News Inside - Cargo Facts · Aviation Authority of China reported that the volume of cargo carried...

The Air Freight and Express Industry Newsletter of Record • www.CargoFacts.comFebruary 2017 • Vol. 37 No. 2

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The explosive growth of e-commerce is having a huge impact on the air freight world. SF Express is going ahead with a new hub (see p. 3), UPS is reporting big volume increases (see p. 16), and Alibaba’s profits are going off the charts (see p. 17).

News Inside:SF puts Ezhou on the map ........................................................ 3

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

Metal neutrality ........................................................................ 4

Fleet reorganization at ASL ...................................................... 6

Short segments

Carrier, lessor & handler news......................................... 6

Conversion, MRO & manufacturer news ........................... 8

Express & postal news ...................................................... 8

Forwarding & logistics news ........................................... 10

Airport news .................................................................... 10

Freighter aircraft transactions & developments .................... 11

The widebody freighter fleet: the more things change ........... 12

Challenges & opportunities in UPS’ fourth quarter ............... 16

E-Commerce drives massive profit at Alibaba .............................17

2016 ends with surging growth in air freight demand ...............18

Primed for growth ..................................................................................18

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BREAKING NEWSRUMORS, SPECULATION & COMMENTARY

BREAKING NEWSBREAKING NEWS

With only about a million inhabitants, Ezhou is small by Chinese standards, and has never been of much interest to the air freight industry – overshadowed by nearby Wuhan. But that will soon change as Shenzhen-based SF Express works to make Ezhou into China’s foremost hub for express freight.

Cargo Facts reported SF’s interest in an air hub there last year, and it now appears that SF Express’ vision of a China-based, Memphis-like hub will become reality. Earlier this week an SF Express affiliate unveiled ambi-tious design plans for what could become not only SF Express Airlines’ primary express air hub, but, according to the developer, the world’s fourth-busiest cargo airport, with planned capacity of more than 2.6 million tonnes.

From a geographical perspective, Ezhou City has always made logical sense as the site for a major air express hub given that 80% of China’s GDP, and about a billion people, can be reached within a two-hour flight (see map above). It was therefore only a matter of gaining approval and finding appropriate partners to carry the project into a more tangible phase.

Last year, SF Airport invested in a local real-estate developer, Hebei-based China VAST Industrial Urban Development, and formed a joint-venture company. Then, in April 2016, the Ezhou Airport plan received approval from the Civil Aviation Authority of China, and it became clear that the project was more than just a concept.

SF will be more than just the an-chor tenant at Ezhou. The express carrier’s airport subsidiary will play a crucial role in the design, and oversee the construction and management of the airport, through its JV with VAST. According to re-cently surfaced plans, the JV will put up initial capital of US$14.5 million to launch the design and construction phases of the airport, which itself is just one component of a 36-square kilometer “aero city” project.

Separately, SF is also soliciting bids and partnerships for development of the airport’s cargo area to ensure cargo facilities are adequately prepared to meet the company’s long-term needs. The solicitation calls for a sortation and distribution center capable of processing 7 million tonnes annually by 2045, to be built “in the core area between [Ezhou Airport’s] two runways.” It also calls for enhanced railway, road, and port (ocean-going ships travel the adjacent Yangtze River) infrastructure to pro-mote regional intermodal connectivity.

SF’s airline subsidiary, SF Express Airlines, which recently took redelivery of the fourth of five freight-er-converted 767-300BCFs it ordered from Boeing, currently operates a thirty-six-unit freighter fleet, in-cluding four 767-300BCFs, sixteen 757-200PCFs, three 737-400Fs, and thirteen 737-300Fs.

Those interested in learning more about the changing air freight landscape in Asia should join us at Cargo Facts Asia in Shanghai, 25 – 26 April, where a session will be devoted to the topic. To register, or for more information, go to CargoFactsAsia.com.

SF PUTS EZHOU ON THE MAP

Robert van de Weg leaves Volga-Dnepr. In a move that came as a surprise to most of the air freight industry, Robert van de Weg resigned his position as Senior Vice President of Sales & Marketing for Russia-based Volga-Dnepr Group. In a statement released on 26 January, the Group said “Robert will continue to co-operate with the

Group on a strategic level.” For more on this develop-ment, see our website.

O&G industry to rebound? Volga-Dnepr Airlines may now be without its sales leader (above), but the compa-

(continued on page 4)

1,000 Kilometers

Distance:

Ürümqi

Guangzhou

Shanghai

Harbin

Shenyang

Beijing

Chengdu

Chongqing

Kunming Xiamen

Ezhou

Changsha

Tianjin

Xi’an

Taiyuan

Fuzhou

Hong Kong

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SF Airlines’ new air hub will be within 2 hours flying time of 80% of China’s GDP and a billion people.

www.CargoFacts.com • February 2017 3

The Air Freight and Express Industry Newsletter of Record

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RUMORS, SPECULATION & COMMENTARY

NETWORK COLLABORATION

ny said it is seeing a resurgence of air freight demand by the oil-and-gas (O&G) industry – the latest indication that slowly rising oil prices, and brighter long-term futures, are translating into renewed investment. In early January, for example, the Moscow-based airline carried nearly 70 tonnes of machinery between Basel, Switzerland and Seoul, South Korea.

Is FedEx transferring the TNT 777Fs to its own fleet? When ASL Airlines Belgium took over the former TNT Airways fleet following FedEx’s acqui-sition of TNT, we wondered about the fate of the three 777Fs. Would ASL continue to operate them for TNT? Or would FedEx integrate them into its own large (and growing) 777F fleet. According to a report on Skyliner Aviation, FedEx is moving at least two of the three 777Fs into its own fleet, with unit 37138 already ferried to Singapore (presumably for maintenance and/or painting) and 39286 about to follow [FATs 003676 – 3677].

CAAC says cargo carried by Chinese carriers rose 9.5% y-o-y in November. Confirming the robustness of last year’s peak season, the Civil Aviation Authority of China reported that the volume of cargo carried by Chinese carriers swelled to 642,000 tonnes. Domestic cargo was up 12.2%, likely driven by express air freight demand following Alibaba’s 11.11 “Single’s Day” shopping bonanza. International cargo volumes grew more modestly, up 3.5% during the same period. After analyzing the December results reported by some of the country’s largest carriers, we expect that when the CAAC releases December 2016 data, y-o-y growth for the month will be on par or higher.

Cathay Pacific moved its Frankfurt cargo operations into the Lufthansa Cargo terminal.

As the starting point of the joint business agreement (JBA) announced in May of last year, Lufthansa and Cathay Pacific agreed to merge their freight handling operations at each other’s major hubs. The Cathay Pacific Cargo Terminal (CPCT) at Hong Kong International (HKG) has been handling Lufthansa’s import and export cargo since 1 October 2016 and, effective 17 January, Cathay Pacific completed the relocation of its cargo handling operations into Lufthansa’s Cargo Center at Frankfurt (FRA). In addition to cargo handling, the two carriers are also collaborating on network planning, sales, and IT.

On 1 February, the two carriers will enter the next stage of the JBA, with the launch of joint shipments from Hong Kong to Frankfurt. Under the “metal-neutral” agreement, they have agreed to sell space on any flight covered by the JBA, with no preferential treatment for their own

Will Phnom Penh Air Cargo finally fly? Two years ago, Cambodia’s Council of Ministers granted preliminary approval for an Air Operator’s Certificate for a Phnom Penh-based, but Chinese-backed, all-cargo air-line. For reasons unknown, the carrier didn’t follow through and submit its formal AOC application… until now. The Phnom Penh Post reports that Phnom Penh Air Cargo is about to submit its application, and hopes to launch service between the Cambodian capital and Nanning in southern China, using “one or two Boeing 737 freight aircraft.”

Wait, who’s acquiring whom? January seemed to be a popular month to circulate rumors involving mergers and takeovers. After a groundbreaking code-sharing deal was reached, Italian publication Il Messaggero reported that Abu Dhabi-based Etihad Airways was considering a major equity investment in Germany’s largest carrier, Lufthansa. The newspaper said the 30%-to-40% stake in Lufthansa was a precursor to a potential merger. Etihad has since denied any such intentions, saying instead that it would continue to pursue partnerships and code-share agreements. The group’s CEO, James Hogan, later pointed out that such deals funneled 5.5 million passengers into Etihad’s network in 2015.

Another widely-spread internet rumor that surfaced on 17 January, claimed Air China had reached an agreement to take over Cathay Pacific Airways and would make an announcement the following day. Unsurprisingly, no press conference was held. As preposterous as the takeover rumor may have been, Air China Limited does, however, already own a 29.9% stake in Cathay Pacific.

RUMORS, SPECULATION & COMMENTARY (cont. from p. 3)

carrier. Beginning in 2018, Cathay and Lufthansa will begin jointly mar-keting cargo on eastbound flights from Europe to Hong Kong. To learn more about trends in Asia-Pacific air cargo, join us at Cargo Facts Asia in Shanghai, 25 – 26 April.

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SHORT SEGMENTSCARRIER, LESSOR & HANDLER NEWSAirBridgeCargo confirmed as lessee of Intrepid 747-8Fs. In October 2016, US-based lessor Intrepid Aviation reached an agreement with Boeing to swap two of its six pre-existing orders for 777-300ER passenger aircraft for two 747-8Fs. At the time, Intrepid said the two aircraft would go “on very long lease to one of the industry’s premier cargo operators,” which Cargo Facts believed likely to be one of the subsidiary carriers of Russia-based Volga-Dnepr Group – either AirBridgeCargo or CargoLogicAir.

Last year, Russia-based Volga-Dnepr concluded an agreement with Boeing under which it would take twenty 747-8Fs “through a mix of di-rect purchases and leasing.” In mid-January, Intrepid confirmed that the two -8Fs, which are scheduled for delivery in March and September of this year, will go to Russia-based AirBridgeCargo. As of January 2017, Volga-Dnepr has taken delivery of five -8Fs that were originally part of the twenty-unit deal.

In other AirBridgeCargo news, competition continues to intensify at major European hubs. In January, AirBridgeCargo announced it had com-pleted more than 1,000 747 freighter flights at both Amsterdam Schiphol (AMS) and Frankfurt (FRA) airports in 2016. In terms of cargo handle, AirBridge has already ascended to the number-two position at both airports, leaving only the national carriers that operate at each of the two hubs with larger cargo volumes. Frankfurt and Amsterdam are not alone in seeing a continued influx of non-EU freighter flights. Doha-based Qatar Airways continues to increase its presence in Luxembourg while Abu Dhabi-based Etihad continues to reinforce its operations in Italy.

Atran Airlines receives approval for daily Moscow-Frankfurt service. Atran, a subsidiary of Russia-based Volga-Dnepr Group, plans to launch daily service between the two cities. Atran currently operates three 737-400Fs. The deal comes on the heels of a renegotiated bilateral aviation treaty signed in September 2016 and aims to further liberalize the air transportation market between the two countries.

Aeroflot sees huge increase in air freight demand. Most discussions about air cargo in Russia focus on the big increases in cargo traffic reported by

AirBridgeCargo and its parent, Volga-Dnepr Group. But the country’s flag carrier, Aeroflot, is seeing even bigger gains (albeit from a smaller base). For December, Aeroflot reported cargo traffic up 40.5% y-o-y to 92 million RTKs. The big increase came on the back of an 83.2% jump in international traffic to 63 million RTKs – more than enough to overcome a 7.4% drop in domestic traffic to 29 million RTKs. For the Aeroflot Group as a whole, December cargo traffic was up 59.3% y-o-y to 111 million RTKs. For the full year, Aeroflot’s cargo traffic was up 30.7% over 2015 to 811 million RTKs, while cargo traffic for the Group was up 38.4% to 918 million RTKs.

China Airlines and Japan Airlines code-share to include cargo. On 10 January, Taiwan-based China Airlines and Japan Airlines signed an MOU to expand their extant code-sharing agreement from 28 weekly flights, to as many as 240 flights between Japan and Taiwan. The enhanced “strategic cooperation on cargo and passenger services” is set to go into effect begin-ning late next month, though details regarding how precisely cargo will factor into the code-sharing agreement, have not yet surfaced. Meanwhile, Japan’s other major airline, ANA, continues to align more closely with its Star Alliance partner, Germany’s top cargo carrier, Lufthansa. Both Lufthansa and ANA operate a mix of passenger and freighter aircraft, as does China Airlines, which has a fleet that includes eighteen 747-400Fs. Japan Airlines on the other hand, does not currently operate any freighters.

Kenya Airways and Qantas partner to bring flowers into Australia. As part of the deal, Kenya Airways expects to carry about 27 tonnes of freshly cut flowers each month from Nairobi to Johannesburg, where they will interline with Qantas’ daily 747-400 passenger flights to Sydney. In 2015 Kenya exported 122,825 tonnes of cut flowers worth $605 million, according to the Kenya Flower Council.

Aeronaves TSM continues expansion. Mexico-based Aeronaves TSM ordered two CRJ200 P-to-F conversions from Aeronautical Engineers, Inc [FATs 003688 – 3689]. The aircraft to be converted are units 7356 (ex-Air Uganda) and 7392 (ex-Air Mali). Both conversions are scheduled for redelivery this year.

FREIGHTER FLEET ANALYSIS

Ireland-based ASL Aviation Group will proceed with an internal re-structuring and fleet transfers aimed at streamlining the rapidly growing multi-national aviation group’s European operations. The group’s subsid-iary airlines currently operate fleets consisting primarily of ATR 72s and 737s, which are scattered across multiple AOCs. However, according to a report in ch-aviation, the coming months will see some major changes:

• ASL Airlines Switzerland, which currently has a fleet of ten ATR-72Fs (four of which are in op-eration for DHL Aviation in South Africa), will dry lease four ATR 72Fs to South Africa-based Solenta Aviation, and transfer the remaining units to the AOC of ASL Airlines Ireland.

• ASL Airlines Hungary will see its fleet of five 737-400Fs transferred to the Irish registry, even though the aircraft will continue to operate on a Hungarian AOC.

Both ASL’s Swiss and Hungarian Airlines will continue to operate as in-dependent companies, at least in the near-term.

As for fleet additions, the group has six 737-400 freighters on firm order and has also agreed to lease two 737-800BCFs from GECAS.

FLEET REORGANIZATION AT ASL




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SHORT SEGMENTSSHORT SEGMENTS (continued from page 6)In other TSM news, ch-aviation reports that the carrier is now operating three DC-9-30Fs on a short-term ACMI basis in the overnight domestic express network of fellow Mexican carrier Estafeta Cargo Aerea [FATs 003690 – 3692]. Until 2 April, TSM will operate four weekly frequencies on each of the following routes, Monday through Thursday:

• Ciudad Juarez to San Luis Potosí via Chihuahua • Hermosillo to San Luis Potosí• La Paz to San Luis Potosí via Culiacán

On Saturday and Sunday, the aircraft will operate in a circular rotation on a La Paz-Culiacán-Chihuahua-San Luis Potosí-La Paz route. In addition to the ACMI-leased DC-9Fs, Estafeta’s fleet includes four 737-300Fs and two CRJ100Fs.

Maleth-Aero moves forward with 737-400F acquisitions. In June 2016, when Malta-based ACMI/charter specialist Maleth-Aero acquired its first 737-300QC, CEO Michael O’Brien said the carrier would consider add-ing 737 classics in full-freighter configuration at a future point. Earlier this week, Maleth said it expects to add two 737-400Fs to its fleet in March and April of this year. O’Brien said he also expected to add “a further two units early in Q3/Q4 2017.”

Express Air Cargo acquires its first freighter. Tunisia-based startup all-cargo carrier Express Air Cargo took possession of a 737-300QC (23836, most recently at Yangtze River Express) following the completion of main-tenance and redelivery checks at FL Technics’ MRO facility in Vilnius [FAT 003686]. A second 737-300, this one in full freighter configuration (24710, most recently at Texel Air), is currently undergoing similar main-tenance checks, and will be redelivered to Express Air Cargo shortly [FAT 003687]. In August 2016, the carrier told Cargo Facts it was planning to launch twice-daily connections to Cologne and Paris by September, but the launch of commercial operations was delayed by the Tunisian Ministry of Transportat, which did not issue an AOC until October. Freighter flights to Western Europe are expected to begin soon.

Jet2 exits the cargo business. UK-based Jet2 retired a 737-300F (23659). The freighter was ferried to Cotswold Airport (GBA) for part-out [FAT 003684]. At the start of the fourth quarter 2016, Jet2 operated seven 737-300QCs and one 737-300F for Royal Mail, but chose to exit the freight business rather than rebid when the contract came up for renewal. It has since retired three of the -300QCs and now the -300F.

Baltia signs LOI to lease 767-300ER from Kalitta. In the era of rapid e-commerce growth, Michigan-based Kalitta Air’s fleet of inactive 767-300s were considered decent candidates for conversion into freighter configura-tion. Instead, at least one of those aircraft may end up in the fleet of New York-based Baltia, an airline that has been struggling to get off the ground for more than 27 years. Originally founded to fly cargo and passengers be-tween New York and St. Petersburg, a series of setbacks has prevented FAA Air Carrier certification and the commencement of commercial operations.

Air China Cargo announces “no shark fin” carriage policy, recog-nizing the unsustainable nature of the global shark trade. Although other carriers, including Cathay Pacific and HK Express, have previous-ly implemented similar bans on carrying shark fins as cargo, Air China Cargo will become the first carrier headquartered in mainland to China to implement such a ban. It remains to be seen, however, when the policy will go into effect.

Volume surges at PACTL in December. PACTL, the biggest cargo han-dler at Shanghai Pudong (PVG), reported its December handle up 12.0% y-o-y to 158,000 tonnes, with the growth coming despite the CAAC’s on-going ban on adding new flights at Pudong. International volume for the month was up 12.8% to 147,000 tonnes, while the much smaller domestic volume was up 2.5% to 11,000 tonnes (most of Shanghai’s domestic cargo moves through nearby Hongqiao Airport). For the full year, Pactl’s cargo handle was up 4.5% to 1.67 million tonnes.

VietJet appoints Hactl to handle cargo for new Hong Kong service. VietJet has selected Hactl to handle cargo coming off its newly launched flights between Ho Chi Minh and Hong Kong. Although the daily A320 passenger flights do not carry a significant amount of cargo, the airline’s expansion is indicative of Vietnam’s rapidly growing economy. Exports coming out of Vietnam during the first nine months of 2016 were up 9% over the same period in 2015. And the upswing in manufacturing contin-ued in 2016, pushing exports so far last year up another 9% over 2015.

CONVERSION, MRO & MANUFACTURER NEWS

Ameco prepares for a busy 2017. Beijing-based MRO, Ameco, a 75/25 joint venture between Air China and Lufthansa, with major branches in Beijing and Chengdu, is boosting maintenance capacity for freighters in 2017. Last year Ameco’s Beijing facility completed two 747 C-checks, one for an Air China 747-8I and another for an undisclosed customer’s 747-8F. Its Chengdu facility, meanwhile, completed five 757 passenger-to-freighter conversions for Precision Aircraft Solutions. In 2017, Ameco expects to double the number of 747-8 C-checks its Beijing base performs. Its Chengdu facility is also likely to stay busy with 757 P-to-F conversions.

AAR and Bluebird Cargo extend power-by-the-hour contract for five 737Fs. As part of the deal, US-based global aftermarket solutions company AAR will continue to provide power-by-the-hour (PBH) component inven-tory management and repair services for Iceland-based all-cargo carrier, Bluebird Cargo, as it has been doing so for the past ten years.

EXPRESS & POSTAL NEWS

SF goes Ukrainian. China-based SF Express and Ukraine-based postal and express company Nova Poshta signed a partnership agreement under which the two will cooperate to provide fast delivery of packages from China to online shoppers in Ukraine. The service, which has been tested over the past few months, will offer full track-and-trace capability (through Nova Poshta) on orders made with most of the big Chinese e-commerce companies. SF will fly the packages from China to Kiev’s Boryspil Airport (KBP), with Nova Poshta taking over from that point to the customer’s door.

Amazon’s Prime Air fleet continues to grow. Both Air Transport Services Group (ATSG) and Atlas Air Worldwide Holdings (AAWW) added freight-ers to the Amazon Prime fleet last month.

• ATSG took redelivery of a 767-300BDSF (24036, ex-American) follow-ing conversion by Bedek Aviation Group. Cargo Aircraft Management (ATSG’s leasing arm) leased the freighter to Amazon, which handed it back to ATSG subsidiary carrier ABX Air, which will operate it on a CMI basis [FATs 003693 – 3695].

• AAWW took redelivery of a 767-300BDSF (30109, ex-Transaero) fol-lowing conversion by Bedek Aviation Group. Titan Aviation Leasing




(AAWW’s leasing arm) has leased the freighter to Amazon, which has handed it back to AAWW subsidiary carrier Atlas Air for CMI opera-tion [FATs 003696 – 3698].

Following these two additions, Amazon now has eighteen 767 freighters in its fleet. Through its ABX Air and ATI subsidiaries, ATSG operates twelve 767-200Fs and four 767-300BDSFs for Amazon, while AAWW, through its Atlas Air subsidiary, operates two 767-300BDSFs.

ATSG has four more 767-300s either in or awaiting conversion at Bedek’s Tel Aviv facility and destined for Amazon service. All four will redeliv-ered by the end of this year, fulfilling ATSG’s commitment to provide a total of twenty 767 freighters for the e-commerce giant. For its part, Atlas currently has two 767-300s in conversion for Amazon (one by Bedek and one by Boeing), but says it has locked up feedstock and conversion slots for the sixteen remaining in its commitment.

UPS acquires UK-based truckload brokerage firm Freightex, in a strat-egy that mirrors its acquisition of US-based Coyote Logistics in August 2015. Freightex leverages the abundance of road freight carriers operat-ing in Europe by matching shipments to LTL, FTL and reefer capacity without utilizing its own assets. The acquisition will quickly give UPS a foothold in the overland European brokerage market – a natural progres-sion after the European Commission torpedoed its attempted takeover of TNT Express in 2013.

FedEx to install pickup/drop-off sites at Walgreens drug stores across

the US, a sign that consumers are increasingly directing online packag-es away from their homes in an attempt to reduce theft. FedEx’s Onsite program will enable customers to drop off pre-packaged and pre-labeled shipments at Walgreens stores, and pick up packages that they direct to their neighborhood Walgreens, one of the country’s largest drugstore chains. The program will begin rolling out this spring, and will be active at 8,000 Walgreens stores by fall 2018. Amazon and UPS already operate similar secured pickup lockers at locations across the United States.

DHL partners with Gavi to improve vaccine-delivery supply chain. Gavi, the Vaccine Alliance that tasks itself with increasing the equitable use of vaccines in lower-income countries, will collaborate with Deutsche Post DHL Group to improve vaccine supply-chain connectivity and efficiency, and ultimately ensure that more people have better access to life-saving im-munizations. Initially, the partnership will launch a pilot program in Kenya that includes a “Transport Support Hub” control tower, which will monitor DHL and third-party carriers involved in vaccine deliveries throughout the country to ensure timely and reliable service.

DHL adds new e-commerce fulfillment center in Sydney to meet grow-ing cross-border demand. Deutsche Post-DHL Group’s eCommerce division opened a new fulfillment center in Sydney to meet Australian domestic demand for overseas goods ordered by online shoppers. Cross-border e-commerce growth in isolated Australia outpaces growth in other areas of the world, and, according to DHL estimates, will continue to grow

SHORT SEGMENTS




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at 29% annually through 2020. The new facility is expected to appeal to overseas merchants looking to penetrate the Australian market by handling everything from inbound shipments to last-mile delivery. The Australian center joins a growing list of DHL e-commerce-focused fulfillment facili-ties in countries such as the United States, India and Germany.

DHL enters online load-matching marketplace with the launch of re-cently-acquired platform, CILLOX, a service that connects shippers with available FTL and LTL truck capacity across Europe in real-time. Shippers can specify shipment parameters, such as speed and handling requirements, and receive a quotation instantly from multiple service providers. Once booked, shippers can track and monitor cargo on the CILLOX dashboard as it moves from point-to-point.

With the abundance of road freight services across Europe, digital broker-age services have become a popular option for streamlining the otherwise fragmented market. UPS recently bought Freightex in Europe, and Coyote in the United States. Meanwhile, other companies, including Amazon, are said to be developing their own capacity-matching applications that target individual truckers rather than haulage companies.

FORWARDING & LOGISTICS NEWS

WCA, Alibaba tie-up opens China to SME forwarders. Freight for-warding network WCA is set to collaborate with China’s Alibaba.com on cross-border e-commerce shipments in a tie-up that expands Alibaba’s in-ternational reach through an additional 6,300 logistics offices on the global roster of WCA’s small- and medium-sized enterprise (SME) members. In return, WCA forwarders gain access to the Alibaba logistics platform for cross-border e-commerce shipments and a serious foothold in China. WCA also will vet and approve international logistics providers for quality and efficiency in logistics services for the customers of Alibaba. Approved providers will have full access to compete for logistics orders generated on the Alibaba.com platform.

After launching a dedicated e-commerce logistics network in mid-October last year, WCA saw more than 100 logistics companies apply for member-ship within the first month, indicating the level of interest in e-commerce among its forwarders. Referred to as “WCA eCommerce,” the new network allows member companies to trade directly with each other, build volumes and strengthen business ties.

This year, WCA eCommerce plans to add benefits, including e-commerce shipment insurance, e-commerce-specific IT solutions, preferred rates on global and domestic last-mile and courier services, and regional e-com-merce consolidation programs.

DSV begins operating Primark’s new Netherlands logistics center. Denmark-headquartered 3PL, DSV has started operating Ireland-based fast-fashion retailer Primark’s newly-opened logistics center in the Netherlands. The 65,000-square-meter warehouse located in Roosendaal, runs on Primark’s Warehouse Management System, and processes out-bound carton and garment-on-hanger orders to supply Primark stores across France and Italy.

Crane Logistics opens new regional office at Amsterdam Airport. The US-based forwarder says the new facility will support growth opportuni-ties across Europe. Nearby warehouse and customs clearance facilities,

meanwhile, support a range of 3PL services ranging from inbound and outbound airfreight, to storage, pick-and-pack, and labelling.

AIRPORT NEWS

China’s HNA Group nearing acquisition of Frankfurt Hahn Airport. Last year, when the Rhineland-Palatinate government put its stake in the ailing Frankfurt Hahn Airport (HHN) up for sale, China-based HNA Group surfaced as a potential buyer. Then, out of nowhere, HNA was outbid by a largely unknown Chinese conglomerate, Shanghai Yiqian Trading Company. However, that deal fell through when it was discovered that Yiqian had not acquired clearance from the Chinese regulatory authorities to make the purchase, and once again the airport was listed on the market.

In the latest bidding round, Rhineland-Palatinate said it received interest from three companies, but has decided to follow-up with HNA and its part-ner, Germany-based ADC GmbH. Although it is unclear what HNA may have in store for the airport, one of the group’s airline affiliates, Yangtze River Airlines previously operated freighter flights into Hahn. At present, carriers including Etihad Airways, NCA, and Silk Way West use Hahn for freighter flights, finding the airport’s 24-hour operating license an attrac-tive option – particularly in light of the night-time restrictions at nearby Frankfurt International (FRA).

Wilmington airport (ILN) seeks to reopen second runway. The Ohio Airport that was once the main air hub for DHL’s failed foray into the US domestic express market operated two runways until DHL left in 2010. Now a major hub for Air Transport Services Group (ATSG) airlines, and the 767Fs operated by Atlas Air and ATSG that comprise Seattle-based Amazon’s Prime Air fleet, Wilmington has seen a resurgence of activity.

Though the second runway has been maintained during the seven-year hiatus, additional patching and pavement repairs and other technical im-provements required to bring it back into service will carry a US $1.5 million price tag, according to the Clinton County Port Authority, which manages the airport. The airport is seeking federal funding for at least a portion of the repairs, and said it hopes to make the runway active again by the end of 2017.

Whether Amazon’s decision to move its air hub from Wilmington to nearby Cincinnati/Northern Kentucky Airport (CVG) will spell the end of this plan remains to be seen.

Belgian Airports report a surge in December cargo volumes. Cargo handle was up 22.0% y-o-y at Brussels in December as volumes rose to 49,519 tonnes. An increase of nearly 250 freighter flights over the previ-ous year boosted the December airfreight handle associated with all-cargo flights by 88.9%. This more than made up for weak belly cargo volumes, which fell 5.5%. Integrator-related cargo handle, meanwhile, was nearly flat at 2.0% as DHL, the largest integrator present at the airport, continued to operate at nearly full capacity. Despite the tragic terrorist attacks that halted passenger operations for nearly two weeks in early 2016, Brussels’ strong peak season pulled its full-year performance into slightly positive territory with a 2016 handle of 494,000 tonnes, up 1.1% over 2015.

Liege Airport, meanwhile, saw volumes grow 4.8% y-o-y in December to 60,926 tonnes. For the full year 2016, volumes rose a modest 1.7% to 649,829 tonnes, a sign that FedEx’s acquisition of TNT Express has nega-tively impacted TNT’s largest air hub in Europe.

SHORT SEGMENTSSHORT SEGMENTS (continued from page 9)




FREIGHTER AIRCRAFT TRANSACTIONS & DEVELOPMENTS

myCargo 747-400F write-off. A 747-400F (32897) operated by Turkey-based myCargo Airlines on an ACMI basis for Turkish Airlines crashed on landing in fog at Manas Airport (FRU) near Bishkek, Kyrgyzstan [FAT 003678]. The freighter was destroyed and the crew and more than thirty people on the ground were killed.

FedEx is reported to be in the process of transitioning two of the three 777Fs (37138, 39286) operated by ASL Airlines Belgium for TNT Express (which FedEx owns) to its own fleet. [FATs 003676 – 3677].

Denmark-based Star Air acquired a 767-300F (35816) on lease from GECAS. The freighter was in the LATAM Cargo fleet from 2010, but was returned to the lessor last month [FATs 003699 – 3700].

Two 767-300BDSFs for ATSG. Air Transport Services Group took rede-livery of two 767 300BDSFs (24930, ex-Qantas and 24036, ex-American Airlines) following conversion to BDSF freighter configuration by Bedek Aviation Group. Cargo Aircraft Management (CAM, ATSG’s leasing arm) leased both freighters to Amazon, which has handed them back for opera-tion by ATSG subsidiary carriers ATI and ABX Air in the Amazon Prime network [FATs 003679 – 3681 and 003693 – 3695].

Atlas Air Worldwide Holdings (AAWW) took redelivery of a 767-300BDSF (30109, ex-Transaero) following conversion by Bedek Aviation Group. Titan Aviation Leasing (AAWW’s leasing arm) has leased the freighter to Amazon, which has handed it back to AAWW subsidiary car-rier Atlas Air for CMI operation [FATs 003696 – 3698].

China-based Uni-Top Airlines took redelivery of an A300-600F (732, ex-China Eastern) following conversion to freighter configuration by EFW [FAT 003701]. This is Uni-Top’s fourth A300-600F, and it has three more A300-600s (707, 725, 741) either in or awaiting conversion by EFW.

FedEx removed an A310-300F (456) from service and ferried it to Victorville for storage [FAT 003702]. FedEx now has just six A310-300Fs in active service. Note that while we have reported FedEx as having re-tired several A310-300Fs in the past, the company points out that it only considers an aircraft “retired” when it comes off the books.

DHL Express took redelivery of two 757-200PCFs (27975, ex-Ethiopi-an, and 26275, ex-Thomas Cook) following conversion to PCF freighter configuration by Precision Aircraft Solutions [FATs 003682 and 3683]. These were the 27th and 28th 757-200s Precision has converted for DHL, and the 11th and 12th that Precision has redelivered to DHL in the last twelve months.

Brazil-based Sideral Air Cargo ACMI-leaded a 727-200F (22984) from fellow Brazilian carrier Rio Linhas Aeréas [FAT 00xxxx].

Luxembourg-based lessor Vallair took redelivery of a 737-400F (27660, ex-Japan Transocean Air) following conversion to freighter configuration by Aeronautical Engineers, Inc [FAT 003685].

ASL Airlines Belgium added two 737-400Fs.

• ASL Airlines Belgium acquired (25147, ex-Blue Air) from Airwork fol-lowing conversion to freighter configuration by Aeronautical Engineers, Inc [FATs 003703 – 3704].

• ASL Airlines Belgium will acquire a 737-400F (28885, ex-Alaska Airlines) on lease from GECAS following conversion to freighter configuration by Aeronautical Engineers, Inc [FATs 003705 – 3706].

A 737-400F for KV Aviation. Ireland-based lessor KV Aviation ferried a 737-400 (26302, ex-AirExplore) to Miami for conversion to freighter configuration by Aeronautical Engineers, Inc [FAT 003707].

Sweden-based West Atlantic acquired a 737-400F (28701, ex-Thai Airways International) on lease from Vx Capital Partners, following con-version to freighter configuration by Aeronautical Engineers, Inc [FATs 003664 and 003708].

Tunisia-based Express Air Cargo acquired a 737-300QC (23836, most recently at Yangtze River Express) [FAT 003686]. The carrier will shortly add a 737-300F (24710, most recently at Texel Air) [FAT 003687].

UK-based Jet2 retired a 737-300F (23659). The freighter was ferried to Cotswold Airport (GBA) for part-out [FAT 003684].

European Aviation Group acquired a 737-300QC (24255). Cargo Facts believes the aircraft will likely be operated as a freighter by Malta-based Air X Charter, in support of European Aviation Groups engine repair business.

Mexico-based Aeronaves TSM ordered two CRJ200 P-to-F conversions from Aeronautical Engineers, Inc [FATs 003688 – 3689]. The aircraft to be converted are units 7356 (ex-Air Uganda) and 7392 (ex-Air Mali). Both conversions are scheduled for redelivery this year.

Mexico-based Estafeta Cargo Aeréa ACMI-leased three DC-9-30Fs from Aeronaves TSM [FATs 003690 – 3692].

SHORT SEGMENTS

CVG Airport reports best month ever for cargo in December. Cincinnati/Northern Kentucky Airport (CVG, DHL’s US hub) reported its largest cargo handle ever in December at 74,000 tonnes. After a slow start to the year, robust peak season volumes pushed CVG’s cargo into growth territory, with its 2016 handle a slight 1.6% ahead of 2015.

A fourth-quarter surge lifted cargo at DXB into growth territory, up 3.4% in 2016. Despite negative-to-flat growth during the first three quarters of the year, strong demand in the final quarter of 2016 was enough to reverse the trend. December volumes were particularly strong, up 5.4% y-o-y, to 230,122 tonnes. For the full year, DXB’s overall handle was up 3.4% over 2015 to 2.59 million tonnes. cf

cf

Each reference to a freighter aircraft transaction (FAT) in Cargo Facts contains a unique FAT code linked to our FAT database. This database is available to subscribers as an interactive tool on our website at cargofacts.com/freighter-aircraft-transactions/



http://cargofacts.com/freighter-aircraft-transactions/


FREIGHTER FLEET ANALYSISTHE WIDEBODY FREIGHTER FLEET: THE MORE THINGS CHANGE, THE MORE THEY STAY THE SAME

Air freight demand has grown steadily, if unspectacularly, over the last five years. If worldwide cargo traffic in 2016 increases 4% over 2015 (which seems likely as we go to press), then the total increase in the last five years will be about 18.5% – an average annual growth rate of 3.5%. This is well down from what would once have been considered normal, but it is very much in line with what many in the industry are now accepting as “the new normal,” after a period of wild swings in demand in the period around the financial crash that began in 2007.

So, if demand for air freight has been growing at a steady, if modest, rate for the last half-decade, should we expect similar growth in the widebody freighter fleet? Well, we might expect it, but, as shown in the charts on this and the following pages, we won’t find it.

As we look at the fleet at the end of January 2017, we count 1,002 freight-ers in commercial service worldwide, up 0.7% over the total a year ago. The current total is up 6.0% over 2007, but that is only because deliveries of aircraft ordered by carriers and lessors in the years before the reces-sion swelled the fleet despite the fact most of them were neither needed nor wanted. But after reaching a peak of 1,012 in 2012, the fleet shrank as deliveries slowed and carriers parked older freighters.

The result? Despite an 18.5% growth in air freight demand over the last five years, the number of widebody freighters in service has actually de-clined 1.0%.

But what about payload? The total number of freighters in the fleet may have been almost constant over the last five years, but, as can be seen in the chart on p. 14, there have been big changes in the number of each in-

dividual freighter type. For example, there are six times as many 747-8Fs in the fleet now as there were five years ago, and 747-8s are big freighters. So is it possible that the 18.5% growth in cargo traffic has been accommo-dated by increased average freighter capacity?

Theoretically possible, perhaps, but a close examination reveals that the total available payload of the widebody freighter fleet has increased only 1.3% over the five years since the beginning of 2012. The retirement of 747-400 and Classic freighters (and MD-11Fs) has taken capacity out of the fleet just as quickly as delivery of 777Fs and 747-8Fs has brought capacity in.

The narrowbody freighter fleet has been expanding rapidly in recent years, so some of the increased cargo traffic is likely moving in 757-200Fs and 737-400Fs, but Cargo Facts believes that most of it is carried in the bellies of the endless stream of cargo-friendly A330s, 787s, A350s, and 777s delivered to carriers worldwide to meet growing passenger demand. Looking ahead at the backlog of A330, A350, A380, 787, 777, and 777X passenger aircraft we see belly space equivalent to about 450 hundred-tonne freighters. Some of the passenger aircraft on order will replace existing aircraft, but unless demand for air freight increases significantly in the coming years, we ex-pect that although the makeup of the widebody freighter fleet will continue to change, the total number of freighters will grow only slowly, if at all.

While the total number of freighters in the fleet changed only slightly in the last twelve months, the composition of the fleet continued to evolve, as new freighters entered service and older types were retired. Over the last year, thirty new production freighters were delivered: six 747-8Fs, ten 777Fs,

Carrier 747-8F

747-400ERF

747-400F

747-400BCF

747-400BDSF

747-200F

777F

MD-11F

DC/MD-10-30F

DC/MD-10-10F

A330-200F

767-300F

767-300BCF

767-300BDSF

767-200F

A300-600F

A300B4F

A310-300F

Total

AeroLogic (DHL/Lufthansa) 8 8Aerotrans Cargo (Moldova) 2 2AeroUnion (Mexico) 2 4 6Afriqiyah Airlines 1 1AHS Air International (Pakistan) 1 1Air Atlanta Icelandic (1) 2 1 4 7Air Cargo Global 2 2Air China Cargo 3 8 11Air France-KLM (incl. Martinair) 3 1 2 6Air Hong Kong 3 10 13Air Transport Services Group (1) 12 26 38AirBridge Cargo 9 5 2 16All Nippon Airways 4 8 12Amerijet International 3 3 6Asiana Airlines 4 6 1 11ASL Aviation Group (1) 2 1 4 7Atlas Air Worldwide Holdings (1) 10 22 1 1 5 2 4 9 54Avianca Group 6 6Bravo Air (Georgia) 1 1CAL Cargo Air Lines 1 1 1 3Cargojet Airways (1) 3 5 1 9CargoLogicAir (1) 1 1 2Cargolux 14 2 10 26Cathay Pacific Airways 14 6 1 21Source: Carriers, Lessors, Manufacturers, ACMG database, various fleet-tracking services CARGO FACTS – February 2017

Widebody Freighter Fleet, February 2017






Carrier 747-8F

747-400ERF

747-400F

747-400BCF

747-400BDSF

747-200F

777F

MD-11F

DC/MD-10-30F

DC/MD-10-10F

A330-200F

767-300F

767-300BCF

767-300BDSF

767-200F

A300-600F

A300B4F

A310-300F

Total

Centurion/SkyLease Cargo 2 3 5China Airlines 18 18China Cargo Airlines 2 1 6 9China Southern Airlines 2 12 14DHL Air 4 4DHL International Aviation Middle East 2 2EAT Leipzig (DHL) 21 21Egyptair Cargo 2 1 3El Al 1 1Emirates 2 13 15Ethiopian Airlines 6 6Etihad Airways 5 4 9EVA Airways 3 3 6FedEx 29 57 13 26 43 68 7 243Global Africa Airlines (Zimbabwe) 2 2Hong Kong Airlines 5 5Kalitta Air (1) 1 4 7 3 2 17KF Cargo 2 2Korean Air 7 6 7 11 31LATAM (2) 3 7 10Lurthansa 5 11 16Malaysia Airlines (1) 3 3MNG Airlines 1 6 7myCargo Airlines (1) 2 1 0 3National Airlines 1 1Nippon Cargo Airlines 8 4 12Qantas 1 1Qatar Airways 11 8 19Raya Airways 1 1Royal Jordanian 1 1 2Saudia 2 4 6SF Airlines 4 4Silk Road Cargo Business 1 1Silk Way West Airlines 4 3 7Singapore Airlines 8 8Sky Gates Airlines 1 1Solinair (Slovenia) (1) 1 1Star Air (1) 2 11 13SW Italia 1 1The Cargo Airlines (Georgia) 3 4 7Transavia Export (Belarus) 1 1Transcarga International Airlines (Venezuela) 1 1Transportes Aéreos Bolivianos 2 2Turkish Airlines 8 8ULS Airlines Cargo (1) 3 3Uni-Top Airlines 1 4 5UPS Airlines 11 2 37 59 52 161Uzbekistan Airways 2 2Western Global Airlines (1) 1 6 7West Atlantic (1) 3 3Yangtze River Expess 3 3Total 69 34 111 18 21 9 129 116 17 26 36 121 17 29 57 170 11 11 1002Source: Carriers, Lessors, Manufacturers, ACMG database, various fleet-tracking services CARGO FACTS – February 2017

Widebody Freighter Fleet, February 2017





three A330-200Fs, and eleven 767-300Fs. This is considerably fewer than the forty-seven delivered in 2015, but a continuation of the resurgence of interest in passenger-to-freighter conversion of widebody aircraft that be-gan in 2015 saw the redelivery of fourteen freighter-converted 767-300s and two A300-600s.

In a change from recent years, when low fuel prices led carriers to bring parked freighters back into service, the last twelve months saw a net ad-dition of just one unit, as the number of DC-10-30Fs in service increased from sixteen to seventeen. This is a considerable drop from the eight net reactivations in 2015 and thirteen in 2014. With fuel prices again on the increase, we do not expect that many more widebody freighters will come out of the desert in the future.

Of course there were retirements, too. Over the past year, a net of forty freighters of ten types left the fleet, including three 747-400ERFs, six 747-400Fs, seven 747-400BCFs/BDSFs, six MD-11Fs, six DC/MD-10-10Fs, two 767-200Fs, one A300B4F, and two A310-300Fs.

Overall, additions slightly outweighed retirements, and the commercial widebody freighter fleet grew by seven units, to 1,002.

Through the last few years of widebody freighter additions and retirements, one type has remained remarkably stable. The medium-widebody A300-600F has been a cornerstone of the express operators’ fleets almost since

its introduction, and will remain important for several more years. There are currently 170 units in the fleet, the largest number of any widebody type (although the 767-300 will take that crown next year), and all but a handful are operated either by or for DHL, FedEx, and UPS. The A300-600 freighter fleet actually grew over the last twelve months as two passenger units were converted to freighter configuration.

The big three express operators aren’t just the biggest operators of A300-600Fs, but in fact account for over half of the entire widebody freighter fleet. An exact count is difficult, because DHL, in addition to the freighters operated by carriers it either owns or has a significant stake in, also uses lift contracted from independent carriers. Likewise, UPS uses Denmark-based Star Air to operate a fleet of eleven 767-200Fs/-300Fs on its behalf. Add in FedEx (and, this year, Amazon Prime and SF Express) and it is clear that about 56% of the world’s widebody freighter fleet is operated by or for the big express companies (up from about 53% last year). This 56% is not spread evenly among the various types, however. The express companies account for about 36% of the large widebody freighters. This is a significant percentage, but pales when compared to the 75% of the medi-um-widebody fleet operated by or for Amazon, DHL, FedEx, SF, and UPS.

Turning from aircraft to operators, the chart on the previous pages shows that the 1,002 widebody freighters are operated by a total of seventy-five carriers. This is down from seventy-nine last year (and eighty-five the

Type 2017 2016 Chg % Chg 2012 Chg % Chg747-8F 69 63 6 10% 11 58 527.3%

747-400ERF 34 37 -3 -8% 37 -3 -8.1%

747-400F 111 117 -6 -5% 123 -12 -9.8%

747-400BCF 18 21 -3 -14% 46 -28 -60.9%

747-400BDSF 21 25 -4 -16% 25 -4 -16.0%

747 Classic 9 16 -7 -44% 65 -56 -86.2%

777F 129 119 10 8% 54 75 138.9%

MD-11F 116 122 -6 -5% 168 -52 -31.0%

DC/MD-10-30F 17 16 1 6% 22 -5 -22.7%

DC/MD-10-10F 26 32 -6 -19% 58 -32 -55.2%

A330-200F 36 33 3 9% 10 26 260.0%

767-300F 121 110 11 10% 65 56 86.2%

767-300BCF 17 14 3 21% 7 10 142.9%

767-300BDSF 29 18 11 61% 5 24 480.0%

767-200F 57 59 -2 -3% 55 2 3.6%

A300-600F 170 168 2 1% 158 12 7.6%

A300B4F 11 12 -1 -8% 42 -31 -73.8%

A310-200/300F 11 13 -2 -15% 61 -50 -82.0%

Total Fleet 1002 995 7 0.7% 1012 -10 -1.0%Source: ACMG database CARGO FACTS – February 2017

Change in Widebody Freighter FleetFrom Last Year Over 5 Years

THE WIDEBODY FREIGHTER FLEET (continued from page 12)

year before) as nine carriers have ceased widebody freighter operation (or gone out of business altogether), while five new carriers have entered the list, and two names have changed. Gone from last year are:

• Caspian Airlines: This Iran-based carrier is still operat-ing, but parked its single remaining widebody freighter, a 747-200F.

• Dynamic Airways: The US-based charter operator exited the cargo business. It’s two 767-200Fs are now stored at Miami International.

• euroAtlantic Airways: This Portugal-based ACMI op-erator put its single 767-300BDSF into storage. It is still operating eight passenger aircraft, but appears to have lost interest in cargo.

• Iran Air: The Iranian flag carrier is still operating a large fleet of passenger aircraft, but put its 747-200F and A300B4F into storage. It is currently in the process of a massive fleet renewal, but whether or not it will return to freighter operation is unknown.

• Solar Cargo: Venezuela-based Solar put its only aircraft, a DC-10-30F into storage. Cargo Facts does not know if Solar has ceased operations permanently.

• South Airlines: Armenia-based South Airlines (which op-erates from a base in Sharjah in the UAE), operated two 747 Classic freighters last year, but is now variously re-ported to have either ceased operations, or to be operating a single 737-200C.

• Southern Air: Unlike most of the carriers in this list, Southern air did not go out of business or park freighters. Rather, it was acquired by Atlas Air Worldwide Holdings, and we now show its five 777Fs as part of the AAWW fleet.

• TNT Airways: Formerly the air arm of TNT Express, TNT





A330 767-200F -300F

Etihad Airways 1 1 2

EVA Air 5 5

FedEx 16 75 91

Hong Kong Int'l Aviation 6 6

Korean Air 2 2

MNG Airlines 3 3

Nippon Cargo Airlines 2 2

Qatar Airways 5 5

Silk Way 1 1

Synergy Aerospace 1 1

TAM 2 2

Turkish Airlines 1 1

UPS Airlines 14 14

Volga-Dnepr Group 15 15

Total 32 37 6 75 150Source: Carriers, manufacturers CARGO FACTS – February 2017

Outstanding Widebody Freighter OrdersFebruary 2017

Carrier 747-8F 777F Total

Airways was acquired by ASL Aviation Group when FedEx acquired TNT Express.

• Unique Air: Formerly based at Sharjah, Unique Air has ceased op-erations. Its two A300B4Fs are reported to have been acquired by Moldova-based Pecotox Air, but, so far at least, Pecotox is not flying them (or any other aircraft).

New to the list this year are:

• Afriqiyah Airways: This Libya-based passenger carrier acquired an A300-600F last year, on lease from UAE-based Blue Sky Aviation Services.

• Bravo Air: Georgia-registered Bravo is yet another startup from the Caspian region with a base in Sharjah. It acquired an A300B4F last year and is reported to be operating it in charter service.

• Kelowna Flightcraft: When this Canadian carrier lost its long-standing contract to fly for Canada Post/Purolator two years ago, it put its three DC-10-30Fs into trans-Atlantic service under the KF Cargo brand. That operation was not successful and KF parked the freighters. But in April 2016, KF reactivated two of them in charter service from Miami to South America.

• Raya Airways: Malaysia-based Raya is not a new carrier, but 2016 saw it add a 767-200F to its four-unit narrowbody freighter fleet.

• Sky Gates Airlines: This Russian carrier received its AOC last year, and immediately leased a 747-400F from Silk Way West and put it into scheduled service connecting Moscow and Maastricht via Baku.

Not shown on the charts are carriers that lease widebody freighters on an ACMI basis, but do not operate any on their own behalf. This includes carriers such as Astral Aviation, which ACMI-leases a 747-400F from Atlas Air. For carriers that both operate their own freighters, and also ACMI-lease additional lift, we show only the carrier’s own freighters. Saudia, for example, is shown with two 747-8Fs and four 777Fs, but it also ACMI-leases eight 747-400 freighters (a mix of ERFs, Fs, and BDSFs) from Air Atlanta Icelandic and myCargo Airlines. Regarding aircraft operated on a CMI basis (Crew, Maintenance and Insurance), we show these in the fleet of the carrier that flies them. DHL Express, for example, has nine 767-200Fs and five 777Fs, but these are oper-ated by Atlas Air and Southern Air, respectively, and we show them in the Atlas and Southern fleets. Also not shown on the charts are the An-124s used in commercial charter service, all but one of which are in the fleets of Antonov Airlines and Volga-Dnepr Airlines.

In addition to the active freighters shown in the charts, there are a large number in storage. This includes many older types that will never fly again, but also includes some fifty 747-400Fs (both production and converted), fifty MD-11Fs, and a few A300-600Fs. Many of these could easily be returned to service if required, but Cargo Facts believes that most of them will stay on the ground. Falling oil prices brought some out of retirement in the last few years, but given the proliferation of belly capacity, the backlog of new freighters that will be delivered over the next few years, and rising oil prices, it would take more than the current 4% annual growth in air freight demand to bring more than a few of them out of the desert.

Regarding the backlog, as shown in the chart on this page, thirteen car-riers and one lessor have 150 widebody production freighters on order with Airbus and Boeing. Of these orders, 60% – sixteen 777Fs and sev-enty-five 767-300Fs – are for FedEx. The remainder are spread among the other twelve carriers and lessor Hong Kong International Aviation.

In addition to the outstanding orders for production freighters, there has been an upsurge in orders for P-to-F conversions in the last two years. SF Airlines, Air Transport Services Group, Atlas Air, and Kalitta Air all have orders in place with Bedek Aviation Group and/or Boeing for 767-300 conversions, while EFW has taken orders for A330-200 and -300 P-to-F conversions from Egyptair and DHL, respectively.

The exact number is unclear at this point, but the combined backlog of 767 and A330 P-to-F conversions likely stands at about thirty-five. Add in the 747-400s Bedek is converting from combi to freighter configuration for Asiana, and the total freighter backlog – production and conversion – is between 180 and 190. This is down from last year’s 164 production freight-ers and thirty-five conversions, but well up from 2015’s 120 production freighters and fourteen conversions.

There are currently available programs for P-to-F conversion of 747-400s (Bedek and Boeing), A330-200s/-300s (EFW), 767-300s (Bedek and Boeing), 767-200s (Bedek), and A300-600s (EFW and Turkish Technic). Of these, the 747 programs are effectively dead, and once EFW completes the four A300-600 conversions currently in its backlog, that program, too, is unlikely to see any more orders. Likewise, the days of 767-200 conver-sions are probably over.

But soaring demand for 767-300 conversions means that Bedek and Boeing will have their hands full for the next few years. As for the A330, Airbus launched the conversion program through a joint venture with EFW and ST Aerospace five years ago, but so far has announced only the two-unit order from Egyptair, and the four-unit order from DHL. Cargo Facts expects that demand for freighter converted A330s, particularly the -300, will eventually be strong. And while demand for 767-300 conversions cannot last forever, it will remain strong for at least the next few years. cf




FINANCE & OPERATIONSCHALLENGES AND OPPORTUNITIES IN UPS’ FOURTH QUARTER

Take your pick: UPS reported either a quarter billion dollar net loss or a one-and-a-half billion dollar net profit for the fourth quarter of 2016.

On an as-reported basis, UPS suffered a net fourth-quarter loss of $239 million, and an operating loss of $428 million, as revenue rose 5.5% to $16.93 billion. However, after adjusting for a massive one-time mark-to-market charge for changes in the com-pany’s pension plans, operating profit for the quarter was up 2.5% y-o-y to $2.22 billion and net income rose 1.7% to $1.43 billion.

For the full year, the picture is somewhat rosier. On an as-reported basis net income, while positive, fell 29.2% compared to 2015 to $3.43 billion and operating profit was down a similar 28.7% to $5.47 billion, as revenue rose 4.4% to $60.91 billion. Adjusting for the impact of the pension charge, net income for the year was up 3.7% to $5.10 billion and operating profit rose 4.3% to $8.12 billion.

Turning to the operational side of the quarter, things become very interesting. The continuing rapid growth of e-commerce drove a massive increase in B2C ship-ments in both the US Domestic and International business segments, but this growth came at a cost. As can be seen in the chart at right, average daily package volumes grew strongly across all product lines. But, as company executives stressed several times during a discussion of the quarterly results, with that volume growth came a significant shift in product mix toward lower value products. Reflecting this shift, per-package yields either fell or were flat with 4Q15.

Looking at the results by segment, we start with US Domestic Package, where rev-enue increased 6.3% over 4Q15 to $10.91 billion. However, this segment took the bulk of the hit from the pension charge, and while adjusted operating profit was down only slightly (-0.6%) from 4Q15 at $1.34 billion, on an as-reported basis, that profit changed to an operating loss of $570 million.

Average daily volumes were up for all three products. Interestingly, though, while Ground volume was up 5.0% in the quarter, delivery miles rose only 0.3%. The company said this increase in delivery efficiency was the result of increased invest-ment in IT, through the On-Road Integrated Optimization and Navigation (ORION) project. Of course, the investment required – both for ORION and for hub upgrades – has been substantial, but UPS said the gains in efficiency outweighed the cost.

The International Package segment was the star of the quarter, with strong gains in volume (up 7.3%), revenue (up 5.0%), and adjusted operating profit (up 13.1%). And, unlike the US Domestic and the Supply Chain & Freight segments, the International segment was profitable even on an as-reported basis – despite a $425 million hit from the pension charge.

2016 % Chg 2016 % Chg

U.S. Domestic PackageNext Day Air 1,582 4.4% 1,379 4.8%Deferred Air 1,827 2.8% 1,351 2.9%Ground 16,142 5.4% 13,515 4.2%

Total U.S. Domestic Package 19,551 5.0% 16,245 4.1%International Package

Domestic 1,815 6.5% 1,635 3.8%Export 1,378 8.4% 1,210 5.1%

Total International Package 3,193 7.3% 2,845 4.4%Consolidated 22,744 5.3% 19,090 4.2%Avg. Revenue Per PieceU.S. Domestic Package

Next Day Air $18.40 (1.8%) $19.20 (2.3%)Deferred Air $11.30 0.0% $11.85 1.3%Ground $7.65 0.1% $7.97 (0.1%)

Total U.S. Domestic Package $8.86 (0.3%) $9.25 (0.3%)International Package

Domestic $5.57 (6.1%) $5.85 (3.5%)Export $29.50 (2.9%) $30.38 (2.3%)

Total International Package $15.90 (2.9%) $16.29 (2.0%)Consolidated $9.85 (0.8%) $10.30 (0.7%)

Revenue (millions)U.S. Domestic Package

Next Day Air $1,834 4.2% $6,752 2.8%Deferred Air $1,301 4.4% $4,082 4.6%Ground $7,778 7.1% $27,467 4.5%

Total U.S. Domestic Package $10,913 6.3% $38,301 4.2%International Package

Domestic $637 1.8% $2,441 0.7%Export $2,561 7.0% $9,374 3.1%Cargo $137 (11.6%) $535 (15.3%)

Total International Package $3,335 5.0% $12,350 1.7%Supply Chain & Freight

Forwarding & Logistics $1,813 3.5% $6,793 15.1%Freight $686 1.0% $2,736 (5.0%)Other $184 0.0% $726 5.8%

Total Supply Chain & Freight $2,683 2.6% $10,255 8.3%Total Revenue $16,931 5.5% $60,906 4.4%

U.S. Domestic Package ($570) NM $3,017 (36.7%)International Package $281 (51.6%) $2,044 (4.4%)Supply Chain & Freight ($139) NM $406 (46.9%)

Total Operating Profit ($428) (120.9%) $5,467 (28.7%)Net Income (as reported) ($239) NM $3,431 (29.2%)

U.S. Domestic Package $1,338 (0.6%) $4,925 2.0%International Package $706 13.1% $2,469 13.2%Supply Chain & Freight $179 (10.1%) $724 (6.7%)

Total Operating Profit $2,223 2.5% $8,118 4.3%Net Income (adjusted) $1,434 1.7% $5,104 3.7%Source: UPS CARGO FACTS – February 2017

United Parcel Service Fourth Quarter 2016Financial and Operating Results

Operating Profit (as reported)

Operating Profit (adjusted)

Avg. Daily Package Volume (000s)

Financial Data

Operational Data

Full YearPeriod Ending 31 December

Fourth Quarter

UPS 2016 Full-year Revenue, by Division ($million)Supply Chain & Freight 16.8%

$10,255US Package 62.9%

$38,301

International Package 20.3%$12,350

Total 2016 revenue: $60,906

Full-year Adjusted Operating Profit, by Division ($million)Supply Chain & Freight 8.9%

$724US Package 60.7%

$4,925

International Package 30.4%$2,469

Total 2016 operating profit: $8,118




E-COMMERCEE-COMMERCE DRIVES MASSIVE QUARTERLY PROFIT FOR ALIBABAChinese e-commerce giant Alibaba reported fiscal third-quarter net in-come up 38% to US$2.47 billion. Total revenue for the quarter (ended 31 December 2016) was up 54% to $7.67 billion, while operating income rose 66% to $2.98 billion. Operating margin was up 4 percentage points to 39%.

The chart at right shows the financial performance of Alibaba’s four business segments. What jumps out after a close look, is that the over-all Group profit of US$2.47 billion – as massive as it is – understates the performance of Alibaba’s core e-commerce business. That is, the Cloud Computing, Digital Media & Entertainment, and Innovation Initiatives & Other segments all reported operating losses, dragging down the Group’s overall financial performance. Alibaba no doubt expects these segments to become profitable in the future, but for now they are a financial drag, and it is e-commerce that is driving profitability, and – of more interest to Cargo Facts readers – driving demand for express delivery.

Commenting on the results, Group CEO Daniel Zhang said: “Our robust December quarter demonstrates the strength of the Chinese consumer and Alibaba’s ability to create value across our vast ecosystem. The 11.11 Shopping Festival featured Alibaba at its best, integrating commerce, en-tertainment and social engagement, all happening globally at record scale.” Summing things up, he added: “We are driving the age of ‘New Retail,’ which leverages big data and innovation to provide a seamless online and offline experience for nearly half a billion mobile monthly active users. This retail transformation will make it even easier and more efficient for brands and retailers to engage with these consumers anywhere, anytime.”

Regarding Mr Zhang’s “New Retail” concept, Alibaba describes it this way: “New Retail leverages our substantial consumer reach and our capabili-ties in big data technology to transform traditional retail by addressing the increasingly sophisticated needs of consumers and improving efficiency across the entire value chain of brands and retailers.” This strategy, he said, will enable Alibaba “to tap into the entire US$4.8 trillion retail sector in China by eliminating the distinction between online and offline com-merce, as Chinese consumers today engage in commerce anywhere, any time with the help of mobile phones.” To take advantage of this shift, he said Alibaba was “partnering with brick-and-mortar retailers in different verticals through equity investments and deeper operational integration, which will allow us to deploy our proprietary omni-channel solutions to create a seamless shopping experience for consumers.”

Finally, here are a few selected facts and quotes from Alibaba’s third-quarter report:

• Mobile monthly active users (MAUs) on Alibaba’s China retail market-places reached 493 million in December (the last month of the quarter), an increase of 43 million over September.

• Annual active buyers on Alibaba’s China retail marketplaces reached 443 million, an increase of 4 million from the 12-month period ended in September.

• Alibaba’s cross-border and international consumer businesses saw ro-bust growth during the quarter. These businesses include Tmall Global for cross-border imports, AliExpress for cross-border exports, and re-cently-acquired Lazada for the Southeast Asia market. “We continue to see opportunities in overseas markets where we bring a unique value proposition to merchants and consumers. For instance, Tmall Global provides global brands, retailers, small businesses and farmers from economies around the world access to over 440 million Chinese con-sumers on our platform.”

To loearn more about the impact of e-commerce, join us at Cargo Facts Asia in Shanghai, 25 – 26 April, where executives from companies across the entire air freight, express, and e-commerce spectrum will address the issue..To register, or for more information, go to CargoFactsAsia.com.

Segment 3QFY17 Chg YTD ChgCore Commerce

Revenue $6,708 45% $14,735 44%Operating income $3,952 45% $8,307 43%

Cloud ComputingRevenue $254 115% $648 130%Operating income ($49) -52% ($169) -41%

Digital Media & EntertainmentRevenue $585 273% $1,556 286%Operating income ($460) 214% ($1,051) 123%

Innovation Iniatives & OtherRevenue $122 61% $299 56%Operating income ($209) -39% ($707) -6%

Alibaba GroupRevenue $7,669 54% $17,239 56%Operating income $2,976 66% $5,548 61%Net Income $2,471 38% $4,515 -52%Adjusted net income $3,239 36% $6,831 35%

Source: Alibaba CARGO FACTS -- January 2017

Alibaba Group Third-Quarter FY 17 Financial ResultsQuarter ended 31 December 2016 (amounts in US$ millions)

FINANCE & OPERATIONS

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The Supply Chain & Freight segment continued to struggle in what the company described as a difficult environment. Nonetheless, segment rev-enue increased 2.6% in the quarter to $2.68 million, and adjusted operating profit while down 10.1%, was still positive, at $179 million.

Despite the overall positive operational results, the market took a dim view, and UPS’ stock price fell 6.5% when the report was released. But, despite the impact of the pension charge on the quarterly results, a look at adjusted operating margins paints a picture of a company in good opera-tional health. In the US Domestic segment, adjusted operating margin was

12.3% in the quarter and 12.9% for the year. In the International segment, adjusted operating margin was 21.2% and 20.0% for the quarter and year, respectively. Even in the Supply Chain & Freight segment ,margins were 6.7% for the quarter and 7.1% for the year – hardly a poor showing for a segment the company views as struggling.

Overall, UPS achieved an adjusted operating margin 13.1% for the fourth quarter, and 13.3% for the year, while adjusted net margin for the quarter and the year was 8.5% and 8.4%, respectively. cf





AIR FREIGHT DEMAND ANALYSIS2016 ENDS WITH SURGING CARGO DEMAND

Many of the world’s major cargo carriers and airports have now reported their December results, and all indicators point to extremely strong growth in air freight demand – likely the strongest in years.

A quick look at the chart at right gives the impression that double-digit growth has become the norm. After a more thorough look, it is clear that not all carriers are in the double-digit club, but even those carriers that reported declines are doing better than they have all year. That is, the de-clines reported by Air France-KLM, LATAM, and Delta are smaller than in the past. This, combined with the big gains reported by most of the car-riers and airports, points to strong overall demand growth.

It will be another two weeks before we get a full picture of December air freight demand from IATA and WorldACD, but, based on what we have seen so far, we expect worldwide year-over-year growth of close to 10%.

We have posted a carrier-by-carrier analysis on our website, but Cathay Pacific Airways December results are worth looking at here. The reported December cargo traffic up 6.1% y-o-y to 1.01 billion RTKs, continuing the upswing that began in June after five months of declining demand. But, while cargo traffic increased only 6.1%, cargo volume rose 9.9% to 174,000 tonnes, indicating stronger growth on intra-Asia routes than on Asia/Europe or trans-Pacific routes. Cathay’s General Manager Cargo Sales & Marketing Mark Sutch said: “The seasonal peak for airfreight carried into December, with exports from Mainland China, Asia and the Americas seeing encouraging year-on-year growth. Demand from our home market of Hong Kong was also sustained. Overall tonnage grew ahead of capac-ity, with our load factor improving month-on-month. The demand for

perishables, machineries and e-commerce products persisted, while our new freighter services to Portland and Brisbane West Wellcamp have also been well received by the market.” For the full year 2016, Cathay’s cargo traffic was up 0.8% from 2015, to 10.68 billion RTKs.

December Full YearCathay Pacific 6.1% 0.8%Singapore Airlines 8.8% 5.8%Air China 11.4% 6.6%China Eastern Airlines 1.4% 0.2%China Southern Airlines 15.7% 9.9%China Airlines 12.7% -1.2%EVA Air 9.9% -2.1%Hong Kong International 11.3% 3.2%Pactl (Shanghai PVG) 12.0% 4.5%Changi (Singapore SIN) 8.4% 6.3%

Lufthansa Group 8.3% 1.4%Air France-KLM -1.6% -6.3%IAG (BA and Iberia) 3.4% 1.2%Turkish Airlines 23.2% 21.1%Frankfurt (FRA) 7.6% 1.8%Schiphol (AMS) 10.4% 2.5%Heathrow (LHR) 5.1% 3.0%

LATAM -2.1% -8.7%Delta Air Lines -3.5% -9.7%United Airlines 15.5% 7.3%American Airlines 12.5% 4.7%

Source: Carriers, handlers, airports CARGO FACTS --February 2017

Carriers

Airports

Europe & Middle East

Carriers

Airports

Americas Carriers

Asia

Airline and Airport Cargo Statistics Percent ChangeDecember 2016

PARTING SHOTPRIMED FOR GROWTH

Amazon’s Prime Air fleet continues to grow. Both Air Transport Services Group (ATSG) and Atlas Air Worldwide Holdings (AAWW) added freighters to the Amazon Prime fleet last month.

• Air Transport Services Group took redelivery of a 767-300BDSF (24036, ex-American) following conversion by Bedek. Cargo Aircraft Management (ATSG’s leasing arm) leased the freighter to Amazon, which handed it back to ATSG subsidiary carrier ABX Air, which will operate it on a CMI basis [FATs 003693 – 3695].

• Atlas Air Worldwide Holdings took redelivery of a 767-300BDSF (30109, ex-Transaero) following conversion by Bedek Aviation Group. Titan Aviation Leasing (AAWW’s leasing arm) has leased the freighter to Amazon, which has handed it back to AAWW subsidiary carrier Atlas Air for CMI operation [FATs 003696 – 3698].

Following these two additions, Amazon now has eighteen 767 freighters in its fleet. Through its ABX Air and ATI subsidiaries, ATSG operates twelve 767-200Fs and four 767-300BDSFs for Amazon, while AAWW, through its Atlas Air subsidiary operates two 767-300BDSFs.

ATSG has four more 767-300s either in or awaiting conversion at Bedek’s Tel Aviv facility and destined for Amazon service. All four will have been redelivered by the end of this year, fulfilling ATSG’s commitment to provide a total of twenty 767 freighters for the e-commerce giant. For its part, Atlas currently has two 767-300s in conversion for Amazon (one by Bedek and one by Boeing), but says it has locked up feedstock and conversion slots for the sixteen remaining in its commitment.

Cargo Facts was present at the unveiling of the first freighter in Amazon Prime Air livery. Since then, the Prime Air fleet has grown to eighteen units, with twenty-two more on the way. cf

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