How Money Crisis
Impacts Air Cargo

     It’s pretty scary stuff all right.
     The last couple of weeks have brought a tsunami of world stock market economic news each day that seems to outdistance itself for pure shock value, as big banks and businesses seem caught in an ever downward tailspin.
     Some people discover as they land from a flight that the value of their portfolio driven by home values has landed on them.
     Where and when the situation will moderate at this writing is still an open question.
     So is there any good news?
     Maybe carriers will start to realize some benefit as oil continues its downward spiral.
     Capacities seem to be falling faster than volume of passengers at this point.
     However some airlines who leveraged fuel at $100 when oil was trading at $140 this past July, could get squeezed for a time as prices dipped to about $80 last Friday (October 10).
     The information stream is vital right now.
     That is where we come in.
     Our sense is that waiting for some panel at a trade show or a club meeting may not be soon enough to get a better feel for what everything going on all around us means to air cargo.
     So Air Cargo News FlyingTypers is talking to leaders in the transportation business and will report back to you dear reader, in the days and weeks ahead.
     We also encourage your comment and thoughts.
     In Germany, Ruediger Ostrowski, General Manager and Board Member of the Association of Forwarders and Logistics Providers of North Rhine Westphalia puts current conditions this way:
     “The global economy seems to be in a state of shock, reducing the activities at main functions.
     “The financial crisis is like a cancerous tumor that infects business after business.
     “First it was the investment bankers, followed by banks and insurance firms.
      “Now the consumers are becoming cautious by postponing their spending in new cars, furniture, washing machines and other goods that are not needed immediately.
     “This will affect transports and logistics sooner or later because the volumes will go down.
     “Prior to the crisis we already had a cyclical downturn of the economy with car producers like Opel, General Motors and Ford slowing down their production.
      “On top of this downturn comes now the financial crisis, making things more than worse.
     “However, I am fully convinced that the logistics sector will not be hit as hard as other businesses.
     “But times will get tough in Q1 2009 after the upcoming peak season because of Christmas.”
     Professor Boris Bjelicic, of DVB Bank, Frankfurt notes:
     “U.S. logistics providers will have a tough time, I suppose, because the imports from China and Far East will decrease notably.
     “Further, the stronger dollar will affect USA exports negatively making them more expensive.
     “On the other hand, for the European industry this could lead to increased demand for their products since the euro is not as expensive any more as it used to be some months ago.
     “Falling oil prices are a sign of hope, too, making production and transports less costly.”
     Uli Ogiermann, CEO Cargolux has an airline view:
     “The crisis affects every cargo carrier.      “However, I am convinced that operators like Cargolux with only freighters in their fleet are somehow in a better position compared to so called combination airlines that possess both freighters and passenger aircraft.
     “These carriers are highly dependent on passenger demand and cannot react or be as flexible by shifting capacity or changing routes as we can do.”
     Jo Frigger, CEO & President, Emo Trans U.S.A. is a leading forwarder:
     “You can imagine that the big boys listed at stock exchanges will have problems since their value decreased dramatically as a consequence of recent market activity.
     “If the value of your enterprise shrank by about 30 percent or so, you will not be able to secure credit to finance your business as easily as before.
     “On the other hand those companies that are not listed at the stock exchange and run by their owners should experience less problems.
     “But all business will suffer and everyone in the logistics industry will be affected sooner or later.”
     Stan Wraight is often on aviation panels at trade shows at industry events around the world.
     In a long and distinguished career he has served at top management for KLM Cargo, Atlas Air and Air Bridge Cargo and Cargoitalia.
     Currently at GE both in real estate development and GE Aviation, Mr. Wraight also serves as an advisor to the chairman of Malev Hungarian Airlines and as a board member of Unitpool.
     “The shake out in all-cargo airlines has been acute and received a lot of press attention, but the "massacre" in the passenger business has receive less attention by our industry and is significant as well as far as available lift on certain routes.
     “All cargo carriers Gemini, Tradewinds (since rescued), Kitty Hawk, (what’s going to happen to ABX and Astar after the DHL move to fly USA cargo via UPS,) are signals that the U.S. industry is never going to be the same again.
     “Arrow, Variglog and World seem to have found a savior in Matlin Patterson, but will they really go the next step and provide the massive funding that is needed to make them global players?
      “Centurion seems to be holding its own under Alphonso Ray’s leadership, moving into MD11Fs to be competitive. “Fans of all cargo can only wish them well as they undergo the change process as the U.S. certainly needs some strong competitors.
      “In Europe we have seen MK and Cargoitalia struggle and those challenges apparently will continue.
      “Elsewhere Flyington Freighters in India with a reported 20 aircraft order for A330F appears now to be uncertain with reportedly no management and most likely no future.
      “Big headlines abound with Asiana disposing of 747-400Fs as fast as they come off lease and both Japan Airlines and ANA dropping freighters to New York, the one time gravy runs for both.
      “Come to think of it I would not like to be in the hot seat of cargo management of a lot of Asian Airlines as they take delivery of the multitudes of converted Boeings and new freighters that they ordered.
      “Rumors surround Jade Air Cargo, as the parent Chinese airline reportedly rethinks its involvement and the cash drain falls to Lufthansa.
      “How long that situation will be tolerable is anybody’s guess.”
      All of this begs the question:
      Is there any good news out there?
      “I think that there still exists a lot of niches and routes and networks that can be built when all this financial upheaval comes to an end.
      “But we should not look for any overnight solutions in fact the business squeeze will continue and predictably run its course.
      “It typically will take 18 to 24 months before you can get a "NEWCO" airline up and running but there are opportunities.
      “Some examples are the "geographically challenged" for existing legacy carriers in Europe regions like Italy and the emerging Eastern European markets. “Italian forwarders are begging for an all cargo airline that is viable and has a future, especially in Milan.
      “Eastern Europe will see a flood of investment in the coming years as manufacturing is repatriated to Europe versus the now high cost Chinese factories.
      “I believe direct airlift will be and is right now needed to serve the North American and Asian markets.
      “Dozens of trucks leave daily from these points, and the manufacturers and forwarders are begging for a solution.
      “Elsewhere despite some recent setbacks the business case for the Indian Subcontinent is strong and will rebound.
      “Plus don’t forget Russia and the former Soviet States.
      “All are rich in natural and human resources, the world can utilize, no matter what the current political climate.
      “Anyone who has written Russia off due to recent financial and geopolitical turmoil is making a huge mistake. “Russian imports will be strong as the economies open up to goods and services they cannot provide themselves.
      “One word of caution for the endless lineup of folks who are in love with starting up a new airline be it all-cargo or otherwise.
      “No one should ever, ever, underestimate the amount of capital that is required to make a success of a new airline.
      “This is not a business for the faint hearted, and the leasing companies and OEM Manufacturers at this point and into the future of how deals are done will not provide aircraft to those they are not assured have financial wherewithal.
      “That is the new reality and will be the real test in the coming years.
      “We are in for a rough ride at least until 2010.
      “Those who have the ability and resources to start building now, or restructuring at once will be perfectly positioned for the recovery, and it will come.
      “Last but not least we also need to restructure our mindset when it comes to airports.
      “The industry needs practical airport operations and doesn’t need airports built on the scale and grandeur of the Taj Mahal.
      “Also strong future airline companies will feature solid partnerships, both strategic and tactical.
      “One key to sustained future success is serving markets that pay a fair and profitable return.
      “The other is maximum cost control and driving unit costs down to a level that at least offers breakeven in bad times which always come in this cyclical business.
      “This can only be achieved through scale in a lot of cases, and that means outsourcing and also strategic partnerships.
      “Note I said strategic, not tactical, something that is entirely different.
      “Realizing that indeed there is a vital difference is often painful for management because that sometimes means staff redundancies and a change process that challenges the status quo.
      “Everyone need realize that basic change has come with a host of drivers demanding hard choice management from this point forward.
      “With the airports all cargo airlines in particular have to sit down with the forwarders and logistics companies and face reality.
      “If the forwarders and logistic companies continue to only want cargo delivered via extremely high cost airports that are centered on legacy carriers’ belly capacity needs, they are by that demand complicit in not helping to make the changes all cargo airlines need to survive.
      “However I can’t help but wonder, wouldn’t it be nice if the major airport authorities finally realized that cargo cannot pay the at times exorbitant operating and other fees that they demand, not because they don’t want to, but because their clients cannot provide sufficient return.
      “Air cargo can only wonder as airports seem intent on bending over backwards at providing bargain cost facilities and landing fees for the Low Cost Carriers (LCC’s).
      “The question should be raised—why not offer the same deal for air cargo as well?
      “Certainly the business case requires it, no matter what carrier that dominates a particular airport might think.
      "Cargo friendly airports are available, but not used because forwarders don’t support them in most cases.
      “This has to change as it’s in the forwarders own interest that a healthy all cargo airline system exists.
      “The lower yield and offline trucking that these airports force the airlines to bear kill the idea.
      “Global calamities such as SARS, the Gulf Wars, and economic downturns that we are experiencing all take down belly lift.
      “Think of what the world would be like for the vast multitude of forwarders if all-cargo airlines such as the ones mentioned here and others cannot operate profitably in future and many or all cease to exist?
      “That’s when the boardrooms of all the global integrators will be smiling again, with their all cargo organic lift.
      “At that point the traditional cargo business will have de facto handed the integrators the business they have struggled so long to get.”
Geoffrey