Vol. 10 No. 59                        THE GLOBAL AIR CARGO PUBLICATION OF RECORD SINCE 2001          Tuesday June 21, 2011

You Say Goodbye I Say Hello


Happier times as Captain Gopi launched Deccan 360 freighters sporting the company's distinctive red logo.

     Is it curtains for Captain G. R. Gopinath’s all cargo carrier Deccan 360?
     After all the hype that Deccan 360, also known as Deccan Cargo & Express Logistics, would be the next FedEx of India, the pioneer of India’s low-cost aviation is floundering.
     Reason? No finances.
     The good captain—he is the Chairman and Managing Director of Deccan 360—has had to give back the planes he received on lease from the Mauritius-based Veling.
     The three Airbus 310s that had been converted to freighters were—according to those in the know—forcibly taken away for non-payment of dues.
     The Deccan 360 chief, however, maintained that the planes were given back to the company.
     Indeed, they had been taken on lease for three years, but Deccan 360 needed smaller planes.
     “So we returned them and purchased ATRs,” he said.
     Efforts to contact Deccan 360 or Capt. Gopinath failed as no one was willing to take calls.
     Veling is rated in the Top 40 Aircraft Lessors Worldwide and is engaged in aircraft leasing and sales.
     According to its website, the company has concluded more than 20 successful transactions, including aircraft sales and leases of both narrow and widebody aircraft worldwide.
     The company has a long association with India; in addition to the planes it had leased to Deccan 360, it conducted its first sale to Air India with a lease attachment of five A310s; it introduced seven CRJs for the erstwhile Air Sahara and owns two 2007-built ATR72-500 aircraft leased to Kingfisher Airlines.
     The grounding of Deccan 360 comes barely a year after its launch.
     The cargo airline started with quite an impressive fleet of three Airbus 310s and five ATRs.
     While the 310s touched the metros and important cities, the ATRs flew to the smaller towns.
     The aircraft, along with a whopping 1,000 vehicles, touched 50 centers in the country.
     ACNFT readers will remember that around a year ago, Reliance Industries Limited’s (RIL) chief (and the country’s richest man), Mukesh Ambani, (left) had joined hands with Capt. Gopinath and taken a stake in Deccan 360.
     Without revealing the quantum of investment, though it was somewhere between 25 and 50 percent, RIL said that the finances would provide “growth capital” for the new cargo airline.
     The tie-up—if one may term it that—was tomtomed to change logistics in the country. Mukesh Ambani had then said:
     “We believe that our collaboration with Deccan 360 will see a transformation in the logistics domain in India.”
     Logistics pundits had commented that the investment by Ambani would enable Deccan 360 to enhance its network across the country and Capt Gopi had said that “Deccan 360's strategic partnership with Reliance will enable us to realize our dream of creating world class logistics reach to every nook and corner of India faster.”
     The collaboration would turn out to create a win-win situation for both.
     Reliance, with its retail outlets in 200+ cities around the country, could take advantage of a dedicated cargo service, and the investment would allow Deccan 360 to grow and consolidate its position.
     A few months ago Capt. Gopi had told an interviewer that “Mukesh Ambani has a vision that Deccan 360 should be better than world class in the cargo business and that's the kind of vision which inspires us all to forge ahead.”
     He also pointed out in the same interview that he had no plans of “rebranding Deccan 360. I am a person who enjoys creating new things, so I am not going to sell something only for money.”
     Though Reliance had two representatives on the Deccan 360 board, the day-to-day operations were left to Capt. Gopinath and his team.
     The infusion of finances from Reliance obviously did not help the sagging airline to revive its fortunes.
     As news reached Ambani’s office that the planes were taken away, the Reliance top brass said they were thinking of withdrawing from the venture and divesting their stake.
     Deccan 360’s present CEO, H. L. Rikhye, said that Reliance officials had indicated that they were not keen to invest in Deccan 360, but were “morally and otherwise supportive of the business venture.”
     It is now apparent that Deccan 360 could not deliver what it promised.
     While launching the airline, Capt. Gopi had said that if India wanted become an economic powerhouse, opportunities and markets have to spread across every part of the country: from the metros to the smallest towns.
     He said that “unlike the West or nations such as China, India’s manufacturers in smaller cities, traders in interior areas and farmers in villages are unable to compete in the international market because of the limiting conditions of transportation and connectivity.
     “If, as a nation, we focus on infrastructural development and include every one of the billion Indians to participate in this revolution, air cargo and passenger traffic will show a strong positive growth,” Gopinath pointed out on the Deccan 360 website.
     He maintained that India needed to go a long way before “we stake a claim to be called a developed nation.
     “If you want to live in Chikmagalur (a small town in Karnataka province),” wrote the captain, “you should be able to stay there not only for your weekends, but also to conduct your daily business with the facility of education, electricity, roads, airports and Internet cafes.
     “To achieve this dream, cargo connectivity has to be embedded into the system - and that’s where Deccan 360 chips in.”
     With the vision of providing a pan-India service while enhancing supply chain and logistics operations, Deccan 360 needed funds as well as clients to expand. According to reports, Deccan 360 had a whopping loss of Rs 120 crore last year.
     The company had banked on large customers, but what it got was small businesses.
     While these small enterprises were certainly not the high-yielding kind, they also did not provide regular business.
     Add to that the fact that the company has not had a leader to steer it – in fact, it has seen a number of CEOs in its short life.
     At the time of filing this report, word from the Bangalore-headquartered Deccan 360 is that the company is not folding up.
     To begin with, Deccan 360 is cutting down on a number of staffers and realigning its focus, which will now be on international, non-scheduled cargo operations.
     Charter cargo operations from international markets is a growing business and Deccan 360 has found a number of opportunities in that sector.
     The blow from Reliance, however, is a powerful one and could take the never-say-die Gopinath quite a while to overcome.
Tirthankar Ghosh/Flossie

 

Air Cargo Germany Eyes USA

     Air Cargo Germany is considering flying to North America but hasn’t decided on a firm date for commencing services yet.
     “We obtained traffic rights for both the U.S. and Canada,” confirmed CEO Michael Bock when approached by ACNFT. When asked at which cities his carrier is considering landing, he said that it is dependent on forwarder demand and has so far not been decided upon.
     Bock made clear that a U.S. engagement is dependent on his carrier’s fleet development, as a fifth B747-400 freighter is needed to launch services across the North Atlantic. This will not happen during the next few months, which means that flights to and from the U.S. can be offered no earlier than next year.
     “There are a lot of business opportunities we are evaluating, but our priority is to lauch services to South America,” he said.
     The schedule is for the fall, with customers having already been advised by the ACG management. The carrier’s destinations in Latin America are Viracopos (Sao Paulo), Bogota and Quito. The first flights will probably be conducted as charters if traffic rights applied for by the carrier for regular line haul flights are not permitted prior to commencing this routing. “However, we are highly confident we will get the okay from the authorities in due time,” Bock stated.
     He further announced that beginning July 5th, ACG plans to fly from the northeastern Chinese city of Urumchi in XinJiang province to Parchim airport in northern Germany. This site, close to Berlin and Hamburg, Germany’s two biggest cities, was obtained by Chinese forwarding agent Link Global in 2008, on whose behalf these twice-weekly ACG flights will now be conducted.
      Parchim, a former Soviet military air base, was converted to a civil airport shortly after the fall of the Berlin wall in 1989 and the subsequent withdrawal of the Russian military from Eastern German soil.
Heiner Siegmund/Flossie

    Passengers at Lambert International Airport in St. Louis, Mo USA make their way through a security checkpoint while standing underneath a monocoupe D-145 single engine aircraft once owned by Charles Lindbergh.
    St. Louis people have always featured big ideas for aviation, including the funding of the airplane and flight in 1927 that changed everything.
    Now Lambert Field hopes to get some traction for the years ahead as part of an Aerotropolis scheme that stalled last month whilst attempting to secure major taxpayer funding.
    As the atmosphere around the proposed St. Louis Aerotropolis heats up, Air Cargo News FlyingTypers learned that the now recessed Missouri State Legislature could delay or possibly kill the deal altogether.
    MSL ended its session mid-last month without voting for the deal, and at least one supporter of the measure thinks time is running out.
    Mike Jones, chairman of the Midwest China Hub Commission, said if the (Missouri) governor or Legislature does not force a special session, a year would be lost.
    “The session starts in January, but nothing gets done until May,” Jones said. “That may as well be forever.”
    In the meantime as we continue our exclusive coverage here, ACN FT responds to a letter received and published Friday, June 17th, from Rhonda Hamm-Niebruegge, Airport Director, Lambert-St. Louis International Airport.

Dear Rhonda,

    Thank you for your response.
    We are pleased that you have enjoyed our publication and pleased to have run your letter in its entirety on Friday, June 17th, so that, as you suggest, the industry can make their determinations.
    Our article noted that Mr. Webber provides cargo consulting services for Chicago, as well as having done so for the other three largest international cargo gateways in the U.S.
    The level of acknowledgment was commensurate with the fact that he alone owns his opinions and does not attempt to distribute responsibility for them to others. Unlike the proponents, Mr. Webber does not stand to benefit by opposing this effort and none of his clients have requested he do so. He has taken a strong position with no compensation and therefore is certainly no less credible in that respect than those who are or would financially benefit directly.
    Leaving alone more subjective aspects of your letter, I will respond to specifics such as your taking exception to the article referencing $400 million, rather than the $360 million currently under consideration. The original Aerotropolis tax credit proposal was introduced in the Missouri legislature as $480 million but reduced by the legislature. Mr. Webber introduced the figure as “about $400 million” as a compromise between the original request of $480 million and the eventual $360 million.
    While we respect Guenter Rohrmann, a consultant with a $931,000 consulting deal with proponents does not, we think, typically count as “independent.”
    Such extraordinary obligations as $360 million in state subsidies call for a feasibility (not economic impact) study by experts that are not commissioned by proponents.
    Neither a state department of transportation or local university has the expertise to evaluate the likelihood that international air carriers will shift their networks.
    The heart of Mr. Webber’s article raised concerns about whether all Missouri taxpayers, including the half that are closer to Kansas City with a comparable local airport, rail and truck network, and an even more central location, should pay for St. Louis’s ambitious experiment.
    There were also doubts about STL’s ability to overcome ORD’s regional dominance.
    If readers beyond Mr. Webber and the St. Louis delegation have opinions on whether this seems like a reasonable public investment, I welcome and encourage your responses. This debate is a most fascinating one, and the more voices, the better!

With Best Regards,
Geoffrey

More On St. Louis Aerotropolis

     Thanks to Air Cargo News for the opportunity to comment on the substance of Missouri's proposed “Aerotropolis” legislation, first critiqued in these pages by air cargo expert Michael Webber and since muddled by a response from the director of Lambert–St. Louis International Airport, Rhonda Hamm-Niebruegge.
     If the director of the airport did indeed help introduce the bill that has gone before the Missouri legislature as she asserted, there are serious questions she needs to answer. Contrary to her implication, the Aerotropolis legislation’s original price tag was not $360 million, but $480 million as passed by the Missouri House, which included tax credits for the payment of $120 million in interest costs for the building of warehouses. Hamm-Niebruegge seemed particularly interested in Webber’s rhetorical precision as to Aerotropolis' price tag, so her obscuration of the original cost of the bill is revealing. She should have been more forthright about the details of her bill.
     To her credit, Hamm-Niebruegge admits that warehouses would be fully eligible for $300 million in tax credits, in support of a projected maximum of eight flights per week – a meager result for such a large amount of taxpayer money.
     More importantly, though, Hamm-Niebruegge has failed to explain why the legislation specifies that Missouri would restrict the $300 million in Aerotropolis warehouse subsidies solely to new warehouses located on 100 contiguous acres, in urban redevelopment areas, within the boundaries of the airport, or in areas managed by a port authority. Those strange provisions demand an explanation. Hamm-Niebruegge so far has declined to explain those carve-outs.
     We doubt that there is a practical explanation. The 100-acre stipulation and other requirements serve only to limit the individuals that could have access to the tax credits, and it is disheartening that the executive director of an airport would be concerned with making sure that only a few politically powerful individuals and businesses would be eligible for hundreds of millions in state tax money.
     Hamm-Niebruegge says that the proposed bill's provisions "require that investment or export activity take place before the application for tax credits." This is incomplete. True, some warehouses would need to process a small amount of international cargo (possibly as little as 10 percent of their cargo activity) in order to receive the state tax credits. But a close reading of the legislation reveals that owners of newly built warehouses who use two modes of commerce—perhaps road and rail transportation—could also qualify for the Aerotropolis tax credits without any amount of international cargo. Owners of refrigerated warehouses could qualify in this way as well. There is no requirement in the legislation that multimodal or refrigerated warehouses store any amount of international cargo. Is the purpose of the Aerotropolis tax credit legislation to encourage international trade, or is its purpose to subsidize warehouse construction?
     Hamm-Niebruegge optimistically writes that the $300 million in warehouse tax credits could result in millions of square feet of new warehouse space, yet she does not mention the approximately 18 million square feet in developed warehouse space already vacant in the Saint Louis area. Why does the state need to subsidize the construction of more warehouse space if, as market research from CB Richard Ellis has shown, a great deal of space is already available? Again, we are disheartened by the possibility that public officials are in such a rush to subsidize the owners of vacant land that they fail to consider the considerable existing supply of warehouse space.
     Proponents of the Aerotropolis subsidies, including Hamm-Niebruegge, point to an eight-page study commissioned by the St. Louis Regional Chamber and Growth Association (RCGA) purporting to show that the $300 million in warehouse construction tax credits would result in economic activity worth billions. We were disappointed, but hardly surprised, that the RCGA study failed to consider the cost of taking $300 million from all Missourians in order to award it to a favored few. Aerotropolis proponents fail to understand that tax credits are not free money. Every dollar that is given away in tax credits is a dollar that the state government must replace with cuts in current programs, or—more likely—through increased taxation.
Let us be clear: The Aerotropolis dream of attracting international trade to a region is by no means a poor one. In fact, increasing trade among countries is one of the best ways to improve economic welfare. However, we are concerned that the dream is being used as an excuse for public subsidy.
     If the Aerotropolis dream is viable, as Hamm-Niebruegge states, where are the private investors clamoring to make a substantial positive return? The absence of such investor interest without heavy subsidy reveals that the “big idea” pushed by Hamm-Niebruegge, other public officials, and industry lobbyists is in trouble – with or without this extraordinarily problematic legislation that the director helped introduce.
Patrick Ishmael and Audrey Spalding

  

Editors Note: Patrick Ishmael and Audrey Spalding are policy analysts at the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.
More: www.showmeinstitute.org.

 

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Cargo Hub A Bad Bet

     Although they hired air cargo expert Guenter Rohrmann (right) and paid him a reported whopping $931,000 to sell the deal, folks sponsoring the Aerotropolis concept for St. Louis Lambert Field might have considered what Colorado-based aviation consultant Michael Boyd (left), who is both outspoken and often quite on the money, had to say (for free) on the subject.
     This how Mr. Boyd weighed in about the proposed St. Louis cargo hub (Aerotropolis) on January 20, 2011, the day after the announcement on January 19th that Lambert St. Louis could be landing air cargo flights from China.
     “It might lead to an airplane coming in from China,” Boyd told the Charlie Brennan Show on KMOX TV in St. Louis.
     “But a hub that would be a major gateway for access from China?
     “Not on a bet.”
     Boyd told Brennan that St. Louis is simply too far from the remaining North American markets China hopes to reach to make any large scale export operation feasible.
     “The argument that they’re going to ship goods into St. Louis and then transship it everywhere totally negates the reason to ship it by air in the first place, which is to get goods to market fast,” Boyd explained.
     “And it doesn’t make financial sense for China to import agricultural goods from the Midwest, either,” Boyd said.
     “Shipping food by air is obscenely expensive, unless it’s the Berlin Airlift,” Boyd said.
     “Those kinds of goods usually go by surface (or ship), if they go at all.”
     Boyd also took local St. Louis leaders to task for advancing the premise that Lambert could be a shipping hub like Louisville International Airport, with its 30-thousand sorting jobs.
     “That is misleading as hell,” Boyd said, adding that Louisville has those jobs, “because UPS put a sort center there, like FedEx did in Indianapolis.
     “That’s very different than getting China Eastern to put one flight in to St. Louis,” Michael Boyd said.
Copyright KMOX


Heide Enfield

Missouri, USA Called Show Me

     There are a number of stories and legends behind Missouri's sobriquet "Show-Me" state.
     The slogan is not official, but is common throughout the state and is used on Missouri license plates.
     The most widely-known legend attributes the phrase to Missouri's U.S. Congressman Willard Duncan Vandiver, (left) who served in the United States House of Representatives from 1897 to 1903.
     While a member of the U.S. House Committee on Naval Affairs, Vandiver attended an 1899 naval banquet in Philadelphia.
     In a speech there, he declared:
     “I come from a state that raises corn and cotton and cockleburs and Democrats, and frothy eloquence neither convinces nor satisfies me.
     “I am from Missouri.
     “You have got to show me.”
     Regardless of whether Vandiver coined the phrase, it is certain that his speech helped to popularize the saying.
     Other versions of the "Show-Me" legend place the slogan's origin in the mining town of Leadville, Colorado.
     There, the phrase was first employed as a term of ridicule and reproach.
     A miner's strike had been in progress for some time in the mid-1890s, and a number of miners from the lead districts of southwest Missouri had been imported to take the place of the strikers.
     The Joplin miners were unfamiliar with Colorado mining methods and required frequent instructions.
Pit bosses began saying,
     “That man is from Missouri.
     “You'll have to show him.”
     However the slogan originated, it has since passed into a different meaning entirely, and is now used to indicate the stalwart, conservative, noncredulous character of Missourians.
Robin Carnahan

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