fleet) and the 757-200F. However we would not be surprised if the 747s and the A300s also went, and the fleet was pared down to just the 777Fs.

ATLAS AIR WORLDWIDE HOLDINGS (AAWW) reached an agree-ment with DHL EXPRESS under which Atlas will place its next two 747-8Fs (37571, 37572) in service with DHL, replacing two 747-400Fs [FATs 000462 – 463]. AAWW and DHL are joint-venture partners in POLAR AIR CARGO WORLDWIDE (formerly 100% owned by AAWW), which currently operates nine 747-400Fs for the German integrator on an ACMI basis. AAWW will take delivery of the two 747-8Fs, which will be its sixth and seventh of the type, in the fourth quarter of this year. The final two 747-8Fs of AAWW’s nine-unit firm order with Boeing will be delivered in the first half of 2013.

LUFTHANSA’s Supervisory Board approved the carrier’s plan to in-vest 600 million in a new cargo and logistics terminal at Frankfurt Airport. The new facility, which will replace the existing 30-year-old Lufthansa Cargo Center, is scheduled for completion in 2018. The plan has been debated hotly within the Lufthansa Group, due to recent softening of airfreight demand and the economic uncertainty in Europe, as well as by the ban on night flights at FRA which was unexpectedly put in place late last year. Lufthansa said the night-flight ban “meant considerably adju-sting the original plans,” which we believe to mean the facility will have a lower capacity than was originally planned.

Moscow-based AIRBRIDGE CARGO will transfer two of its 747-400ERFs (33096 and 33097) to Frankfurt (Hahn)-based AIR CARGO GERMANY (ACG), in which it holds a 49% stake [FATs 000447 and 448]. The two freighters will join the ACG fleet this month, following certification by Germany’s Aviation Authority. ACG currently operates two 747-400BCFs and two 747-400BDSFs, with the two BCFs

CARRIER, LESSOR, & HANDLER NEWS


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“The 747-8 Freighter is central to our fleet modernization and optimization strategy…and our ability

to serve our customers with quality improvements.” —Tatyana Arslanova, Executive President of AirBridgeCargo

“For our 30+ flights a week between Hong Kong and North America, there’s no better aircraft.

The economics speak for themselves.”— Nick Rhodes, Director Cargo, Cathay Pacific

www.boeing.com/commercial/747family

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FreIghter aIrcraFt traNsactIoNs & DevelopmeNts

Luxembourg-based all-cargo operator CARGOLUX took delivery of its fifth 747-8F (35811) from BOEING [FAT 000452]. See photo below.

ATLAS AIR WORLDWIDE HOLDINGS (AAWW) reached an agree-ment with DHL EXPRESS under which Atlas will place its next two 747-8Fs (37571, 37572) in service with DHL, replacing two 747-400Fs [FATs 000462 – 463]. AAWW will take delivery of the two 747-8Fs, which will be its sixth and seventh of the type, in the fourth quarter of this year.

Moscow-based AIRBRIDGE CARGO will transfer two of its 747-400ERFs (33096 and 33097) to Frankfurt (Hahn)-based AIR CARGO GERMANY (ACG), in which it holds a 49% stake [FATs 000447 and 448]. The two freighters will join the ACG fleet in October, following certification by Germany’s Aviation Authority.

US-based ACMI and charter operator SOUTHERN AIR acceler-ated the retirement of its seven 747-200Fs from mid-2013 to October

Each reference to a freighter aircraft transaction (FAT) in Cargo Facts contains a unique FAT code linked to our FAT database. This database is emailed monthly to subscribers. For more information call ACMG Research Director Alan Hedge at +1 206 801 8472.

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2012 [FATs 000453 – 459]. This will leave the carrier, which recently filed for Chapter 11 bankruptcy protection, with four 777Fs and four 747-400BDSFs.

ETHIOPIAN AIRLINES took delivery of the first of two 777Fs (41846) on long-term lease from GECAS [FATs 000460 – 461].

Chile-based LAN CARGO took delivery of its third 777F (38091) [FAT 000451]. The freighter was delivered to Bogota, where it will be operated by LAN Cargo’s Colombian subsidiary Línea Aérea Carguera de Colombia.

ACG ordered another 737-400F. AVIATION CAPITAL GROUP (ACG) placed a firm order with AERONAUTICAL ENGINEERS Inc for the passenger-to-freighter conversion of a 737-400 (28493, ex-Brussels Airlines) [FAT 000464]. ACG is doing the conversion on a speculative basis, with no end user in place. Redelivery is scheduled for February 2013.

Luxembourg-based all-cargo operator CARGOLUX took delivery of its fifth 747-8F (35811) from BOEING [FAT 000452]. The carrier said this was the second unit to be delivered with a 6-tonne increase in maximum takeoff weight. Cargolux was one of the launch customers for the 747-8F, with a ten-unit order in 2005, and placed an order for an additional three units in 2007. It expects to take delivery of one more 747-8F this year. In addition to the five 747-8Fs now in its fleet, Cargolux also operates nine 747-400Fs and two 747-400BCFs. It will continue to retire the -400 freighters as the -8Fs enter the fleet, ending with a thirteen-unit 747-8F fleet. However, we point out that Cargolux is now 35% owned by Doha-based Qatar Airways, and that in the future it will no longer make sense to think of it as a standalone all-cargo carrier. It will, in the near term at least, continue to operate somewhat independently, but will increasingly become part of something larger. Qatar has a large, and rapidly-growing, fleet of widebody passenger aircraft, as well as four 777Fs (with four more on order) and three A300-600Fs. It is strongly focused on cargo, and the acquisition of the stake in Cargolux was made with the expectation that the combination of the two carriers’ networks would lead to something more than just the sum of their existing cargo traffic. In 2011, Cargolux was the ninth-largest and Qatar the seventeenth-largest non-integrator cargo carrier, reporting 5.04 billion FTKs and 3.64 billion FTKs, respectively. Adding those numbers would have put the combined entity right up beside the very biggest cargo operators in the world, and we suspect that is exactly what Qatar is aiming for.

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of the acquisition, plans were announced to divert three 747-400BDSFs originally intended for Yangtze River Express to MyCargo, with more wide-body freighters soon to follow. However, while two of the -400BDSFs have been redelivered to the Turkish carrier, only one has so far entered service alongside MyCargo’s four A300B4 freighters.

Abu Dhabi-based all-cargo carrier MAXIMUS AIR is also opening a European hub, but somewhat further east than MyCargo’s base in Belgium (see above). The hub will be in the Ukranian capital Kiev, will replace the current European hub in the UK, and will be the home of re-cently-created subsidiary MAXIMUS AIRLINES. The focus of the Kiev operation will be outsize and heavylift cargo utilizing the carrier’s An-124 and two Il-76s. Maximus air also operates five A300-600Fs in charter and ACMI service.

Abu Dhabi-based ETIHAD AIRWAYS launched a new valuable cargo service under the name Safeguard. Etihad says the product, which will initially be available at 23 certified stations worldwide, is aimed at forwarders, security companies, and individuals who need to ship precious metals, gemstones, jewelry, art works, and money. Etihad currently operates one 777F and two A330-200Fs, and ACMI leases two A300-600Fs (from Maximus Air), one MD-11F (from World Airways), and one 747-400F (from Atlas Air). It has two more 777Fs on order with Boeing and two more A330-200Fs on order with Airbus.

CONvERSION, MRO & MANuFACTuRER NEWSST Aero cleared to buy into EFW: The European Commission granted approval for Singapore Technologies Aerospace to take a 35% stake in Elbe Flugzeugwerke (EFW), the MRO and conversion arm of European aerospace giant EADS. The ST Aero buy-in is part of a larger multi-party deal signed earlier this year, in which ST Aero, EADS, Airbus, and EFW agreed to participate in a passenger-to-freighter conversion program for the A330 Family of aircraft. Under the agreement, in ad-dition to leading the engineering development of the program, ST Aero will take the 35% stake in EFW, for 110.5 million (made up partly in cash and partly in A330P2F engineering development work). The agree-ment, signed by ST, EADS, and EFW, also includes the following provisions: • EADS will continue to hold the remaining 65% of

EFW• Until completion of the engineering work, EADS

will hold a call option on ST’s 35% stake• EFW will be responsible for sales and marketing of

the conversion program• Service entry for the first freighter-converted A330

is scheduled for 2016• While most of the conversions will be done at EFW’s

Dresden facility, some will be done at “a dedicated facility of ST Aerospace”

• EFW will serve as ST Aero’s European MRO center

• With regulatory approval now in place, engineering development will commence by the end of 2012.

It has long been believed that Qatar Airways would be the launch customer for the A330 P-to-F program, as that carrier’s CEO Akbar Al Baker had insisted for some time that conversion of Qatar’s A330s (it operates both -200s and -300s) was an important condition for future orders with Airbus, but so far no launch order has been announced.

ST Aero is launching a global asset services business: In late September, Singapore Technologies Aerospace set up a wholly-owned subsidiary, ST Aerospace Rotables Pte. Ltd, or STAR. The new company “will drive ST Aerospace’s foray into a new growth area, focusing on rotable assets leas-ing, asset trading, rotables loan and exchange, as well as providing support to the sector’s Maintenance-By-the-Hour (MBHTM) program.” ST Aero said


short segmeNtsSHORT SEgMENTS (cont. from p. 4)

www.CargoFacts.net • October 2012 �


http://www.aeronautical-engineers.com

Boeing to hold off on 747-8 production rate increase. Boeing Commercial Aircraft’s new CEO Ray Conner seems to be taking a cautious approach to production rates for a variety of the manufacturer’s aircraft families. The recent cancellation of thirty-five 787 orders led to requests from other car-riers for the vacated slots, but Mr. Conner was recently quoted in Flight Global as saying Boeing would not accept the requests, but rather would use them “as an opportunity to de-risk our ramp rate.” He also said the company was reviewing its plan to increase 747-8 production to two units per month, saying “the cargo market has flattened.” He pointed out that high fuel costs were driving carriers to replace older, less fuel-efficient freighters with newer models such as the 777F and 747-8F, but that there was no need to increase production rates.

AMERICAN AIRLINES reportedly will close its maintenance base at Alliance Airport in Fort Worth by mid-December, with the consequent elimination of 1,100 jobs. The carrier said it would either outsource the work now down at the Alliance facility, or transfer it to other American Airlines maintenance facilities in Tulsa and at DFW Airport. The Transport Workers Union, which represents American’s maintenance workers, said the total number of employees at the carrier’s three maintenance facilities would decline from the current 5,489 to 3,781 by February 2013.

AIRBUS said engine issues had forced it to delay first delivery of its new A400M military transport by at least three months to “the second quar-ter of 2013.” However, the manufacturer said other than a “slight impact” on the second delivery, its overall delivery schedule would be unchanged, with the timing of the third and all subsequent deliveries unaffected.

STAR would manage rotable assets for customers “through expert trading and utilization via loan and exchange.” Headquarters will be in Singapore, with marketing offices in the Americas, EMEA and Asia Pacific regions.

ST Aero restructures European operations: In other SINGAPORE TECHNOLOGIES AEROSPACE news, the company is reported to be planning to liquidate its 51%-owned UK subsidiary Singapore British Engineering (a jv with BAE Systems set up to market BAE’s products in Singapore), and also to restructure its wholly-owned Scandinavian subsid-iary ST Aerospace Solutions, with the layoff of up to 300 employees.

Taiwan-based EVA AIR said it planned to boost its MRO and con-version business to become the biggest in Asia. Evergreen Aviation Technologies Corp (EGAT) is currently among the top five MROs in the region, and did the conversions of Boeing 747-400Fs to Largo Cargo Freighter configuration in support of the 787 program. Kin Chong, EGAT’s senior vice president, said: “We intend to build a fourth multi-bay, wide-body hangar. It should be ready by the 2015 and 2016 time frame. We’re posturing for at least 300 to 400 engineers and mechanics over the next three to four years.” One source of the increased business is expected to be Chinese carriers, which currently account for about 5% of EGAT’s busi-ness. With cross-straits barriers falling, EGAT said Chinese carriers have been coming to Taiwan for maintenance even though the costs are higher than what thr ey would pay on the Mainland. Further, Mr. Chong said that as costs continue to rise in China, he expected more business from foreign carriers “which currently use Chinese facilities because of lower cost.” EGAT expects 2012 revenue of US$575 million, up 12% from 2011.

SHORT SEgMENTS (cont. from p. 7)

short segmeNts


FreIghter Fleet aNalysIsFirst Flight For a new Freighter typeUS-based MRO and conversion specialist Aeronautical Engineers Inc (AEI) made the first flight of the conformity aircraft in its MD-80 passenger to freighter conversion program in late September. The aircraft (49470) is a 1987-build ex-American Airlines MD-82, which will be redelivered to launch customer Everts Air Cargo following FAA certification – expected at the end of October [FAT 000232].

When AEI first announced the program, there was considerable doubt in the industry that the it would succeed, particularly in light of the fact that the company had no launch customer and was doing the engineering and first conversion on a speculative basis. The MD-80 was seen by many as an “old tech” aircraft with a fuselage diameter too small to interline effec-tively with other freighter types. On the plus side, however, MD-80s have a reputation as one of the most reliable aircraft ever built, and large numbers are coming out of passenger service and are available at extremely low prices, and now – with fifteen firm or-ders booked from customers in the US, Africa, Central America, and Europe – it is clear that AEI has won its bet. In fact, the company says it will open three dedicated MD-80 conversion lines at the Commercial Jet facility in Miami.

The first unit converted is an MD-82, but the program will also cover the longer-range MD-83, as well as the MD-88,

MD-82SF/-88SF MD-83/SFMaximum Takeoff Weight 67.8 tonnes 72.6 tonnesZero Fuel Weight 55.3 tonnes 55.3 tonnesOperating Empty Weight 34.0 tonnes 34.8 tonnesMaxium Structural Payload 21.3 tonnes 20.6 tonnesRange With Max Payload 1,200 nm 1,800 nmSource: AEI CARGO FACTS -- October 2012

AEI MD-80SF Specifications

which is similar to the -82 but features more modern avionics. All three vari-ants will use the same cargo loading system, supplied by Ancra International, and all will offer 12 positions with 88 x 108-inch pallets or containers, or 8 positions with either 88 x 125-inch or 96 x 125-inch ULDs.

The first MD-80 to be converted to freighter configuration. Following certification it will join the Everts Air Cargo fleet in Alaska. AEI has firm orders for fourteen more MD-80 conversions.

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Corp will facilitate the operations of the airport and it has offered nearly 2,770 acres of land to set up the cargo airport. India has a track record of announcing new airports, and then not building them, but perhaps things will be different this time. We shall see.

Dubai Airport to ramp up cargo facilities: Dubai International Airport’s cargo facilities are undergoing a major upgrade that will increase the air-port’s annual freight capacity to more than 3.1 million tonnes by 2018. As part of Dubai Airports’ US$7.8 billion Strategic Plan 2020, the project will add a 30,000 sq m area to Dubai International’s Cargo Mega Terminal (CMT), and expand its cargo capacity by 25% to 1.5m tonnes a year. A new transhipment facility with capacity for 400,000 tonnes of freight a year is also under construction and it will handle about 60% of cargo transferred between Dubai International and Dubai World Central. “The continued growth in cargo volumes as well as the size of the airport meant that cargo facilities could no longer be clustered into one area. The new infrastruc-ture will not only increase our capacity but go a long way to simplifying what has become an increasing complex cargo operation as the airport has grown,” Chris Garton, SVP, Operations at Dubai Airports, said. Record-breaking year for SriLankan Cargo: Closely supporting the vi-sion of the Government of Sri Lanka to transform the country into a hub for both shipping and air freight, SriLankan Cargo, the sole handling agent for cargo of all airlines that operate through Bandaranaike International Airport (BIA), said the airport is gaining momentum as a regional hub for air freight. SriLankan Cargo Centre has in almost every month this year surpassed the previous records for those months. “The BIA Cargo Centre is on course for a record breaking year, if volumes continue as we expect them to. Our projections are that we will handle over 180,000 metric tonnes in 2012, which would surpass the existing record,” said Janaka Munasinghe, senior manager Worldwide Cargo Operations at SriLankan. Cargo volume handled by SriLankan Cargo in the first seven months of this year is up 12.5%, while total transshipment cargo saw an 11% growth.

China Eastern gets new fund injection: Air China, China Southern Airlines, and Hainan Airlines have all have announced their financing plans this year, and now China Eastern Airlines joins the club, saying it is raising RMB3.6 billion (US$573 million) by selling nearly 1.4 billion new shares on the Hong Kong and Shanghai stock exchanges to its state-owned parent China Eastern Air Holding Co. The goal of the move is to ease the carrier’s heavy debt burden and help it proceed with its massive fleet expansion plan. “The new issue is to improve China Eastern’s capital structure and lower the asset-liability ratio. Upon completion of this is-sue, the asset-liability ratio of the company will be decreased by 3%, and our goal is to lower the asset-liability ratio to below 70% by 2015,” said an spokesperson from China Eastern. Also according to the spokesper-son, China Eastern will add another 21 aircraft to its fleet in the second half of this year, increasing total capacity by 5%. This share sale by China Eastern brings the total raised in recent moves by China’s big four airlines to RMB14.6 billion (US$2.3 billion). HNA’s overseas jv founded: Africa World Airlines (AWA), a new Ghanaian carrier and a joint venture among Hainan Airlines, China-Africa Development Fund, Ghana Social Security and National Insurance Trust (SSNIT), and Ghana Strategic African Securities, started operations on September 21. The four parties signed an agreement on jointly investing in AWA in July this year, marking the first aviation investment made by a Chinese enterprise in Africa. AWA took delivery of its first two ERJ-145R aircraft in August and September, respectively, and the first aircraft which

India lifts ban on foreign airline investment: The Indian government lifted its long-standing ban of foreign direct investment in the country’s airlines. The new policy allows foreign carriers to take up to a 49%stake in Indian airlines, with the exception of government-owned Air India. The move is made to help cash-strapped carriers, which includes most carriers in the country, by allowing then to bring in strategic partners. Just a week after the policy was announced, Kingfisher Airlines, which was India’s number-two local carrier a year ago but has since grounded most of its fleet, announced that it is currently in talks with foreign carriers to sell a portion of its company. “This will open up a wide range of opportunities for both Indian carriers and foreign carriers who wish to participate in the strong growth potential for civil aviation in our country,” said Vijay Mallya, chairman of Kingfisher. SpiceJet, India’s second-biggest budget airline, is also in advanced discussions with two private equity investors to raise at least $50m.

“The loosening of the investment shackles will also no doubt see foreign firms get in on the air cargo side of the business soon,” one aviation ana-lyst in Singapore told Cargo Facts. While we agree that the new policy creates some opportunities, it is not magic. Some of India’s carriers, to put it bluntly, may not be wise investments.

Myanmar eyes logistics center in Mandalay Airport: Arguably the most exciting nation for foreign direct investment and GDP growth this year – and for the coming five years – is the rapidly-opening-up southeast Asian nation of Myanmar. The country’s department of civil aviation announced in September that the government is looking for private partners to jointly develop the Myanmar’s Mandalay International Airport into a logistics center. The project will involve improving and expanding the airport’s terminal building and other facilities, as well as managing its passenger and cargo operations, ground-handling and catering services, and mainte-nance. Companies interested have until October 15 to submit applications to pre-qualify for the tender. In July, the government has also invited over 30 companies including ones from China, Singapore and the US to help build a new airport - Hanthawaddy Airport - near Yangon.

Foreign participants in the Mandalay airport project would need to secure local partners to meet Myanmar’s foreign-investment laws (in September the government passed a new law that limits foreign ownership in some sensitive sectors to 50%). Mandalay International Airport is located 35 km south of Mandalay, the second-largest city in the country. It is one of only three international airports in Myanmar and is the most modern air-port in the country.

One thing that helped Myanmar become such a tempting target was the lifting in June of a US ban on investment in the country. And in late September, US Secretary of State Hillary Clinton said the US would also ease its import ban on goods from Myanmar.

Haryana ready to take off: Haryana, a northern state in India, will have its first ever domestic flight connectivity soon. The state is planning two domestic airports and a cargo airport under a proposal pending approval by the Union Civil Aviation Ministry. The two domestic airports are to be built in Karnal and Hisar, while the cargo airport will be built in Rohtak. Meham in Rohtak has been chosen as the site for the cargo airport primar-ily for its industrial significance, and is expected to attract business from the New Delhi Mumbai Industrial Corridor (DMIC), which will cover 29,362 sq km. Haryana State Industrial and Infrastructure Development

By Sam Chambers, Dalian, China

asIaN perspectIve



10 October 2012 • www.CargoFacts.net

Hahn enjoys its rival’s limitations: Meanwhile, it doesn’t look as if Frankfurt Hahn, the night-operating rival to LH’s hub, has any intention of taking to the streets for a repeal of the ban. “We are doing quite well out of it,” remarked a spokesperson. The recently-crowned “cargo airport of the year” has seen volumes rise, with its latest success, in September, being an increase in connectivity to Shanghai with Evergreen. Another three airlines and logistics companies, including Yangtze River Express, announced new activities at Hahn in August. Marketing manager Jan Möller is making the most of Hahn’s new USP. “Customers know that our cargo sector has an excellent set-up with its unlimited 24-hour operation,” he said.

English eccentric takes on Boeing: The English are known in Europe - and possibly further afield – for their eccentricities. But if not quite a mad inventor, there is certainly a new personality in cargo conversions. Cliff Duke, CEO of LCF Conversions, has burst onto the market with a new idea, which he says will make future conversions cheaper. His ver-sion of a converted freighter without a main deck cargo door, which has been covered in past issues of Cargo Facts, became the subject of some debate at the Freighters World conference, where he talked his way onto a panel with Boeing and EADS. His main point, that the airframes already exist and can be converted without much cost, certainly was an appealing prospect to many struggling freighter operators. “I thought at first it was a bonkers idea,” said one delegate. “But actually, it makes a lot of sense.” One delegate from an OEM was, perhaps unsurprisingly, much less sure. “I don’t think it can work. And what if the lift breaks down?”

But Duke’s point is fairly simple. If the technology and design works – which he promises it will – the cost saving will be enormous. He points

By Alex Lennane, LondonLH Cargo changes tack: Lufthansa Cargo is emerging from its battles with night-flight bans and economic challenges as something of a lob-bying force – an industry position it previously shunned. In the last dark days of 2009, former CEO Carsten Spohr, when asked by this reporter whether Lufthansa should be more active in the industry and give a little something back, replied: “I take your criticism. And I agree. Maybe once we are profitable after the crisis is over, we could take a stronger role in leading the industry. But only once the crisis is less of a focus.” Clearly, times have changed, because even though the crisis continues, LH Cargo is now trying to re-shape itself into an industry-issue leader.

At the recent Freighters World conference in Frankfurt, Dr. Andreas Otto, member of the executive board, had plenty to say about working together on industry matters. First off, he said that many carriers “aren’t managed professionally. I am pretty sure we could learn a lot from other industries.” And he called for governments to stop subsidizing companies. “We have to tell them we don’t need this,” he said. He also appealed to shippers to complain about night flight bans, and again emphasized the importance of talking to governments on the subject.

Whether, of course, night flights are essential for the industry as a whole is up for debate. As AirBridge Cargo’s Wolfgang Meier said last year at a press conference: “Someone has been very good at making their own problem into a common problem. But we have never been allowed to oper-ate at night in FRA.” Undeterred, Dr. Otto continued with his call to arms, suggesting that the industry – like the integrators – should be spending time with politicians, not just customers. “We have to get the [political] environment to accept us.”

europeaN perspectIve


www.CargoFacts.net • October 2012 11


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Carrier RTKs Carrier RTKs Carrier RTKs1 Cathay Pacific* 9,345 FedEx 8,341 FedEx 15,9692 Lufthansa* 9,386 UPS 5,036 UPS 10,5663 Korean Air 8,922 Atlas Air* 2,753 Lufthansa* 9,3944 Air France-KLM* 8,399 China Southern* 1,483 Cathay Pacific* 9,3455 Emirates 8,132 Air China* 1,304 Korean Air 8,9776 FedEx 7,628 China Eastern Airlines* 847 Air France-KLM* 8,4017 Singapore Airlines 7,118 ATSG* 521 Emirates 8,1328 IAG* 5,945 United Airlines* 477 Singapore Airlines 7,1189 China Airlines 5,670 Hainan Airlines* 438 IAG* 5,98510 UPS 5,530 All Nippon Airways 429 China Airlines 5,67011 Cargolux* 5,039 Japan Airlines 325 Cargolux* 5,03912 EVA Airways 4,883 Delta Air Lines 308 EVA Air 4,88313 LATAM Airlines* 3,935 American Airlines 302 Air China* 4,61114 Asiana 3,823 LATAM Airlines* 260 Atlas Air* 6,50415 Qatar Airways 3,641 Transaero Airlines 209 LATAM Airlines* 4,19516 Air China* 3,307 Qantas 197 China Eastern Airlines* 4,14417 China Eastern Airlines* 3,298 Aeroflot 170 Asiana Airlines 3,83518 Delta Air Lines 2,929 Southwest Airlines 165 China Southern Airlines* 3,69719 United Airlines* 2,897 Garuda Indonesia 157 Qatar Airways 3,64120 Atlas Air* 3,752 Vietnam Airlines 126 United Airlines* 3,37421 Volga-Dnepr Group* 2,751 Hawaiian Airlines 111 Delta Air Lines 3,23722 Thai Airways 2,724 Gol Airlines 109 Thai Airways 2,76623 Etihad Airways 2,300 Air Canada 91 Volga-Dnepr Group* 2,75724 Nippon Cargo Airlines 2,282 Air India 85 All Nippon Airways 2,53925 Qantas 2,254 Alaska Airlines 75 Qantas 2,45126 China Southern Airlines* 2,214 Corse Air International 73 American Airlines 2,43827 American Airlines 2,136 Saudi Arabian Airlines 71 Etihad Airways 2,30028 All Nippon Airways 2,111 Siberia Airlines 65 Nippon Cargo Airlines 2,28229 Malaysia Airlines 2,023 Jet Airways 63 Malaysia Airlines 2,05930 Southern Air 1,837 Kingfisher Airlines 62 Southern Air 1,83731 Virgin Atlantic 1,529 Vladivostok Air 61 Kalitta Air 1,77332 Saudi Arabian Airlines 1,447 Korean Air 55 Japan Airlines 1,63033 Turkish Airlines 1,428 Philippine Airlines 52 World Airways 1,61934 Air Canada 1,341 US Airways 48 Virgin Atlantic 1,52935 Japan Airlines 1,305 Thai Airways 42 Saudi Arabian Airlines 1,51836 TNT Airways 1,123 IAG* 40 Turkish Airlines 1,44937 South African Airways 1,015 South African Airways 40 Air Canada 1,43238 Air New Zealand 884 Malaysia Airlines 36 ATSG* 1,21439 Ethiopian Airlines 778 UT Air 32 TNT Airways 1,12340 Jet Airways 741 ASTAR Air Cargo 30 South African Airways 1,05541 Finnair 741 Globus 27 Air New Zealand 89342 Aeroflot 707 Virgin Australia 27 Aeroflot 87743 ATSG* 693 AeroMexico 27 Jet Airways 80444 Evergreen International 592 Northern Air Cargo 26 Ethiopian Airlines 77845 DHL Air 573 Lynden Air Cargo 26 Finnair 74146 El Al 559 Pakistan Internatinal 24 Hainan Airlines 69847 Sky Lease Cargo 518 National Air Cargo 21 Air India 59548 Air India 510 Turkish Airlines 21 Evergreen International 59249 SAS 476 JetBlue 19 DHL Air 57550 Centurion Air Cargo 444 Everts Air Cargo 18 El Al 559

153,614 25,322 179,601Source: IATA, US DOT, Carriers, ACMG database CARGO FACTS -- October 2012

Top 50 Total

Top 50 Cargo Airlines, Scheduled & Charter Freight Traffic (RTK millions)

RankInternational Traffic Domestic Traffic Total Traffic

aIr FreIght DemaND aNalysIs

The chart at right shows our best estimate of scheduled cargo traffic flown by the world’s top fifty cargo carriers in 2011. We describe it as a “best estimate” for several reasons: First, there is no single source for accurate cargo traffic data. Different sourc-es mysteriously will often report different totals for the same carrier, and carriers do not always report their traffic the same way. In theory, one should be able to determine whether the totals reported include both freight and mail, or just freight, but in prac-tice it is not always possible to do so. Our main sources were reports compiled and issued by IATA and the US DOT.

Second, not all carriers report their traf-fic. Some of these non-reporting carriers are not particularly significant compared to the big players, but some would almost certainly make the top-fifty list if they did report. Among these, for example, are Yangtze River Express, which operates ten 737-300 and four 747-400 freighters, and Jade Cargo which, although it went out of business at the end of the year, operated six 747-400ERFs in 2011. Including Jade and YRE would significantly boost the totals of their respective majority owners, Air China and Hainan Group. Also missing are AeroLogic, Air Hong Kong, European Air Transport, and West Atlantic, which means the only representation of the considerable traffic DHL moves in its dedicated net-works is that listed under Polar Air Cargo (included in Atlas Air), in which DHL holds a 49% interest, and ABX Air (included in Air Transport Services Group). Other cargo carriers not reporting their traffic data in-clude Air Cargo Germany, Cargojet, MNG Airlines, and Silk Way.

However, despite these few problems, we feel that the chart does provide a fairly accurate picture of cargo traffic in 2011, particularly because this year we have been able to in-clude charter traffic rather than just scheduled traffic. This is reflected in the inclusion for the first time of carriers like Atlas Air, Volga-Dnepr, Southern Air, Kalitta Air, World Airways, and Evergreen International.

While there are hundreds of airlines that carry cargo, most of them carry an insig-nificant amount, and the top 50 carriers in each of the categories in the chart account for almost all reported traffic, including 95.0% of international traffic, 99.2% of

(continued on next page)

world’s busiest Cargo Carriers in 2011

Note: Carriers marked with * include subsidiaries, as indicated in the text on p. 13



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Eliminate your risk | Protect your crews | Meet FAA recommendations

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domestic traffic, and 94.5% of total traffic. Even taking into account car-riers that do not report their cargo, the top fifty shown in the chart account for over 90% of the total cargo carried by air worldwide.

In presenting the data, we have chosen to show merged, or about-to-be-merged, carriers as single entities. So Lufthansa, for example, includes not only Lufthansa Cargo, but also the cargo activities of Swiss, Austrian, and bmi. Other groups shown under a single name include Air China/Air Atlas/Polar, China Cargo/Shenzhen Airlines/Shandong Airlines, British Airways/Iberia, Cargolux/Cargolux Italia, Cathay/Dragonair, China Eastern/China Cargo Airlines/Shanghai Airlines, Hainan Airlines/Hong Kong Airlines, LAN/TAM, Avianca/Taca/Tampa Cargo, United/Continental, and Volga-Dnepr/AirBridge. One “group” we chose to represent as separate carriers rather than as a single entity is Cargolux and Qatar Airways. Qatar acquired a 35% share of Cargolux last year, and we believe it wields influence greater than the 35% might indi-cate, but for 2011 the two did not really operate as a coordinated entity. In the future, assuming they fully integrate their networks, the Cargolux/Qatar cargo operation will become one of the world’s top players.

So, despite some limitations, we believe the chart gives a reasonably ac-curate picture of the world’s air freight scene in 2011, which was a year of stagnation following the strong recovery in 2010 (which in turn followed the steep declines brought on by the recession and financial crisis that began in 2008 and continued through the first three quarters of 2009. According to IATA, total freight traffic in 2011 was down 0.8% from 2010, and ef-fectively not much more than the high point reached four years earlier in 2007. Both international and domestic traffic were down in 2011 – 0.6% and 1.4%, respectively.

Looking at the 2011 traffic on a regional basis, airlines from the Asia Pacific region carry by far the biggest share of international cargo – 41.3% of the total. They are followed by carriers from Europe (24.8%), North America (19.7%), the Middle East (10.5%), South America (2.6%) and Africa (1.2%). The picture is radically different for domestic traffic, where the huge US domestic express market boosts North American carriers to a 72.6% share of the total. Asian carriers have a 22.7% share, and the re-maining 4.6% is split among carriers from Europe (2.8%), South America (1.5%), and Africa (0.2%). Overall, carriers from the Asia-Pacific region carried 38.4% of total (international + domestic) air freight traffic, followed by carriers from North America (28.2%), Europe (21.1%), the Middle East (9.0%), South America (2.3%), and Africa (1.0%).

Also of interest is the split between freight carried in freighter aircraft and in the bellies of passenger aircraft. This has been the subject of some debate over the years, but from the data we have been able to see, we believe that in 2011, 57% of freight moved on freighters, while 43% moved in the belly space in passenger aircraft. The split skews dramati-cally differently when considering domestic freight traffic, where 67% moves in freighters because a considerable amount of domestic traffic is express shipments carried by DHL, FedEx, TNT, and UPS. International traffic is split more evenly, with 53% moving in freighters and 47% in passenger aircraft bellies. Over the coming decade, as carriers – particu-larly those based in the Middle East, but also in other regions – expand their widebody passenger fleets with aircraft like the 777-300ER, and expand their networks so that virtually every city in the world is within 36 hours of every other city, the main-deck/belly ratio for international freight could shift further toward belly use, with that mode achieving more than a 50% share. cf

aIr FreIght DemaND aNalysIsTOP 50 CARRIERS (cont. from previous page)

www.CargoFacts.net • October 2012 1�


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Overall Express revenues were up slightly (0.6%), as higher rates per pound were just enough to offset lower fuel surcharges, but operating income was down 28.1% from 1QFY12 to $207 million, and Express operating margin dropped 1.3 percentage points to 3.1%. Perhaps the best summary of the quarter was given by the company’s CFO Alan Graf, who said: “Earnings for the first quarter were below our expectations as weak global economic conditions dampened revenue growth, drove a shift by our customers to our deferred services, and outpaced our near-term ability to reduce FedEx Express operating costs to match demand levels.”

The shift by customers to lower-cost products benefitted FedEx’s Ground and Freight segments, which reported strong gains in revenue, operating profit, and margin, but as Mr. Graf pointed out, this has left FedEx with the problem of trying to match its Express service to changing customer demands. Referring to those changes, CEO Fred Smith said: “There is clearly a diversion of traffic from traditional airport-to-airport freight onto the water, and that is being caused by the falling value per pound of the traffic that’s being moved.”

On the subject of the changes that may lie ahead for FedEx’s Express Segment, the full story will have been made public at investors’ meet-ing by the time you read this, however company executives did provide a few clues in a conference call following the release of the first-quar-ter results:

There will be no layoffs, and no draconian steps taken.Air capacity will be reduced somewhat, reversing the historical pat-tern of fleet growth.Lower-yielding traffic will be moved “into the right network.” That is, FedEx will move traffic from Express to Ground, from Ground to Freight, and from air to ocean, with a focus on growth of the company’s forwarding arm, FedEx Trade Networks.

••

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cf

FINaNce & operatIoNs

FY 2013 % ChgTotal Revenue (millions) $10,792 2.6%Net Income (millions) $459 (1.1%)Operating Margin 6.9% -0.1 pts

FEDEX EXPRESS SEGMENTTotal Revenue (millions) $6,632 0.6%Operating Income (millions) $207 (28.1%)Operating Margin 3.1% -1.3ptsPackages - Average Daily Volume (000s)US Overnight Box (over 8 oz.) 1,092 (3.7%)US Overnight Envelope (less than 8 oz.) 575 (3.5%)US Deferred (2Day/Express Saver) 762 (8.1%)

Total US Domestic Packages 2,429 (5.1%)International Priority 408 (2.2%)International Economy 143 13.5%

Total International Export Packages 551 1.5%International Domestic 681 53.0%

Total Package Volume 3,661 3.2%Yield Per Express Package US Overnight Box (over 8 oz.) $22.59 1.6%US Overnight Envelope (less than 8 oz.) $11.51 (1.1%)US Deferred $14.17 4.4%

US Domestic Composite Yield $17.33 2.1%International Priority $62.68 (3.3%)International Economy $52.17 (3.2%)

International Export Composite Yield $59.94 (3.8%)

First QuarterFEDEX CORPORATION

FedEx Corp. Financial and Operating Results Period Ended 31 Aug. 2012 (First Quarter FY13)

p pInternational Domestic $7.00 (2.2%)

Composite Package Yield $21.82 (3.7%)Freight - Average Daily Pounds (000s)US 7,077 1.5%International Priority 3,184 1.7%International Airfreight 1,104 (5.2%)

Total Average Daily Freight Pounds 11,365 0.9%Revenue Per Freight PoundUS $1.33 1.5%International Priority $2.12 (4.1%)International Airfreight $1.03 1.0%

Composite Freight Yield $1.52 (0.7%)Source: FedEx Corp. CARGO FACTS -- October 2012

FEDEX GROUND SEGMENTRevenue (millions)Ground $2,273 7.4%SmartPost $189 16.7%

Total Ground Segment Revenue $2,462 8.1%Operating Income (millions) $445 9.3%Operating Margin 18.1% 0.2 ptsAverage Daily Volume (000s)FedEx Ground 3,898 4.7%FedEx SmartPost 1,664 17.6%Yield per PackageFedEx Ground $8.94 2.4%FedEx SmartPost $1.75 (0.6%)

FEDEX FREIGHT SEGMENTRevenue (millions) $1,399 5.3%Operating Income (millions) $90 114.3%Operating Margin 6.4% 3.2 ptsLTL Shipments Per Day (000s) 88 3.3%Weight per LTL Shipment (lbs) 1,150 (0.6%)Revenue/CWT $19.72 2.2%

FEDEX SERVICES SEGMENTRevenue (millions) $389 (5.4%)Operating Income (millions) N/ASource: FedEx Corp. CARGO FACTS -- October 2012

FedEx reported fiscal first quarter net income down 1.1% y-o-y to $459 million, as total revenues rose 2.6% to $10.8 billion. Strong gains in the company’s Ground and Freight segments were not sufficient to overcome the difficulties faced by the Express segment, where average daily pack-age volumes in the company’s core US domestic market were down 5.1%. International Export package volumes were up 1.5%, but this was the result of a 13.5% gain in Economy volume offsetting a 2.2% decline in the much higher-yield Priority product. There was a strong 53% gain in International Domestic volumes, but again, this is a low-yield product, with gains aided by recent acquisitions.

Modal shiFt hits Fedex results


1� October 2012 • www.CargoFacts.net

Brazil-based EMBRAER, working with the Brazilian Air Force, com-pleted the preliminary design review of the KC-390 tanker/transport. The next milestone in the program is the critical design review – the last step required before production of the first flight test unit can begin.

Canada-based aircraft manufacturer BOMBARDIER said the final section of the first CSeries fuselage was delivered to its Montreal fa-cility in late September, and that final assembly of the fuselage would likely be completed by the end of October. This fuselage will be used for structural testing, and will be followed in production by the first flight test unit. First flight is scheduled to take place by the end of 2012, with entry into service by the end of 2013.

ExPRESS & POSTAL NEWSDHL EXPRESS will impose a general price increase averaging about 5%, effective 1 January 2013. The company did not provide details, but said: “Specific price adjustments will vary from country to country, depending on local conditions, and will apply to all customers where con-tracts allow. The rates for individual countries will be communicated in due course.” This move follows the recent announcement by FedEx of an average rate increase of 3.9% in its Express segment, made up of a 5.9% rate increase offset by a fuel surcharge adjustment equivalent to 2%.

The State Post Bureau of China granted limited domestic parcel-delivery rights to FedEx and UPS, but continued to ban the two express compa-nies from letter delivery. Under the new authority, FedEx will be allowed to provide domestic package delivery service to Chengdu, Dalian, Guangzhou, Hangzhou, Shanghai, Shenzhen, and Tianjin, while UPS will gain similar rights in Guangzhou, Shanghai, Shenzhen, Tianjin, and Xi’an.

FedEx Express will be the first US carrier to launch operational tri-als of data communications via text messaging between pilots and air traffic controllers in continental airspace under the FAA’s Data Comm program, a key component of the Next Generation Air Transportation System. The test will begin in mid-November at the integrator’s Memphis hub, with United Airlines (at Newark Liberty Airport) and Delta Air Lines (at ATL) following 3 and 6 months later. The trials will demonstrate the functionality of text messaging between pilots and traffic controllers while aircraft are on the ground awaiting takeoff. A similar system of text mes-saging has been in use for over-ocean airspace for some time.

Shake-up at TNT: Marie-Christine Lombard, who took over as CEO of TNT Express in March 2011 just prior its spin-out as a standalone com-pany, tendered her resignation, effective the end of September. In a brief statement, TNT said Ms. Lombard’s move was made “to pursue an external career opportunity,” and that it “has no bearing on the intended merger with UPS, which we expect to complete in early 2013.” She will be replaced, at least on an interim basis, by current CFO Bernard Bot.

And on the subject of the UPS takeover of TNT, the European Commission appears to be taking somewhat of a hard line in its as-sessment of the deal. In comments made in the US last week, European Commissioner Juaquin Almunia said: “Let me stress that many European companies use parcel express delivery services as part of their logistic chains, notably for cross-border shipments. Therefore, it is important that the prices of these services remain constrained by vigorous competition.” The biggest roadblock is that in its assessment, the EC worries that because FedEx is not a big player in some individual European states, a takeover of

short segmeNtsTNT by UPS would leave DHL as the only alternative provider of express services, and that this duopoly would be harmful to competition. While we understand this fear from a theoretical point of view, we point to the US domestic express market, which for years has effectively been a duopoly of FedEx and UPS, yet remains one of the most fiercely competitive mar-kets in any business anywhere.

TNT expands in the Balkans: With the coverage given to TNT’s upcoming takeover by UPS, it is easy to forget that it continues to operate as an inde-pendent competitor in the international express market. Its latest move has been to further extend its road delivery network in Europe, adding service to and from Montenegro. This follows other recent road network expan-sion in the Balkans (Albania and Macedonia) and Eastern Europe (Belarus and Moldova), and brings the number of European countries covered by TNT’s road network to 40.

France’s postal service La Poste acquired France-based European lo-gistics services company Orium, which specializes in serving the online commerce industry. Orium has reported annual revenue growth of 20% since it was founded in 2002, with revenue of over 20 million in its most recent fiscal year. La Poste said Orium will join existing subsidiary Neolog “to provide a full range of B2C and B2B logistics solutions.”

REguLATORY NEWSThe battle over the inclusion of aviation in the European Union’s Emissions Trading Scheme (ETS) has taken another step closer to


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SHORT SEgMENTS (cont. from p. 8)

www.CargoFacts.net • October 2012 15


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the edge. Reports out of Europe in late August and early September indicated that the European Commission was about to grant an exemp-tion from the ETS for aviation, rather than face a trade war that would cost large numbers of jobs. The final blow appeared to have been struck by AIRBUS boss Fabrice Bregier, who warned that the manufacturer would soon have to cut its production target for the A330 aircraft family if China continued to bar its carriers from taking deliveries from Airbus in retaliation against the ETS. If that weren’t enough, on 23 September the US Senate (in a rare show of bipartisanship) unanimously passed a bill that would shield US airlines from paying for their carbon emis-sions on European flights. Given the precarious state of the European economy, and indeed of the European Union itself, it came as a surprise on 27 September when the EC’s top climate official Jos Delbeke said the Commission would not back down. At a conference in Brussels he said the EU would not repeal the ETS law until an international law covering emissions was in place. “If there is an ICAO outcome,” he was quoted as saying, “then we are ready to modify our legislation, but we are not go-ing to before we have an ICAO outcome.” We wonder how he will feel if Airbus starts laying off workers. GE has completed checks on all in-service GEnx engines in advance of the publication of an FAA airworthiness directive (AD) calling for ultrasonic inspection of the midshafts of early production engines. The AD was issued on 21 September in response to three separate events involving the engine, which powers some Boeing 787s and all 747-8Fs. Following loss of thrust in one engine on an AirBridge Cargo 747-8F on 11 September, some in the industry worried that the FAA would issue an emergency directive, grounding all GEnx-powered 787s and 747-8Fs, but the Aviation Authority chose instead to issue a non-emergency directive. GE says it has developed a method to inspect the engines without removing them from the wing, and which requires just nine work-hours per engine to complete. GE has also introduced changes in the production process which it believes will address the problem.

Europe’s two biggest aerospace companies are planning to merge, but the move has been greeted with a less-than-enthusiastic response. European aerospace company EADS and UK-based BAE SYSTEMS released a joint statement to the London Stock Exchange last month con-firming that merger negotiations were in progress. If the plan goes ahead, it would create an aerospace and defense giant with annual revenue approach-ing US$100 billion, but so far it seems to be receiving little support. EADS is, to say the least, a complicated organization. The French government owns 15% of the company, and an equivalent 15% share is controlled by German automaker Daimler – but this stake is widely regarded as a German balance to the French stake, rather than simply an aspect of Daimler’s busi-ness. Indeed, Daimler wants out, and the German government may buy in directly, but both see EADS (and hence Daimler’s stake) as being under-valued in the proposed merger. For its part, France has said it is unwilling to see its influence diminished, but EADS management is on record as wanting to see state involvement diminished or even ended. Then there is the fact that BAE is heavily involved in the US Defense industry, which means that much of its work is classified, and would have to be completely sealed off from EADS – difficult to do if BAE and EADS become a single company. As we go to press, terms of the deal are still being negotiated and re-negotiated, but even if EADS and BAE can find common ground for a merger agreement, there is no guarantee that regulatory approval would be granted (particularly on the British side). Nor does the market seem to think much of the proposal.

The price-fixing saga continues: Two more forwarders have agreed to pay fines to settle US lawsuits alleging that they were involved in cartels to fix the price of air freight surcharges. Switzerland-based forwarder and logistics services provider KEUHNE+NAGEL agreed to pay US$28 mil-lion to settle a class action lawsuit, while Japan-based YAMATO GLOBAL LOGISTICS agreed to pay $2.3 million to settle charges levied by the US Department of Justice.

ROuTE NEWSKorea-based ASIANA launched five-times-weekly 747-400 freighter service to Dallas. The route varies, with stops in one of Los Angeles, New York, or Chicago, depending on the day. Dallas is Asiana’s ninth cargo destination in the US.

EMIRATES launched a weekly 777F service to Japan and Korea on a Dubai-Osaka-Seoul-Dubai route.

SAUDI AIRLINES CARGO entered into interline agreements with several regional carriers in Africa, allowing it to add nine additional destinations in West Africa. The cities are Abidjan, Accra, Cotonou, Douala, Libreville, Lome, Malabo, Niamey and Ouagadougou. Connection to Saudia’s network will be via the carriers daily 747 freighter service be-tween Lagos, Nigeria and its main hub in Jeddah. Saudia operates a mixed fleet of owned and ACMI-leased freighter including four MD-11Fs, four 747-400Fs, four 747-200Fs, and one A310-300F.

AIR CHINA CARGO launched five weekly 747-400F frequencies to Amsterdam. The route is Shanghai-Chengdu-Amsterdam-Tianjin-Shanghai or Shanghai-Chongqing-Amsterdam-Tianjin-Shanghai, depending on the day. Amsterdam is Air China Cargo’s third European destination, and the carrier has the option to increase frequency on the route from five weekly flights to ten.

LUFTHANSA CARGO said it would launch freighter service from Frankfurt to Tel Aviv “this winter,” but did not provide details regard-ing frequency. Lufthansa currently operates eighteen MD-11Fs and ACMI leases an A300B4F from Turkey-based MyCargo.

Abu Dhabi-based ETIHAD AIRWAYS launched weekly A300-600F service to Doha, Qatar – just a 170 nautical mile flight.

Frankfurt Hahn-based AIR CARGO GERMANY (ACG) said it would launch three-times-weekly 747-400 freighter service to Beijing in October, but has so far not provided details about the route. ACG is also reported to be planning to increase weekly frequencies on its Chicago service from two to three, and also double its Mexico City service from once to twice weekly.

US-based EVERGREEN INTERNATIONAL AIRLINES launched twice-weekly 747-200F service from Miami to three cities in Brazil. The route will be Miami-Manaus-Rio de Janeiro-Sao Paulo-Miami.

MASkargo, the cargo arm of MALAYSIA AIRLINES, launched weekly freighter service from its Kuala Lumpur hub to Labuan, an oil and gas industry center in the Malaysian state of Sabah, on the northwest tip of Borneo. MASkargo said it would use either a 747-400F or A330-200F, depending on demand, and would consider adding a second and possibly a third weekly frequency “in the near future.”

short segmeNtsSHORT SEgMENTS (cont. from p. 15)

cf



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August Y-T-DCathay Pacific -10.4% -10.6%Singapore Airlines -4.3% -4.1%Air China 10.6% -2.1%China Eastern Airlines -4.9% 11.2%China Southern Airlines 12.8% 14.6%Hactl (Hong Kong HKG) 2.7% 0.3%Pactl (Shanghai PVG) 2.8% -5.1%Changi (Singapore SIN) -4.4% -1.2%

Air France-KLM -7.8% -6.5%Lufthansa Group -4.4% -6.8%IAG (BA and Iberia) 2.9% -1.2%Turkish Airlines 26.8% 26.0%Frankfurt (FRA) -4.1% -9.1%Heathrow (LHR) 0.4% -1.6%Dubai (DXB + DWC) 10.5% 6.4%

LAN -1.2% -1.0%Delta Air Lines 5.7% 0.8%United Airlines -2.6% -7.0%American Airlines 0.3% -0.4%

Source: Carriers, handlers, airports CARGO FACTS -- October 2012

Percent Change

Carriers

Airports

Asia

Carriers

Americas Carriers

Airports

Europe & Middle East

Airline and Airport Cargo StatisticsAugust 2012

The International Air Transport Association reported total worldwide air freight traffic in August down 0.8% y-o-y. International traffic, the biggest component of the total, was down 1.3% with declines in the Asia-Pacific, Europe and Latin America outweighing gains in the Middle East, North America, and Africa. Carriers from the Asia-Pacific continue to be the hardest hit, although the year-over-year decline of 6.3% was less bad than the 8.3% decline reported in July. Domestic traffic was down 0.7% worldwide. While the overall decline of 0.8% is still a decline, it is an im-provement over July, which saw traffic down 3.2%

For the year-to-date through the end of August IATA said total traffic was down 2.1%, with a 1.0% gain in domes-tic traffic not enough to offset a 2.6% fall in international traffic.As was the case with the July results, carriers in the Middle East region showed strong gains, with traffic up 14.1% over the first eight months of 2011, while carriers from all other regions except Africa reported declines.

The chart at right shows individual August results from some of the world’s big carriers and airports. In general, these results bear out IATA’s summary, with the Middle East (represented by Dubai’s airports) doing very well, while car-riers and airports in other regions reported mixed results. As can be seen, some carriers saw strong demand for freight in July and some continued to see demand fall.

Some big carriers do not report their results in a timely fashion, and others (Emirates, for example) do not pub-lish monthly data at all, but it is clear that the big Gulf-Region carriers – Emirates, Etihad, Qatar, and Saudi Arabian – are doing well. They are taking market share from traditional leaders, particularly on the Asia-Europe trade lane. Some carriers from other regions (Air China, China

treading water in august

aIr FreIght DemaND sNapshot

Southern, and Turkish Airlines) reported strong gains, but many continue to be facing declining demand. Overall, perhaps the best way to look at August is that it was a month of treading water – no forward proress, but no real bad news either. cf

latIN amerIcaN perspectIve

LANCO upgrades: LAN Cargo, the cargo arm of the newly merged LATAM Airlines Group, recently took delivery of its third 777F. The freighter will be operated by LAN Cargo’s Colombian subsidiary Línea Aérea Carguera de Colombia (LANCO), and was delivered to Bogota’s El Dorado Airport. The 777F entered service in September on Bogota-Miami and Bogota-Amsterdam routes, primarily focused on the flower trade. LANCO, which currently also operates a 767-300F, already has a 33% share of the Colombian air freight market, and this latest delivery will allow it to increase that share. LANCO’s cargo traffic is projected to grow by more than a quarter this year over 2011, with an expected 19% increase in exports and a 76% increase in domestic traffic. As a side note to the delivery, lead pilot for this freighter will be Diana Clavijo, who becomes the first woman to op-erate this type of freighter aircraft in Latin America.

Another main-deck service for Brazil: Oregon-based carrier Evergreen International Airlines began a twice-weekly 747-200F service between Miami International Airport and three Brazilian cities. The route will be Miami-Manaus-Rio de Janeiro-Sao Paulo and return. This makes Evergreen the eighth international carrier to offer a main-deck freight service to Brazil, Joining ABSA, Centurion Air Cargo, LAN Cargo, Línea Aérea

By Sheena Rossiter, Sao Paulo Carguera de Colombia (LANCO), TAMPA Airlines, Sky Lease Cargo and UPS. Of these, ABSA, LAN Cargo and LANCO are all part of the LATAM group.

And don’t forget the lower decks: Speaking of Latin American expan-sion, several carriers have recently announced new or increased service to South America • Abu Dhabi-based Etihad Airways said it planned to launch five-times-

weekly service to Sao Paulo on 1 June, 2013. Etihad has not specified the aircraft type, but given the length of the route it will be either a 777-300ER or an A340-500/-600, all of which (particularly the 777) have significant belly capacity.

• Ethiopian Airlines also said it intended to launch service to Sao Paulo, but did not specify a target date nor indicate aircraft type. By end 2013, Ethiopian will have both 787s and 777-300ERs in its fleet, joining the 777-200LRs it currently operates.

• Copa Airlines, a subsidary of Copa Holdings S.A., will be increasing its belly cargo service to Latin America before the end of the year, albeit without the capacity of the Etihad or Ethiopian widebodies. Effective December 15, 2012, the Panama City-based airline will launch its fourth daily Panama City-Sao Paulo service with a 737-800 aircraft. Guarulhos will be the Brazil-based airport for this service. cf



Hong Kong Airlines took delivery of the first of three AIRBUS A330-

200 Freighters it will lease from Aircastle. HK Airlines, a subsidiary

of the Hainan Airlines Group (HNA), will operate the three freighters

from Hong Kong to destinations in Asia, the Middle East, and Europe.

See p. 14 for more information on HNA’s plans. (Photo by Sandro

Koster)

News Inside:Pemco moves ahead with its 757-200 combi conversion ......... 3

Rumors, speculation & commentary........................................ 3

Freighter aircraft transactions & developments...................... 4

Short segmentsConversion, MRO, and manufacturer news ......................... 5

Carrier, lessor, & handler news........................................ 14

Express & postal news ...................................................... 16

Airline & airport statistics ................................................. 19

Regulatory news............................................................... 20

Route news........................................................................ 22

Record high cargo traffic? ........................................................ 8

Changes in US international air freight markets ..................... 9

Asian perspective ................................................................... 10

European perspective ............................................................ 11

News Inside:Pemco moves ahead with its 757-200 combi conversion

Rumors, speculation & commentary........................................

Freighter aircraft transactions & developments......................Conversion, MRO, and manufacturer news .........................

Carrier, lessor, & handler news........................................

Express & postal news ......................................................

Airline & airport statistics ................................................................................................................

........................................................................

Record high cargo traffic? ........................................................

Changes in US international air freight markets ........................................................................................

European perspective ............................................................www.acmg.aero

News Inside:VarigLog grounds its fleet ........................................................ 3

Rumors, speculation & commentary........................................ 3

Freighter aircraft transactions & developments...................... 5

Short segmentsCarrier, lessor, & handler news ......................................... 4

Conversion, MRO, and manufacturer news ......................... 6

Express & postal news ...................................................... 11

Forwarding & logistics news ............................................. 11

Airport news ...................................................................... 15

Route news ........................................................................ 15

Regulatory news................................................................ 17

European perspective .............................................................. 8

Asian perspective ..................................................................... 9

Latin American perspective ..................................................... 9

Integrated operator freighter fleet update ............................ 12

Global Aviation Holdings files Chapter 11 .............................. 14

A record quarter for UPS........................................................ 16

Korean Air took simultaneous delivery of its first of seven 747-8Fs

(37132) and first of five 777Fs (37639). Korean is the first carrier to

operate both types, and the first carrier ever to take simultaneous

delivery of two different production freighter types. KAL also

operates twenty-four 747-400 freighters in a mix of -400Fs, ERFs

and BCFs. It will put the 747-8F into trans-Pacific service, while

the 777F will fly the Asia-Europe lane.

Alex Kwanten photo

Moscow-based AIRBRIDGE CARGO (ABC) took delivery

of the first of five 747-8Fs (37581) it has on firm order with

BOEING. Of the remaining four, two more will be delivered this

year, and they, along with the first unit, will replace 747 Classic

freighters (two -200Fs and one -300F) currently in the carrier’s

fleet. The fourth and fifth 747-8Fs will be delivered in 2013. Air-

Bridge, which is the scheduled service subsidiary of the VOLGA-

DNEPR GROUP, also operates five 747-400ERFs and three

747-400Fs, primarily in Asia-Europe service via Moscow, but also

recently to North America with a thrice-weekly Moscow-Amster-

dam-Chicago-Amsterdam-Moscow service.In other VOLGA-DNEPR GROUP (VDG) news, the company

confirmed to Cargo Facts that it has a Letter of Intent in

place with a conversion house for several 737-400 passen-

ger to freighter conversions. Following conversion, the freight-

ers will be used to replace An-12s in the fleet of Moscow-based

ATRANS AVIATRANS CARGO AIRLINES, which VDG acquired

last year. Atrans currently operates three An-12s, but VDG

President Alexei Isaikin was quoted last year as saying the company planned to provide Atrans with up to ten freighter-

converted 737s in order to set up an express operation covering the former Soviet states. No details regarding the source

of the conversions were provided, but since AERONAUTICAL ENGINEERS Inc (AEI) has the only 737 P-to-F program so

far certified in Russia (and last year confirmed it was close to a deal for 737-400 P-to-F conversions to be used in Russia

to replace An-12s), it seems likely that AEI will provide the conversions.

Abu Dhabi-based ETIHAD AIRWAYS firm ordered two more A330-200Fs from AIRBUS. Etihad was the launch operator

for the A330-200F, and currently operates two of the type in its Crystal Cargo division. It also operates one 777F (and has

two more on firm order with BOEING), and ACMI leases two A300-600Fs from MAXIMUS AIR. The order from Etihad brings

Airbus’ total orders for the A330-200F to sixty-two, of which nine have so far been delivered. Eithad is now the third carrier,

following MNG AIRLINES CARGO and TURKISH AIRLINES to order additional A330-200Fs following an initial order.

New all-cargo startup in China: Hangzhou-based CDI CARGO AIRLINES says it has acquired three 737-300s and will

launch service from Hangzhou Xiaoshan International Airport (100 km southwest of Shanghai) following conversion of the

aircraft to freighter configuration. Cargo Facts believes the three are 737-300s (25891, 27372, 27518) currently in the AIR

CHINA fleet. No announcement has been made regarding the source of the conversions. CDI said on its website that it

would initially operate the 737 freighters on “domestic and surrounding routes” (presumably targeting Japan and/or Korea),

but that it planned to acquire widebody freighters for long-haul operation from a Hangzhou hub. CDI appears to be a joint

venture of two Chinese companies (holding 51% and 24%, respectively) and two foreign companies (15% and 10%, re-

spectively), and says it has been approved for operation by the Civil Aviation Authority of China.

The US Department of Defense (DoD) granted approval to ATLAS AIR WORLDWIDE HOLDINGS to provide 767-300ER

passenger airlift service for the US military. For most of its history Atlas has been a 747 freighter operator, but over the

last two years has begun passenger operations – at first on a CMI basis for Angola-based SonAir, and then for the DoD

– with 747-400s. Atlas currently has two 767-300ERs and expects to add a third this year. Atlas will also operate five 767-200

freighters for DHL once the aircraft have been converted from package freighter configuration to full BDSF freighter configura-

tion by BEDEK AVIATION GROUP.CARGO FACTS UPDATE and its sister publication, CARGO FACTS, are published by AIR CARGO MANAGEMENT GROUP, 2033 6th Ave, Suite 830, Seattle, WA 98121 USA David Harris, Editor

(More on page 2)

AirBridge Cargo took delivery of the first of five 747-8

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Boeing, saying that the manufacturer had originally thought through the conversion prospect, but it had added too much weight to take into account. He also pointed out that a low-cost freighter may not get enough orders to make it worthwhile to develop.

But undaunted, Wraight pointed out that if one was to believe Boeing’s fore-casts for freighter orders, there would clearly be no shortage of demand.

Forecast or fable? Talking of manufacturer forecasts, Marco Bloemen, analyst for Amsterdam-based Seabury, has come up with an interesting statistic. According to Seabury, expected cargo demand in 2017 will be 40% lower than the amount forecasted by the manufacturers in 1998. A not insignificant number, and something should be noted by any carriers thinking of basing their 20-year fleet plan on OEM stats.

An American arrives in London: New president of American Airlines Cargo, Kenji Hashimoto, has been doing the rounds, stopping off in London last month. If the number of times he said “customer” is anything to go by, AA Cargo is keeping the focus it had under former president Dave Brooks. But Hashimoto is also excited by AA’s new fleet plans. The 777-300s, which will give the carrier 34% more cargo capacity, will first be deployed on London and Sao Paulo routes, out of JFK, Dallas and LA. The 787-9s will replace 767s. Hashimoto, coming from the passenger side of the busi-ness, is strong on network and fleet, but how is he finding cargo? “There’s a lot of paper,” he said. “The technology around interlining, booking and transiting isn’t very global. In cargo, your ability to seamlessly serve the customer doesn’t exist. The infrastructure was eye-opening.”

So will he join the cargo leaders, and start to move the industry’s agenda forward through platforms such as IATA and TIACA? “I want to help where I can,” he said. “And that will help AA. I’ll absolutely get involved if I can add value, or if the industry thinks I can add value.”

EuROPEAN PERSPECTIvE (cont. from p. 11)out that Boeing’s cost target for converting a 777 is some $32 million, which Duke claims would likely rise to about $40 million in the four years it would take to complete, while Airbus says an A340 won’t cost more than $20 million, and will take three years to develop. LCF, on the other hand, promises to complete a conversion in just one year from launch, and claims the cost would be $10 million for a 777 and $6.5 million for an A340. Significant savings in current climes.

A320 conversion “is on the list.” Continuing on the subject of conversions, Wolfgang Schmid, Vice President Sales, Marketing and Customer Support for EADS EFW, raised the prospect of an A320 conversion programme... again. “I’m not unhappy that it was postponed, but it is definitely not dead. It’s on our list, but we won’t complete any work on it until at least two years from now.” He added that the major challenge was cost. “It could become too expensive, and it needs to be cost-effective, with competitive pricing for a narrowbody. Our focus today is on the A330s, but we will reconsider the A320s in 2014. Luckily, we won’t need to start from scratch. But we do have to finish the A330s first.”

The cheaper freighter debate: Calls for cheap freighters at the Frankfurt conference were frequent, notably from Stan Wraight, executive director, SASI. “Why do the manufacturers make it so hard for customers to get aircraft they can afford?” he asked. “Why not come up with a low cost, efficient plane, built for cargo? The OEMs restrict the market.”

George Alabi, regional director, product marketing for Boeing, responded that the amount of technology needed to develop “industry-leading projects” made low-cost all but impossible. But Wraight countered by saying that manufacturers should consider the conversion prospects when designing air frames. “If it costs $33 million to convert a 777, then you didn’t think it through!” he said. Ram Menen, head of Emirates SkyCargo, backed

europeaN perspectIve

cf

will be transferred by HNA from Tianjin Airlines to AWA is currently be-ing repainted. AWA will mainly deploy its capacity on domestic routes but also plans to open routes to some Western African cities in the future. Cargo is part of the plan, but only in the form of belly capacity.

Ningbo Airport undergoes massive expansion: Ningbo, in the important manufacturing province of Zhejiang to the south of Shanghai, is preparing a huge upscaling of its airport. Ningbo Airport recently gained approval for its Phase 3 expansion project with an investment of RMB7.77bn (US$1.23 billion). In this phase, the airport will build a second terminal of 103,000

sq m (twice the size of the current one), a new 50,000 sq m cargo terminal, and 14,000sq m express center, as well as tripling the area of the current apron. Upon completion of the project, Ningbo Airport will have annual capacity for 12 million passengers and 500,000 tonnes of cargo.

“Last year, the capacity of the airport almost reached saturation, and some of our facilities are not very adequate during busy seasons. Currently we are making more specific plans for the construction. We are trying to build Ningbo Airport into an important air hub in the Yangtze River Delta region,” said an official from the Airport.

asIaN perspectIveEuROPEAN PERSPECTIvE (cont. from p. 10)

cf

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Southern Air currently operates four 777Fs, four 747-400BDSFs, and three 747-200Fs in two main business activities:• Charter flying in support of US military activities generates 43.5% of

Southern’s revenue. Southern is part of the Patriot Team (along with ABX Air, Omni Air International, and Sky Lease)

• Commercial air cargo transportation generates the other 56.5% of Southern’s revenue: This involves primarily ACMI leasing, but also some CMI flying (in which another carrier provides the aircraft, while southern provides crew, maintenance and insurance). DHL is now Southern’s primary ACMI customer leasing four 777Fs. Southern has ACMI-leased 747-200Fs to other carriers in the past, but those contracts have either ended or are about to end. It has recently operated 777Fs for TNT on a CMI basis, but this also is drawing to a close.

Both of these business activities face serious challenges. In its petition for Chapter 11 protection, Southern said the recent wind-down of US military activities plus upcoming Congressional sequestration, led to “an unexpected and significant reduction in DOD spending on air cargo transportation ser-vices in the last two financial quarters. As a result of the sharp decline in government demand, revenues generated by the Debtors’ governmental air cargo business have declined precipitously in the second and third financial quarters of 2012. The Debtors’ revenue from governmental business in the second financial quarter of 2012 was $44.9 million, approximately 34% less than anticipated for this period under the Debtors’ 2012 budget. In addition, the Debtors’ current forecast for all revenues from government business in 2012 is only $156 million, approximately 37.2% less than anticipated for this line of business under the Debtors’ 2012 budget.”

It also pointed to a “stagnant international freight market, which is a direct result of the worst global economy in decades and a generally negative eco-nomic outlook. Indeed, 2012 is expected to be the fifth consecutive year in which there is no net growth in demand for air cargo services. At the same time, excess air cargo capacity in the market for ACMI services (the “ACMI Market”) has negatively affected demand, exerting downward pressure on rates and guaranteed block hours under ACMI Contracts.”

And finally, Southern said that current market conditions have “reduced the rates lessors can charge under aircraft operating leases” while at the same time the rates it pays on its four 747-400BDSFs are “at above mar-ket rates.”

Bottom line? Expenses are rising faster than revenue, and Southern’s net loss for the twelve months ended July 31, 2012 was approximately $159.8 million, an increase from a net loss of approximately $53.5 million in the twelve months ended July 31, 2011.

In its filing, Southern said it had approached “four top-tier lenders who have historically been active in the debtor in possession financing market as well as two strategic sources of investment,” but had been turned down each time, and therefore saw a voluntary restructuring under Chapter 11 protection as the only viable way forward.

After discussions with its major creditors and parent Oak Hill Capital Partners, Southern has secured an agreement that will “significantly reduce by more than two-thirds its approximately $285 million of legacy debt,” and will provide for $25 million in debtor-in-possession financing.

As is usual in these cases, Southern said: “With a stronger capital struc-ture and more competitive and streamlined business model, we will have

SOuTHERN AIR RESTRuCTuRES IN CH. 11 (cont. from p. 3) the capability to invest in and grow Southern Air for the future. We fully expect to continue normal business operations, fulfilling all customer re-quirements as scheduled and providing uninterrupted high quality air cargo services during our restructuring process.”

However, as is also usual in these cases, there are a variety of hurdles to be cleared before that glowing future arrives. • The military flying that has been a big part of Southern’s business may

well continue to shrink. Having a lower cost base, or reduced debt load, will not bring in business that simply does not exist.

• Competition for ACMI business is only going to get tougher. In this case, a lower cost base will help, but again, with demand for air freight stagnant, and more and more capacity flooding into the market, this is going to be an uphill battle. Southern sees the ACMI agreement with DHL for four 777Fs as the “cornerstone” of its future business, but be-ing dependent on a single major customer is always risky.

• What happens if FedEx, or Lufthansa, or DHL approaches Oak Hill, which is ultimately the owner of the four 777Fs, and makes an offer for the freighters? And then there is Atlas, which already operates nine 747-400Fs on an ACMI basis and five 767-200Fs on a CMI basis for DHL, and which must be thinking about whether adding the 777F fly-ing would be a sound move.

The real problem is not the restructuring of debt, or the reduction of lease rentals, or the right-sizing of the fleet. Southern will likely have no trouble accomplishing all of these things. No, the real problem is that the world into which the restructured Southern Air emerges is not the same air freight world of years past. Demand is down, capacity is up, and volatility is the new norm. It has become increasingly difficult for small all-cargo operators to survive in this new world. Many have either gone out of business, or been absorbed by bigger players. That a carrier like Cargolux, historically one of the best-run and most successful all-cargo carriers in the world, has had to turn to Qatar Airways in order to secure its future, gives some idea of just how difficult the new air cargo world has become.

This is not to say that Southern can’t succeed in its stated ambition, but rather to say that it will be much more difficult than it would have been in a previous air freight era. In discussing the restructuring, CEO Dan McHugh pointed out that in fact some of the work has already been done, as the carrier has made an “operational transition over the past 18 months from a high-maintenance and labor-intensive fleet, to a modern, fuel-efficient fleet of 777s and 747-400s serving global customers and operating in more reliable, lower cost route structures in key global trade lanes.” Looking ahead to the time when Southern emerges from Chapter 11, he said: “With a stronger capital structure and more competitive and streamlined business model, we will have the capability to invest in and grow Southern Air for the future.” We shall see.

BreakINg News

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Cargo Facts Newsletter, October 2012

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Transcript of Cargo Facts Newsletter, October 2012