air cargo world - may, 2007€¦ · freight forecast, back avi-ation solutions sees china and the...

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MAY 2007 INTERNATIONAL EDITION

Europe’s Airlines • Regional Lift • Volga Cited

BACK Aviation

2007World Air Freight

ForecastWorld Air Freight

Forecast

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May 2007 1AirCargoWorld

INTERNATIONAL EDITION

COLUMNS

10 North AmericaWith their battered finances

recovering, several passengerairlines are investing in cargofor long-term stability • Conti-nental Trucks

13 EuropeVolga-Dnepr Airlines suffers

a sharp blow after the UnitedNations suspends the projectcargo carrier in a procurementbribery scandal • Traffic Flat

16 PacificHong Kong’s largest terminal

operator and Cathay Pacifichave markedly different viewson what constitutes a full cargowarehouse

DEPARTMENTS

2 Edit Note4 News Updates

42 People44 Events46 The Bottom

Line48 Forwarder’s

Forum

‘07 CargoForecast

In the 2007 World AirFreight Forecast, BACK Avi-ation Solutions sees Chinaand the Middle East leadingmodest but steady growthin the years ahead.

RegionalFreighters

Regional freighter man-ufacturers and operatorsare defying traffic trends totake an integral role inglobal air freight.

EuropeFinds Asia

European air cargo carri-ers try to counteract thewave of lower cost Asian in-terlopers into their tradition-al markets in Europe.

M a y 2 0 0 7 C O N T E N T S V o l u m e 1 0 , N u m b e r 4

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TimeThe United Kingdom didn’t give in easily to the new trans-

Atlantic aviation treaty but all the incentive the Britishneeded for the pact was outside the window at London

Heathrow Airport. That’s where a flowering of new airline tailsheralds what increasingly looks like a change in the competitionover air services.

At airports in the U.K. and across Europe, the soft greens and blues of Jade Cargo In-ternational and Great Wall International Airlines are being used to paint an entirely newpicture of air cargo transport between Europe and Asia. The two airlines are following themoves to Europe by Asian carriers with young fleets, expansive plans and business strate-gies not beholden to the traditional lanes built on passenger operations.

For the European carriers, the moves by Asian airlines andtheir newly-painted freighters present a fresh threat to whatmost carriers had hoped would be a new source of profit-feeding air cargo business.

But as Michael Wisbrun, chairman of the joint cargo man-agement committee of Air France-KLM says in this month’sfeature on Europe’s air cargo market, “If you look at the manu-facturing orders and aircraft conversions, there is also nodoubt that the drive of capacity is coming mainly from Asia.

“Asia has been the money-maker for this industry for thelast three, four years, and we can’t help but feel the impact

of the supply and demand situation on Asian routes,” says Wisbrun.In fact, Asia-Pacific freight traffic for Europe’s airlines fell 3.6 percent in the

first two months of this year and is down over the last seven months. So muchfor money-makers.

Such a change in the balance of air trade in one part of the world is impor-tant in today’s global economy, and beyond that it is an important sign for air-lines and forwarders about the trends in air services and competition. In otherwords, while British Airways is guarding against the ravages that may bewrought by Delta Air Lines at Heathrow, FedEx, Cargoitalia, Jett8, Great Wall,Jade and other freight carriers are following trade to Manchester and Glasgow,and then to Paris, Liege, Berlin and other cities on the continent.

The push by those and other cargo carriers follows moves by India andSoutheast Asian nations to create “open skies” for freighter operations. Now,with world’s aviation treaty system, built out of the Chicago Convention of1944, is looking increasingly full of holes punched out by cargo operations.

The U.K.’s recent agreement to the trans-Atlantic air treaty came with acatch: It won’t take effect for several months, giving Heathrow time to com-plete a new terminal for passengers. In that respect, opening Heathrow is likewinning open skies for air cargo trade — it’s just a matter of time.

Editor’s NoteEditor

Paul Page • [email protected] Editor

Robert Moorman • [email protected] Editors

Roger Turney, Ian Putzger, Mike SeemuthArt & Production DirectorJay Sevidal • [email protected]

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UpdatesNews

Detecting Cargo

Cincinnati/North Kentucky Inter-

national Airport is the third ma-

jor facility to join a U.S. government

program to test explosives detection

screening at air cargo facilities.

The U.S. Department of Homeland

Security launched the $30 million Air

Cargo Explosives Detection Pilot Pro-

gram last summer at San Francisco In-

ternational Airport and expanded it to

Seattle-Tacoma International Airport.

In San Francisco, DHS and the

Lawrence Livermore Laboratory are

researching ongoing cargo handling

processes and how use of existing

technology may affect the move-

ment of goods.

That program includes tests in

which government screeners tear

down pallets, load single boxes on

belts that push shipments through

explosives detection machines and

then re-build the pallets at the other

end. Research officials say the

process takes about 15 minutes per

pallet, but cargo executives who are

skeptical of that timing say even

that sort of speed would cripple air

freight operations of any scale.

In Seattle, DHS is testing devices

designed to detect a heartbeat and

excess carbon dioxide, warnings of

the possible presence of a stowaway

or terrorists on an all-cargo flight.

At Cincinnati/Northern Kentucky,

the tests will determine the flow of

air cargo and how quickly it must be

screened.

In a statement, DHS said it is seek-

ing data that illustrates the “econom-

ic and operational impacts” to air-

lines from increased screening levels.

Asia Grows

Memphis remained the world’sbusiest airport in 2006 but air-

China Expressly Growing

The battle for air express business in China is official-ly on. UPS last month announced plans for a package andfreight hub at Shanghai’s Pudong International Airport andsaid it would open the operation by 2008. The push comes

as FedEx works on its air express hub Guangzhou to the south, asite FedEx will open in 2009 as a broader intra-Asia hub that will in-corporate the China business FedEx is building up with its recentpurchase of DTW Group.

FedEx says it will start next-day air express delivery within China nextmonth, ramping up operations from its previous focus on only internationaldelivery.

FedEx initially will start build that business around the Xiaoshan Interna-tional Airport in the Chinese city of Hangzhou. FedEx will use China 737freighter operator Okay Airlines for the domestic linehaul.

UPS, meantime, will use all-cargo airline Yangtze River Express as the carrierout of Shanghai.

“Today’s announcement represents another first for UPS in China,” KenTorok, president of Asia-Pacific for UPS, said at a lease-signing ceremony withthe Shanghai Airport Authority that included U.S. Transportation SecretaryMary Peters.

The overall message of the expansion of the two express carriers is clear.“Neither one of these carriers can afford to be shut out of this importantmarket,” said George Hamlin, an analyst with Hamlin TransportationConsulting.

UPS’s new hub will be built on a million square feet at the southern end ofthe cargo area at Pudong. The hub sorting facility is expected to handle up to17,000 shipments per hour by 2012.

04NewsUpdateINT 4/20/07 1:56 PM Page 4


ports driven by China traffic are clos-ing the gap at a rapid pace.

Memphis International Airport, hostof the main hub for FedEx Express,saw 3.69 million tonnes of cargo lastyear, 2.6 percent better than the yearbefore. Hong Kong International wassecond, 84,000 tonnes behind, and its5.1 percent growth was nearly twicethe rate of expansion of Memphis, ac-cording to preliminary figures fromthe Airports Council International.

Airports on China’s mainland arelooming even larger.

Shanghai Pudong InternationalAirport ranked sixth in the worldwith 1.93 million tonnes, up 16.3percent over 2005. Beijing Capital In-ternational Airport was the fastestgrowth among the world’s largest air-port, with tonnage up 31.6 percent,pushing Beijing from 24th to 21st inthe world.

Pudong’s cargo tonnage has grownmore than 60 percent in just threeyears and Beijing’s business is upmore than 67 percent in the same pe-riod. In fact, including Anchorageand Los Angeles, seven of the world’stop 10 cargo airports last year were ei-ther in Asia or depended heavily onAsia trade for their freight.

Losing Ground

The move by air freight to all-car-

go carriers, and to the ground,

will pick up speed over the next 15

years, according to the Federal Avia-

tion Administration.

The push to freighters gave cargo-

only airlines 71.4 percent of the air

freight market in the United States

in 2006, the FAA said in its annual

Aerospace Forecast, up from 59.4

percent in 2000. The market shift

was especially strong in the domes-

tic air shipping, where the U.S. pas-

senger airlines saw traffic measured

in cargo ton miles fall 26.9 percent

from 2000 to 2006 thanks to a move

by shippers to freighter operators

and a strong move toward domestic

trucking. Over the same seven years,

domestic traffic on all-cargo airlines

grew 22 percent.

The FAA says the gap between

passenger and all-cargo airlines will

grow even greater in coming years,

with freighter operators projected to

hold nearly 84 percent of the domes-

tic air shipping market by 2020.

The FAA, which issues its forecast

as part of its planning for air traffic

control services, says tougher air

cargo security is playing a larger role

in the shift from passenger airlines

to all-cargo airlines and from air

shipping to ground service.

Security directives since the Sep-

tember 11 terror attacks “have

caused the diversion of a portion of

the freight and mail cargo from pas-

senger to all-cargo carriers,” the FAA

report said. A tougher new security

rule “is likely to increase the shift in

cargo share from the passenger to

all-cargo carriers.”

Air forwarders and airlines fear

that shift could be even greater than

the FAA foresees if Congress pushes

through tough new mandates for

cargo inspections.

Selling World

World Airways parent World AirHoldings is giving up its role as

an independent company.Buyer Global Aero Logistics says it

will keep World Airways’ operations,including its leasing and charter busi-ness with DC-10 and MD-11 freightersas a separate division in a wider com-pany that now includes U.S. domesticpassenger carrier ATA Airlines.

For World, the $315 million buy-out ends a tumultuous year that be-gan with the parents’ purchase ofpassenger charter carrier North Amer-ican Airlines, leading to delayed fi-nancial reports and scathing criticismand a threatened board revolt by an-gry shareholders.

World had not filed a final finan-cial report for 2006 by last month butprojected a loss of between $2 mil-lion and $4 million for the year.Some of those losses came after theU.S. Air Force dropped World Airwaysfor a time from its approved contrac-tor list, cutting deeply into a criticalsource of revenue for World.

A spokeswoman at GAL did notreturn calls seeking comment. ButGAL Chairman and Chief ExecutiveSubodh Karnik said in a statement,“In addition to providing a signifi-cant premium to World’s sharehold-ers, this transaction provides thestrategic and corporate flexibility foreach of these airlines to shape ahigh-growth future.”

That premium is 56 percent overWorld Air Holdings’ share price lastSeptember, when the company an-nounced it would “explore strategicalternatives” in the wake of its finan-cial reporting difficulties. The ClintonMultistrategy Master Fund attackedthe company’s board in a series of let-ters and said it would seek to put up tothree of its own choices on the board.

Consolidating

The old adage about strength in

numbers may aptly apply to the

new strategic alliance between the

Airforwarders Association and the

National Customs Brokers and For-

warders Association of America.

The Strategic Alliance for Freight

Forwarder Endeavors, or SAFE, will

UpdatesNews


tackle the “pressing issues affecting

the forwarding community,” said

Brandon Fried, executive director of

the AFA. “Our association felt the

forwarding community would be

best served by joining our efforts to

fight on their behalf.”

NCBFAA president May Jo Muoio

said SAFE represents a “flagship al-

liance effort” of the two key associ-

ations representing the interest of

forwarders.

The forwarders are perhaps most

concerned with proposals in Wash-

ington to require 100 percent physi-

cal inspection of air cargo on passen-

ger aircraft as well as security relat-

ed issues involving the Transporta-

tion Security Administration.

Hungary Spread

Looking to spread its reach in linewith the European Union’s en-

largement into Eastern Europe, FedExExpress this month bought Flying-Cargo, its service partner in Hungary.

FedEx called the purchase “the lat-est step in the company’s Eastern Eu-rope expansion strategy.”

Hungary has one of the fastest-growing economies among the for-mer Soviet bloc countries that joinedthe European Union in 2004. Since

then, transport operators have ex-panded east with relative caution,mostly with trucking services evenfor expedited delivery.

Flying-Cargo has been working forFedEx since 2003, providing serviceconnected to four weekly FedExfreighter flights between Budapestand FedEx’s European hub in Paris.

“Central and Eastern Europe,which is growing at nearly three timesthat of Western Europe, presents sig-nificant opportunities for our cus-tomers,” said Michael L. Ducker, pres-ident of FedEx Express International.

FedEx’s international air expressrevenue makes up more than 36 per-cent of the company’s total expresspackage revenue, up from 25 percentseven years ago.

Growing India

DHL is strengthening its position

in East Asia by upping its stake

in Indian logistics concern Lemuir

Group to 76 percent from 49 percent,

forming a new joint venture called

DHL Lemuir Logistics Private.

DHL says it wants to control its

forwarding business in India. But the

move could be a signal to FedEx Ex-

press and other air freight compa-

nies in East Asia that DHL intends to

do there what it did in the Middle

East – dominate.

“The new JV will result in

greater synergies and value-added

services for our customers within

India and the rest of the world,”

said Christoph Redmond, CEO, DHL

Danzas Lemuir.

India is among the top markets of

strategic importance to DHL. The

company estimates the Indian logis-

tics market at about $45 billion and

projects it will reach nearly $122 bil-

lion by 2015, growing at 11 percent

per year.

In late February, DHL Express an-

nounced plans to restructure its

business in India and what has been

dubbed the South Asia Area. That

follows the purchase two years ago

of Blue Dart, the leading Indian do-

mestic express operator.

Separately, DHL will relocate its

two Asia logistics units — DHL Glob-

al Forwarding and DHL Exel Supply

Chain — to a single headquarters in

Singapore. Over the past few years,

DHL’s investments in the Asia Pacific

region totaled over $1.7 billion.

Smaller Gulf

The downsizing of routes and fleetand the departure of a freight in-

dustry veteran suggest air cargo willhave a reduced profile in a restruc-tured Gulf Air.

Andre Dose announced a series ofsweeping changes at the Bahrain-based airline last month shortly afterthe former SWISS executive tookover as president of Gulf Air. Thechanges are aimed at cutting costsand better targeting business at amid-sized carrier that finds itself in-creasingly under pressure from itsfast-growing airline neighbors in theMiddle East.


UpdatesNews


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The World Connected


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May 20078

Under what Gulf Air calls its “GetWell” program, Dose will replacethe airline’s fleet of widebody 767swith twin-engine A321s and he’lldrop some A340s for newer A330s,cutting the fleet overall from 34 to28 planes.

Several executives also left thecarrier. Des Vertannes, a 37-year in-dustry veteran who had been headof cargo, joined Etihad Airways’Crystal Cargo division as executivevice president.

Gulf Air also will stop money-los-ing long-haul flights to Dublin, HongKong, Jakarta, Johannesburg, Sydneyand Singapore as part of the two-partrestructuring program.

That will reduce freight traffic foran airline that in 2005 ranked 52ndin the world in the business, accord-ing to Air Cargo World. But the airlinealso stands to lose some $675 millionin its most recent fiscal year, andsome of that is certainly because ofcompetition from nearby Etihad andEmirates, rapidly growing airlineswith young and expanding fleets.

“The main goal of our restructuringand customer service is to increaseflight frequencies to existing key des-tinations and add new connections tomajor economic centers that are ofgrowing importance for the economy

of Bahrain and Oman,” said Dose.Dose said said Gulf Air’s 6,000-per-

son workforce would have to be re-duced, but did not give a specificnumber or time when employeeswould be cut.

The second part of the restructur-ing effort will consist of investing$505 million to improve the qualityof Gulf Air’s overall service.

K+N One-Stop

Kuehne + Nagel says it is concen-

trating on one-stop-shop service

now that it has built up into the

world’s second-largest forwarding

and logistics operation.

The Switzerland-based forwarder

counted $15.1 billion in gross rev-

enue in 2006, 29.5 percent better

than the year before. Its net revenue,

or gross profit, soared nearly 90 per-

cent to $4.36 billion.

The result was a $710.2 million op-

erating profit at the company, a 52.3

percent improvement in the operat-

ing margin and a bottom line net

profit of $380.4 million that was

more than double what Kuehne +

Nagel earned just two years ago.

Led partly by acquisitions and

partly organic growth, Kuehne +

Nagel has built its turnover more

than 57 percent in two years and

doubled its net revenue and profit,

placing second only to the DHL

Global Forwarding business among

the world’s largest forwarders.

Air freight revenue grew 12.5 per-

cent but the strongest growth in

transport business came on the land

in the rail and road logistics opera-

tion, which expanded 18.5 percent.

The company, which has made

some buys and established a hub

system across Europe, projects more

than $4 billion from that segment

alone in the next two to three years

and “acquisitions in key European

markets are being considered” to

help reach that goal.

But contract logistics grew far

faster with the addition of ACR

Group, which Kuehne + Nagel says

was completely integrated into the

larger operations by the end of

2006. The company counted $3.2

billion in gross revenue from con-

tract logistics and “is now the third-

largest global provider in this area

of business.”

“Our targeted expansion of over-

land activities enables us to provide

customers with end-to-end services

from a single source,” it said. “In

addition, it has opened up further

cross-selling opportunities.” ■

AirCargoWorld

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ReportsRegional


you want to get the most out of it.”Investment has been hard to come

by for many U.S. carriers. They accu-mulated some $35 billion in losses be-tween 2001 and 2005, according tothe Air Transport Association, but areexpected to show a $4 billion industry-wide profit this year.

Delta has lagged behind other pas-senger carriers in returning to prof-itability, capping $17 billion in lossessince 2002 with $6.2 billion in red inklast year. Cargo pulled in $498 millionin revenue last year, down 5 percentfrom the year but still a solid source ofbusiness in the face of downsizing androute restructuring, and the carrierthinks it can do more.

Narrow FocusForwarders are anxious for greater

airline commitment to cargo. TonyScaturro, president and chief operat-ing officer of AFC Worldwide Ex-

press, an Atlanta-based forwarder,

sees a renewed “sense of purpose” byDelta and its cargo division. “They’vebeen very responsive to us as a cus-tomer,” he said.

Delta Air Logistics is implementing acapacity and revenue management soft-ware system. The capacity phase will beoperational by June with the revenuemanagement piece ready by 2008.

The airline also is investing in a load

Maybe there is something clarifying about bankruptcy.U.S. passenger airlines that have flirted with, remainin, or are poised to emerge from bankruptcy protectionappear to have reawakened to the profit-making poten-

tial of belly freight.To many it may be doubtful the word cargo would every go from lower case to

upper case in the airline management’s lexicon. But the airlinesare looking to their freight for relief as they come to the conclu-sion that passenger revenue is more susceptible to “short term swings in the mar-ket, whereas the cargo customer is more predictable and provides a more stablerevenue source,” said Satish Jindel, president of SJ Consulting.

Take Delta Air Lines, which was to emerge from Chapter 11 bankruptcy pro-tection this spring. As part of its’ cost-saving restructuring, cargo arm Delta AirLogistics was nearly gutted. Now, the airline wants to invest millions of dollars ina division that was whittled down to mostly sales and marketing.

“We’re not doing this as a result of emerging from bankruptcy,” said Ben Dar-nell, managing director of Delta Air Logistics. “It’s more of a recognition of therevenue contribution of cargo, knowing that you have to invest in the product if

Rejuvenating CargoSeveral airlines are investing in cargo as part of restructuring

efforts to maintain profitability

By Robert W. Moorman

NORTH AMERICA

10RegionalsINT 4/20/07 10:27 AM Page 10

planning system to maximize lift andcalibrate the exact fuel load. For thelast year, Delta performed flight opti-mization manually, basing its planningand cargo allotments on historical av-erages, which sometimes left bellyspace unused. Technology will auto-matically feed cargo bookings for allflights, allowing Logistics to allot blockspace for high-yield service.

Delta also is adding 56 positions incargo, recalling some furloughed work-ers and buying 1,000 new pallets forinternational cargo.

Moving widebodies from domesticto international service has forced Lo-gistics to get creative.

For domestic service, “we’ve goneback to the shippers, asking them torepackage the goods differently,” saidDarnell. “We thought that a lot of thisbusiness would be lost, but it hasn’t.”

In the past, lobsters would beshipped in LD2/8 containers in wide-bodies coming out of Boston. Nowthey’re flown in narrowbodies.

Logistics also has formed a closeworking relationship with Delta’s inter-nal network department, educatingthem on narrowbody capabilities andhow markets work.

On the international front, Darnellexpects cargo to do very well if the di-vision is aggressive in letting the for-warding community know there arenonstop options.

Paradigm BustElsewhere, restructured airlines are

enhancing their cargo divisions.Northwest Airlines, the only U.S.

combination with large freighter ser-vice, is redrawing of some segments ofNWA Cargo’s Asia/Pacific network. InDecember, the airline ceased all-cargoflights to Hong Kong and beefed up ser-vice to nearby Guangzhou on the

mainland to daily flights to GuangzhouBaiyun International Airport.

Jim Friedel, president of NWA Cargocalls the service swap a “paradigmbuster.” The long-held view that HongKong must be a part of any airline’sAsia-Pacific cargo network is fallingaway, he says.

“We believe that the market willsoon want to find shorter, faster pathsto get goods exported from China,”said Friedel. The plan to abandonHong Kong may defy conventionalwisdom, Friedel concedes, but he be-lieves shippers demand a faster exitfrom China.

Friedel said the cargo division is in-vesting in new IT systems and plans oncreating a portal for electronic cargobooking and investing in software forbetter tracking of packages.

To reduce maintenance costs, or atleast make them more predictable,Northwest signed a lease on a newhangar at Anchorage that will be modi-fied to accommodate NWA Cargo’s 12747-200 freighters.

Hubbing Trucks

Crossborder cargo potential is

bringing Continental Airlines

down to Earth.

The airline’s cargo division is start-ing a trucking service linking its

main airline hub in Houston to Lare-do, Texas, where trucks will connectthe border site to Guadalajara, Mon-terrey and Mexico City.

Continental will operate the servicefour days a week, allowing what theairline says will be next-day connec-tions between the key industrial pointsin Mexico and the United States, withsouthbound departures from Houstonat 10 p.m. and northbound departuresfrom Mexico at 9 a.m.

The move into Mexico with a

trucking operation links Houstonwith significant manufacturing sitessouth of the border. “With an amaz-ing 8,000 trucks crossing U.S.-Mexi-can bridges per day, Laredo will bethe tip of the iceberg for a revolutionin Mexican trade,” said CarlosArredondo, Continental’s operationsmanager at Laredo.

U.S.-Mexico trade has been grow-ing and experts say Mexican factorieshave seen resurgent business frommanufacturers seeking to get closer tothe U.S. mainland following the raceto China.

… BrieflyCargo traffic for U.S. airlines grew

1.3 percent in the first two months of2007, including a 0.6 percent declinein domestic traffic in February, ac-cording to the Air Transport Asso-ciation. The 914 million domesticrevenue ton miles was the lowestmonthly figure for the carriers in fouryears. ... CAL Cargo Airlines willuse Towne Air Freight for truckingline haul connections between Chica-go and CAL’s 747-freighter operationin New York. … Los Angeles-basedConsolidators International willlaunch a domestic division withtransport options from air to trucksand rail. … Kitty Hawk Aircargoreported a $15.6 million loss in 2006but the freighter operator turned an$8.3 million profit in the fourthquarter after losing $4.1 million inthe same quarter a year ago as rev-enue jumped 88 percent in the quar-ter to $86.2 million. The growth in-cluded more work for the U.S. PostalService and $16 million in revenuefrom the trucking service the airlinestarted in late 2005. ... Cargo trafficat San Francisco InternationalAirport grew 1.7 percent in 2006


ReportsRegional


but mail was down 6.6 percent, in-cluding a 58 percent drop in domes-tic mail traffic in December. SFOstarted 2007 with cargo traffic down1.6 percent in January largely be-cause of a 47 percent drop in domes-tic mail tonnage. … Aerobox Com-posite Structures finished 2006with deliveries of more than 1,100LD-3s to airlines around the world.The container manufacturer is oper-ating under Chapter 11 bankruptcyprotection and expects to exit bank-ruptcy by mid-year. ... Cargo Con-nection Logistics, a containerfreight station operator based in NewYork, said its sales rose 21 percent in2006 and that it had eliminatedsome of the “toxic funding that webelieve has hampered our growth.”CEO Jesse Dobrinsky said he is work-ing to “build relationships” neededfor expanded Pacific Rim business. …Forwarder Target Logistics sawgross revenue edge up in its fiscalsecond quarter ending Dec. 31, 2006to $47.6 million and the “absence ofthe normal peak season” helped cutthe net profit 40 percent to$589,504. The forwarder projects rev-enue to grow between 15 and 22 per-cent over the January-June period,however. … Regional freighter opera-tor Alpine Air Express saw its

profit before taxes rise 40 percent inthe first quarter to $1.4 million andcredited renegotiated cargo and mailcontracts, along with tighter costcontrols, for the improvement.Alpine says it locked in its fuel pricesfor 2007 in February. … Real estatemanager Haith & Co. will expandForward Air’s trucking facility atKansas City International Air-port from 30,000 square feet to50,000 square feet, giving the airfreight trucker 70 dock doors. …ABX Air’s recently purchased 767-223 from American Airlines willbe converted to freighter by IsraelAircraft Industries’ Bedek AviationGroup. … Managers for MidAmeri-ca St. Louis Airport signed anagreement with the Batam IndustrialDevelopment Authority in Indone-sia’s Riau Islands to promote “airbridge” cargo service between the air-port near St. Louis and the HangNading International Airport.… The Express Delivery and Lo-gistics Association named South-west Airlines Cargo its airline ofthe year for the third year in a row,saying it placed first for service, com-munications, Web site and technolo-gy, overall value, and ontime perfor-mance. … Virgin Atlantic Cargotook management of its VEX express

service in-house in New York andNew Jersey. Operated for 10 years byAir Cargo Partners, VEX was han-dled by Airmax Internationalsince last October to transition themanagement to an in-house service.… Domestic air freight at Sea-TacInternational Airport fell 7.2 per-cent in the first two months of 2007,leaving overall cargo at the airportdown 2.3 percent in the first part ofthe year. … British all-business classairline Silverjet started daily 767flights between London Luton Air-port and Newark offering 10 tonnesof cargo capacity. … DHL opened a$3 million West Coast distributionfacility in Riverside, Calif. to en-hance Asia-Pacific and Western do-mestic operations. … Panther Ex-pedited Services, a leadingprovider of time-sensitive services inNorth America, acquired IntegresGlobal Logistics, a freight forward-ing and logistics company. … UPSstarted a Web-based service, UPS De-livery Intercept, which allowsshippers to reroute packages beingdelivered to go to a new destination.… Boeing named Crane Aerospace& Electronics to supply the on-board weight and balance system,named AirWeighs, for the 777freighter. ■


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Volga-Dnepr’s very pub-lic castigation and sus-pension as an ap-proved supplier to the

United Nations, after allega-tions that it proffered bribes towin major UN contracts, is athrowback to a supposedly by-gone era.

It’s all the more surprising thenthat the Russian outsized operatorshould be caught up in such a scan-dal after having spent the last fewyears emphasizing its “Western val-ues” in every aspect of its businessfrom, financial accountability to thesafety standards of its AN-124 fleet.Its apparent pristine credentials havebeen carefully nurtured under thewatchful eye of the group’s ebullientpresident, Alexey Isaikin.

Now it would appear Isaikin maybe called to personal account forwhat has unfolded in recent months.

The UN said at the end of Marchthat it had suspended Volga-Dnepr,an important carrier for UN-spon-sored relief flights, from its databaseof its approved vendors.

According to evidencegathered by the UN’s Pro-curement Task Force it is alleged Vol-ga-Dnepr paid up to $700,000 to a se-nior UN procurement office, in orderto gain advantage in winning UNcontracts. The evidence came to lightduring the trial in the United States

of Vladimir Kuznetsov, at one time the most senior Russian diplomat at theUnited Nations in New York.

Subsequently found guilty of money laundering, Kuznetsov faces a jail termof 20 years when he is sentenced next month.

Consulting FeeThe allegations of bribery against Volga-Dnepr came from the main witness

in Kuznetsov’s trial, fellow Russian Alexander Yakovlev. After working at theUN for more than 20 years as a procurement officer, he pleadedguilty in 2005 to charges of money laundering, soliciting bribesand wire fraud, including accepting almost $1 million in bribes

from a range of UN contractors. He also is awaiting sentence.Yakoklev told the court at Kuznetsov’s trial he had set up a consulting firm

as a shell company to guide companies in the preparation of UN procure-ment bids, a move in itself is strictly forbidden by UN employees. Under hisguise as a “consultant,“ Yakovlev says, he came into contact with Isaikin.Yakovlev later acted as a “consultant” on as many as 40 UN contracts for

Crime, PunishmentNamed in a procurement scandal trial, Volga-Dnepr is suspended

from United Nations business

EUROPE

By Roger Turney


which Volga-Dnepr was pitching, ac-cording to the court testimony.

The airline won around 12 of thesecontracts, with Alexander Yakovlevclaiming he was paid a fee for each ofthe successful bids and no paymentfor any unsuccessful bids.

Most of the winning UN bids,awarded to Volga-Dnepr Airlines andits Irish subsidiary, Volga-Dnepr (Ire-land) Ltd were said to have been wonin 2000 and 2001. But other reportsindicate Yakovlev received paymentsfrom Volga-Dnepr as late as 2005.

UN procurement records suggestVolga-Dnepr Airlines won UN con-tracts to the value of $18.6 million in2005, with its Irish affiliate awardedUN contracts for freight forwardingservices to the value of $30 million. Itis a contravention of UN regulationsthat a company is listed more thanonce as an approved UN supplier. Notrace can be found of any UN con-tracts awarded to Volga-Dnepr duringthe main period in question between2000-2001, but the value is thoughtto run into, “tens of millions of dol-lars,” according to published reports.

Volga-Dnepr officials declinedthrough a spokesman in the UnitedKingdom to comment.

UN CapacityIt is obvious that the United Na-

tions, no stranger to bribery and cor-ruption charges across parts of theworld, is determined to crack downheavily on these revelations.

Its Procurement Taskforce has beengiven full rein to investigate morethan 200 suspect procurement con-tracts. Which means Volga-Dneprcannot expect its approved UN suppli-er status to be restored any time soon.

“We are not doing business withthem anymore and, of course, this

may have an operational and even afinancial impact on us,” said PaulBuardes, chief of the UN Procure-ment Service.

“We will try to minimize this effectby working closely with the Depart-ment of Peacekeeping Operations. Butwe are determined to send out a strongsignal that when we have evidenceprovided by the PTF, that we will notdo business with this company, what-ever the cost of this decision.”

UN spokesman Farhan Haq ex-plains further: “The UN has not set atime limit for the period of suspensionin this particular case. But in such cas-es the vendor may re-apply for regis-tration by providing demonstrable ev-idence of corrective actions to remedythe issues that led to the suspension.”

Volga-Dnepr has made no com-ment on its suspension as an ap-proved UN supplier, a status it wonin 1994, although it has been operat-ing UN missions since 1992.

The company is said to be review-ing its, “legal options” in getting thesuspension lifted.

Was this then a temptation too farfor Volga-Dnepr? At the time of themain allegations the carrier was infierce competition for UN businesswith its main rival, Antonov Airlines.Ironically, the two operators joinedforces last year to create Ruslan Inter-national, a joint initiative to marketthe combined AN-124 fleet of thetwo carriers.

Where does the relationship withAntonov Airlines lie now? Accordingto one European-based charter bro-ker, the prospects cannot be bright.

“Surely Antonov Airlines wouldwant to put clear blue sky between it-self and the allegations being madeagainst Volga-Dnepr,” said this offi-cial, who requested anonymity. “Thiscould be a golden opportunity for

Antonov Airlines, along with smallerAN-124 operator Polet Airlines toclean-up with UN contracts.”

Between them, the two other play-ers are able to muster a fleet of about13 AN-124 aircraft against the 10 air-craft operated by Volga-Dnepr. But,given the demands on the UnitedNations, can the august body affordto not do business with Volga-Dnepr?

“The current demands of the UNcan probably be met by Antonov andPolet,” said the same charter broker.“But if there is a spike in demand thenthe UN could well be struggling.”

He cites the example of a couple ofyears ago where Volga-Dnepr won aUN contract to operate a program of25 flights airlifting vehicles from Pak-istan to Africa.

“That is one of the surprising as-pects of this case, for a companywhich currently claims a 56 percentstake of the global outsized market,”said another charter broker. “Volga-Dnepr has at its disposal a uniqueasset in the AN-124, which cannotbe matched by any other aircraftand which is in ever increasing de-mand. Why the need to resort tothese kind of tactics in order to winUN contracts?“

He says the scandal is bound tohave an effect on the commercial bu-siness Volga-Dnepr does with a globalclient list which includes such compa-nies as Lockheed, BP, BAe, ExxonMo-bil, Alacatel and many others. Mostrecently Volga-Dnepr won a major lo-gistics support contract with Boeingfor the entire term of the manufactureof its new 787 aircraft.

… BrieflyFreight traffic for European carriers

was flat in the first two months of2007 as growth on some Atlantic


ReportsRegional


lanes helped offset a 3.6 percent de-cline in Asia business, according tothe Association of European Air-lines. … TNT saw revenue grow 7.8percent in 2006 to $13.2 billion, withthe operating profit up 11.1 percentto $1.7 billion after the companycompleted the divestiture of its logis-tics and freight management businessin the fourth quarter. For the fourthquarter, revenue rose 7.6 percent to$3.6 billion. … Libyan charter carrierGulf Pearl Airlines started weeklyDC-10-30 freighter service betweenOstend, Belgium and Tripoli, Libya,with Network Airlines Services as itsgeneral sales agent in Europe andANA Aviation in the United King-dom and North America. …

Lufthansa Cargo created separate“competence centers” for freight seg-ments to bring closer attention of spe-cially trained staff members to thetransport of mail, live animals, valu-ables and temperature-sensitivegoods. … Mercator, the technologydivision of the airline Emirates andprovider of IT services to other carri-ers, joined the Cargo 2000 qualitystandards group. … French cargo air-line Aigle Azur, owned by forwarderGoFast, started flying an AN-12freighter weekly from Europort Va-try to Hassi Messaoud, Algeria. …Spanish cargo carrier Cygnus Air isexercising one option for an addition-al 757-200 freighter conversion to beperformed by Precision Conver-

sions. … Nigeria’s Silverfleet Air-lines named Global Aviation Lo-gistics its cargo sales agent in Brus-sels. … Etihad Airways will startfour-times-weekly A330-200 flightsbetween Abu Dhabi and Dublin inAugust, offering about 14 tonnes ofcargo capacity. … GB Airwaysnamed Air Logistics group its cargogeneral sales agent for its regional Eu-ropean network. … Aero Ground-services took over cargo handlingfor Syrianair at AmsterdamSchiphol. … TNT Freight Manage-ment won phase one certificationunder the Cargo 2000 quality pro-gram. … German forwarder Weiss-Röhlig joined the IntlQuote.comonline rate quoting system. ■


ReportsRegional

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volume projections significantly be-low Cathay’s estimate. He remainsconfident that HACTL will still havespace in 2012.

“Our projections, publicized lastyear, were based on a study done bywell-respected management consult-ing firm with extensive experience inthe aviation sector, and we projectedthree growth scenarios,” he said.

“In the ‘high’ scenario Hong KongInternational Airport continues to at-tract the majority of air cargo growth,and the compound annual growth isestimated at 8.5 percent from 2005 to2008, and 7.4 percent from 2008 to2015. In the ‘base’ case scenario, theCAGR is expected at 5 percent from2005 to 2008, and 5.3 percent from2008 to 2015. In the ‘low’ scenario,other Pearl River Delta airportsachieve accelerated growth rates tothe detriment of HKIA.

“We believe that with the new facil-ities recently introduced in Guang-zhou and the introduction of newfreighter capacity in Shenzhen, thebase forecast is the most likely. This is

validated by the recentslowdown in tonnage

growth in Hong Kong,” said Bishop.

Math MattersHong Kong has been growing

rapidly over the past decade, but thatboom apparently is tailing off. For the

When is a cargo warehouse full? Hong Kong’s largestterminal operator and its biggest customer have radi-cally different ideas on that question. The mathemati-cal fault line pits Cathay Pacific, which commands

some 40 percent of the airport’s total cargo throughput – based on2005 figures, including the tonnage carried by Dragonair – againstHong Kong Air Cargo Terminals, which processes over 70 percentof the airport’s cargo volume.

According to Cathay, HACTL’s Super Terminal 1 is just two years from hittingits capacity limit, with service deterioration lurking beyond.HACTL’s $1 billion facility has a capacity of 3.5 million tonnes. Lastyear, it handled 2.561 million tonnes, up 5.3 percent from the previous year.

By Cathay’s measure, Hong Kong’s annual throughput will reach 9.9 mil-lion tonnes by 2020, which is higher than a 9 million-tonne volume predictedfor 2025 by consultancy GHK, which the Airport Authority of Hong Kongcommissioned last year to study long-term shipping trends at the world’slargest international air cargo airport.

But Warren Bishop, HACTL’s director of corporate development, arrives at

Terminal VelocityAAT and DHL are expanding their Hong Kong sites but the airport’s

third cargo complex will take more facility

PACIFIC

By Ian Putzger


first three months of this year, HACTLtonnage declined 4.3 percent, drivenby a 9.7 percent drop in exports.

Bishop said HACTL introduced sev-eral measures to boost productivitylast year. Since its’ opening, it haslaunched some 20 initiatives to boostcapacity from the original 2.6 milliontonnes to 3.5 million.

Nevertheless, after what Cathay be-lieved was an agonizingly long delib-eration period, the airport authoritydecided it would allow a third han-dling set-up. It expects the tenderprocess for the third terminal to becompleted next year and the new fa-cility will come on stream in 2011.

According to Bishop, HACTL hasnot determined whether it will enterthe bidding process.

Meanwhile, two contestants havecharged out of the starting gate.Cathay and local property giant SunHung Kai Properties reportedly havesubmitted bids for the terminal. RonMathison, director and general man-ager of cargo for Cathay, would notcomment on the issue but the out-lines of the airline’s plans have beenknown for a while. Cathay intends tobuild in two phases, the first to openby 2009/2010 with a capacity of upto 2.5 million tonnes. The secondstage would boost this to four to fivemillion tons.

Building UpThe main reason Cathay wants its

own terminal is cost.It claims HACTL’s charges are more

than double the average handlingcosts across its system, and morethan three times what was chargedby competing hubs in the region.

HACTL’s and Cathay’s math di-verges here, with Bishop arguing thehandler’s all-in fee included costs

levied on forwarders and cargo own-ers, so there was no direct comparison.

The sometimes-acrimonious ex-changes over the issue have beenout of character with Hong Kong’sbusiness climate, which has tradi-tionally been dominated by oligopo-lies that disdain public clashes. Butnow it is the outsiders who arepushing their expansion plans for-ward with quiet efficiency.

In March, Asia Airfreight Terminal,owned by a consortium includingSingapore Airport Terminal Services,officially opened its second terminalat HKIA, designed to handle up to910,000 tonnes a year. The $220 mil-lion project almost tripled the capaci-ty of Hong Kong’s second handler tojust over 1.5 million tonnes.

Like HACTL’s, AAT’s math is con-servative. Last year it handled morethan 624,000 tons, suggesting its orig-inal terminal was seriously bulging.

With equally little fuss, DHL isgrowing in Hong Kong with an addi-tional $35 million investment, al-though most of this is for a newground hub off airport. DHL haspoured $645 million into HongKong, including $400 million on AirHong Kong and $210 million on itsAsian hub at the airport, which isslated to be at full speed next year.

… BrieflyAir freight traffic for Asia-Pacific

carriers grew 4.8 percent in Februarybut the cargo load factor fell 2.8points to 64 percent, as capacity in-creased 9.3 percent compared to thesame month in 2006, the Associa-tion of Asia Pacific Airlines re-ports. … Semiconductor giant Intelwill build a $2.5 billion factory inthe Northeastern China city ofDalian, where the wafer fabrication

facility will mark an advance overIntel’s previous manufacturing in-vestments in China. Intel says it ex-pects China to the world’s largesttechnology market by the time theplant opens in 2010. … FedEx Ex-press will start offering next-busi-ness-day express service to 19 citiesin China, initially, as well as a day-definite service to more than 200cities. The carrier will use space on737 freighters operated by Okay Air-lines. … AMB Property, a develop-er and manager of fast-cycle distribu-tion centers, moved into South Ko-rea with an agreement to build a363.000-square-foot facility atSeoul’s Incheon Free EconomicZone. … Global Logistics SystemHK, the operation behind the Ezy-cargo cargo booking portal, will usethe Tradelink Electronic Commerceplatform to allow users to submitcustoms declaration forms with in-formation from the air freight book-ing system. … Birkart Logisticsopened a distribution center inJingqiao, outside Shanghai, wherethe Hong Kong-based forwarder saidit would focus on apparel and luxurygoods. … GAC won a Class A for-warding license in China, allowingthe company to expand its servicesas a wholly owned foreign enter-prise. … South Korea and Malaysiasigned an open skies aviation treaty.… Investment concern Mitsui &Co. and Israel Aerospace Industries’Bedek Aviation Group formed a50/50 joint venture company, M&BConversions, to perform passenger-to-freighter conversions of 767-300s.… Etihad Airways started three-times-weekly A340-500 flights be-tween Abu Dhabi and Sydney. …Dragonair started three-times-weekly A320 service between HongKong and Busan, Korea. ■


ReportsRegional



Feature Focus:Annual Forecast

With global trade changing economic and flightpatterns, the 2007 BACK Aviation Worldwide Air

Freight Forecast projects new capacity and steadygrowth in the coming decade

SteadyFlight

SteadyFlight

by Marty Graham,BACK Aviation Solutions

18F1-ForecastINT 4/20/07 1:57 PM Page 18


After staggering through a slow 2005

with 3.2 percent growth in overall air cargo traffic, the

air freight industry headed into 2006 with a cautious eye. As the year

unfolded, the air freight industry rebounded as traffic grew 4.6 percent

in 2006, according to recently released International Air Transport As-

sociation statistics.

The Middle East extended the double-digit growth pattern it show-

cased in 2005. However, other regions contributed to the uptick in traf-

fic, including Africa (5.9 percent growth), North America (6 percent)

and the Asia Pacific region (4.7 percent).

Yet, although the industry saw traffic return near to historical norms

in 2006, 2007 has had a slow start as global freight traffic is up only 2.6

percent through February 2006. Despite the sluggish start to the year,

BACK Aviation Solutions expects the air freight industry to continue to

see positive long-term traffic growth over the next decade. We forecast

worldwide freight ton kilometers to grow an average of 5.9 percent per

year over the next decade. We believe the industry will benefit from a

continued trend in global trade expansion and the shift of manufactur-

ing capacity to China, Asia, and other sites of low-cost factories and pro-

duction, which will drive a 6.4 percent compound annual growth rate

in long-haul intercontinental traffic. Air freight capacity will be relied

upon to transport perishable, high technology and high value goods to

key consumer markets.


Although BACK expects interconti-nental trade to flourish over the next 10years, regional air freight trade will showmore mixed results, with changing lo-gistics strategies and competition fromsurface modes pulling demand for airfreight in shorter-haul markets. BACKforecasts regional air freight demand togrow a moderate 3.8 percent per year asslow growth in mature regional marketslike the North America and the Euro-pean Union’s economic zone are offsetby brisk growth in markets such as in-tra-Asia and domestic China.

As it has over the past decade, Asiawill be the driving force of air freight demand over thenext 10 years. China will be a driving force in generat-ing air freight growth as Chinese manufacturing capaci-ty expands beyond the country’s coastal regions intothe more rural Western China.

However, what is becoming increasingly harder to ig-nore is the build up in air freight activity in the MiddleEast and Africa, particularly Bahrain and Dubai. Thesemarkets, along with developing air freight markets suchas Russia and India, provide additional growth potentialfor the industry. Still, given that trade connected toNorth America accounts for over 60 percent of all trade,air freight growth will continue to rely heavily on theeconomic outlook of the United States.

Regional OutlookBelow we have provided a brief synopsis of our 10-

year regional outlook by key trade lane as well as a

commentary discussing the factors influencing eachregion.

North America-Asia (excluding China)Last year, BACK expected North America-Asia (exclud-

ing China) to be a strong contributor to freight growth in2006 and beyond, partially driven by an improvingJapanese economy.

However, Japanese consumer demand did not re-bound as quickly as anticipated in 2006 as North Ameri-can imports into Japan slid 12 percent in 2006. Yet,westbound traffic to Asia (excluding China) increased4.9 percent in 2006 as export growth to South Korea (19percent year-over-year growth), Singapore (25 percent),India (25 percent), and Malaysia (15 percent) offset theexport decline to Japan (which accounts for 30 percentof all U.S. air exports to Asia, excluding China).



Global FTKs (billions) Real World GDP

–7.0%–6.0%–5.0%–4.0%–3.0%–2.0%–1.0%

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Year

-ove

r-Ye

ar C

hang

e

Global Freight Tonne Kilometers (FTK) and Real World GDP

0

50

100

150

200

250

300

350

2005 2006E 2007F 2011F 2016F

Bill

ions

of

FTK

s

125.3 131.1 143.0190.6

266.836.8 38.4 40.4

48.2

58.4

325.2

238.8

183.4169.5162.1

Forecasted CAGR: Regional ................3.8% Intercontinental ....6.4% World ................... 5.9%

World Air Freight Traffic Snapshot: 2007-2016

14.9 15.6 17.220.6

25.622.5 23.6 24.8

29.9

36.7

0

5

10

15

20

25

30

35

40

Bill

ions

of

FTK

s

2005 2006E 2007F 2011F 2016F

Forecasted CAGR: NA-Asia (exc China).... 4.1% Asia (exc China)........... 4.0%Total..............................4.0%

North America - Asia (excluding China)Air Freight Traffic: 2007-2016


In the eastbound markets, imports saggedin 2006. Overall imports declined 2.6 per-cent in 2006 as trade with key non-Chinatrade partners declined year-over-year, in-cluding Japan (down 6.7 percent), Taiwanand Malaysia (5.8 percent declines), andSouth Korea (10 percent down). On the plusside were imports into India (up 2.5 per-cent), Thailand (up 5.8 percent), Singapore (2.8 percentgrowth), and Indonesia (up19 percent).

BACK expects North America-Asia (excluding China)to remain a vital component of the air freight industry inthe future. We remain bullish on the long-term outlookfor the Japanese economy and believe it will continue tobe the primary driver of trade in the North American-Asia (excluding China) market. Furthermore, we see oth-er large Asian economies such as Taiwan and Malaysia re-maining contributing factors.

However, several developing economies will provide apositive impact to air freight traffic in this trade lane. Mostnotably, India and Vietnam, which recently gained WorldTrade Organization status, have the ability to develop intosolid air freight markets as their manufacturing capabilitiestransition from lower skilled production into productionof goods requiring skilled labor and technical knowledge.Although still small in total air freight volume, Vietnamstands to benefit from recent decisions such as Intel’s re-cent decision to triple its investment there with a $1 bil-lion investment in two production plants outside of HoChi Minh City, highlighting the long-term potential ofthese developing air freight markets.

Therefore, BACK expects the North America-Asia (ex-cluding China) to average a 4 percent compound annualgrowth per year over the next 10 years. We forecast west-bound air freight traffic growth (4.1 percent) to keeppace with eastbound growth (4 percent), which will al-low the market to maintain a well-balanced bi-directionaltrade pattern.

North America-ChinaDuring 2006, U.S. air freight exports to China grew 29

percent over the previous year, benefiting from a de-pressed U.S. greenback and other favorable Chinese mon-etary policies that contributed to the attractiveness of U.Sgoods to Chinese consumers and businesses.

China accounted for 13 percent of all U.S exports toAsia, driven primarily by Chinese demand for U.S. man-

ufactured intermediate goods and capitalequipment used in manufacturing and con-struction) along with chemical and paperproducts. While Chinese demand for U.S.air freight surged in 2006, China continuedto be the largest contributor to U.S. importsfrom Asia, accounting for 44 percent of alleastbound trans-Pacific imports into the

United States in 2006, growing 10 percent versus 2005.Key commodities continue to be finished telecommu-

nications equipment and consumer products, whichcombine for more than 55 percent of all Chinese airfreight imports to the United States.

This trade lane has been a steady workhorse for indus-try growth since all-cargo rights began to expand in theearly part of the decade, yet it has been dogged by severedirectional trade imbalances (eastbound freight trafficoutperformed westbound demand by nearly five-to-one

in 2006). Due to this trade imbalance, carriers have al-ways relied upon the strong Chinese export market toproduce high load factors and above-average yields (dri-ven by a capacity shortfall) to offset an anemic Chinesewestbound market fraught with limited demand and ex-tremely low yields. Yet, over the past 12 months, as morecapacity has entered the market (especially Shanghai),once strong eastbound yields are falling as shippers findmore alternatives.

However, over the next decade, BACK expects theNorth America-China trade lane will retain its vital rolein the overall health of the air freight industry.

We believe continued development of Chinese manu-facturing in Western China, an improved domestic Chi-nese consumption rate driven by growing income pros-perity, and government policies aimed at developing



All

phot

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esy

Rob

Fin

lays

on

0

5

10

15

20

25

30

Bill

ions

of

FTK

s

2005 2006E 2007F 2011F 2016F

Forecasted CAGR: NA–China................... 10.7% China–NA................... 10.3%Total............................10.4%

1.7 1.8 2.0 3.35.6

7.9 8.3 9.4

15.1

25.3

North America - China Air Freight Traffic: 2007-2016




rural China will fuel a gradual increase indemand for U.S. air freight.

As Chinese demand for U.S. goods grows,the industry will benefit from a reduced tradeimbalance, which will allow carriers to relyless on eastbound yields and payloads to sub-sidize sub-standard westbound performances.

Over the next decade, BACK projects over-all North America-China air freight to grow at an averageannual rate of 10.4 percent, with westbound trade withChina averaging a 10.7 percent growth rate, on par witheastbound air freight growth at 10.3 percent per year.

The greatest challenge of achieving this growth lieswithin China’s ability to develop new airports and logis-tics infrastructure to support growth while improving do-mestic consumption rates in order to improve the dispar-ity in directional trade.

Intra-North AmericaOver the past five or six years, intra-North American

air freight has been under considerable pressure due tomany factors.

First, as recently as 10 years ago, shippers were able tosecure widebody lift in many major markets from severalairlines. However, as the price of jet fuel grew by an aver-age of 15 percent per year over the past five years, air-lines have down-gauged their equipment in the domes-tic market. This has made domestic North Americanwide body lift virtually extinct beyond the large integra-tors. Thus, shippers are relegated to securing unpre-dictable lift on regional jet and narrowbody aircraft withreduced frequencies.

Furthermore, as fuel costs have grown, fuel surcharges

and other related add-ons widened the gapbetween air freight pricing and surface modecosts. Simultaneously, many integrators andovernight companies began to expand theirtrucking networks allowing them to effec-tively serve much of the North American airfreight market with transit times that provecompetitive with air freight.

All these factors contributed to the overall stagnationof the Intra-North American freight market.

Over the next 10 years, BACK expects the intra-NorthAmerican air freight market to provide limited growth,averaging less than 1 percent growth per year over theforecast period.

However, all is not lost for intra-North America airfreight. Regardless of cost, there remains a market ofniche cargo products that will always require airfreight capacity because of their inherent time sensi-tive and perishable nature. Therefore, while overallvolume growth may be scarce, niche products, such asmedical supplies and small packages, requiring same-day transit will remain a source of high-yield trafficgrowth in the market.

Intra-EuropeLike intra-North American air trade, the intra-Euro-

pean air freight market has been stagnant in recent yearsas shipments shifted to surface mode as the price of fuelwidened the cost differential between air freight and sur-face freight.

However, economic activity in Eastern Europe is bur-geoning as many countries have become integrated intothe European Union and Russia’s economy is rapidly im-proving due to its’ oil and natural gas industries.

Bill

ions

of

FTK

s

2005 2006E 2007F 2011F 2016F

23.9

25.0 25.326.2 26.5

27.026.5

26.025.525.024.524.023.523.022.5

CAGR: 0.5%

Intra-North America Air Freight Traffic: 2007-2016

00.5

11.5

22.5

33.5

44.5

5

2005 2006E 2007F 2011F 2016F

Bill

ions

of

FTK

s

2.1 2.2 2.43.3

4.5

CAGR: 6.5%

Intra-Europe Air Freight Traffic: 2007-2016


Given these factors, BACK believes intra-Europe airfreight demand will experience rejuvenation over thenext 10 years. As the economic reach of Europe stretchesinto Eastern Europe, air freight, unlike surface modes, isuniquely able to connect these markets with time-defi-nite services including growing demand for air expressproducts. Therefore, BACK forecasts intra-European airfreight will grow at a 6.5 percent compound annualgrowth rate over the next 10 years. Similar to last year,we believe much of this growth will be experienced inthe out years of our forecast as Russia and Eastern Euro-pean economies evolve into viable air freight markets.

North America-Western EuropeDuring 2006, air freight exports from North America to

Europe increased 13.7 percent, led by double-digitgrowth from several Western European trade partners in-cluding the United Kingdom (up 12 percent), Germany

(17 percent), France (12 percent), and Italy (11 percent).Fueled by a strong euro currency and British pound

against the dollar, these top markets, along with theNetherlands, accounted for 60 percent of all eastboundtrans-Atlantic traffic in 2006.

Westbound, air freight traffic grew a modest 4.7 per-cent in 2006 as the five largest air freight markets, whichaccount for 67 percent of all westbound trans-Atlanticvolume, all posted mid-single digit growth rates year-over-year. The persistent U.S. dollar devaluation has slowlyeroded buying power over the past several years, imped-ing growth in the westbound segment.

BACK expects North America-Western Europe airfreight to expand moderately over the next 10 years, av-eraging slightly more than 1 percent growth per year.However, there are two primary factors that may adverse-ly affect our forecast.

First, the recent accord on U.S.-E.U. will dramaticallyaffect the competitive landscape in the transatlantic mar-



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THE NEW BOEING 747-8 FREIGHTER.

It’s great news for freight operators and their customers.

With its expanded capacity and the extraordinarily fuel-

efficient GEnx engines, the new 747-8F carries more

volume on every flight while significantly reducing costs.

An enormous advantage, no matter what the route or load.



ket. Although new demand is sure to surface as carriersare allowed more freedom in servicing markets, thegreater impact on the air freight industry will be in howthe new capacity is priced. Given that the trans-Atlanticmarket is served primarily with passenger belly capacity,“open skies” may well lead to downward yield pressureseven in the face of new service options and greater de-mand stimulation.

Furthermore, although trans-Atlantic air freight withWestern Europe is mature, several Emerging Markets inEastern Europe and the Middle East air freight marketsare sizeable growth areas for carriers, including marketssuch as Russia (40 percent year-over-year growth in 2006)and the Middle East, including the United Arab Emirates,Saudi Arabia, and Kuwait, all of which grew at least 30percent year-over-year.

This potential growth is not reflected in our overallNorth America-Western Europe forecasted growth outlook.

North America-Latin AmericaThe North America-Latin America air freight market

displays strong revitalization, especially in the south-bound market, fueled by Latin American economies and

strengthened by commodity price spikes and improvingdomestic consumption rates.

The southbound market grew a healthy 11.7 percentin 2006 as Brazil (17.9 percent year-over-year growth),Colombia (9.7 percent), Mexico (5.1 percent), and Chile(20.3 percent) posted strong gains in the demand forU.S. air freight products. These top markets in additionto Venezuela account for over 64 percent of all south-bound air freight traffic, which primarily consists oftelecommunications equipment, capital equipment,and consumer products.

The northbound market is dominated by perishableproducts, which account for a whopping two-thirds of alltraffic. In 2006, northbound air freight demand declinedby 1.8 percent as key exporters Brazil (26 percent decline)and Chile (down 7.6 percent) suffered significant dropsin air exports to North America. These declines were par-tially offset by double digit growth in Peru (11.4 percent)and Mexico (10 percent).

Overall, BACK expects North America-Latin Americaair freight traffic to grow at an average annual rate of 5.3percent over the 10-year forecast period, with well-bal-anced bi-directional growth driven primarily by the reju-venated economies of Brazil, Chile, Argentina, Peru,Mexico, and Columbia.

Europe-AsiaSince Europe is a major consumer (along with North

America) market, Europe-Asia air freight continues to bean important part of the global air freight system, ac-counting for approximately 8 percent of the global airfreight flows.

Bill

ions

of

FTK

s

2005 2006E 2007F 2011F 2016F

Forecasted CAGR: Asia–W. Europe...........0.4% W. Europe–Asia...........1.6%Total..............................11.%

0

5

10

15

20

25

30

35

40

9.2 9.7 11.4

17.1

24.9

9.9 10.3 12.0

20.4

35.9

Western Europe - Asia (excluding China)Air Freight Traffic: 2007 - 2016

Bill

ions

of

FTK

s

2005 2006E 2007F 2011F 2016F

Forecasted CAGR: NA-LA........................... 5.0% LA-NA........................... 5.4%Total..............................5.3%

1.8 1.8 2.12.8

3.4

4.9 5.1 5.5

7.1

9.2

0123456789

10

North America – Latin America Air Freight Traffic: 2007-2016

02468

101214161820

Bill

ions

of

FTK

s

2005 2006E 2007F 2011F 2016F

Forecasted CAGR: NA–W. Europe.............0.4% W. Europe–NA.............1.6%Total..............................11.%

11.5 12.0 12.2 12.6 12.714.6 15.3 15.8

17.018.4

North America - Western Europe Air Freight Traffic: 2007-2016


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Germany, the Netherlands, United Kingdom, andFrance are major markets for Asian air freight, and eachexpanded Asia import traffic more than 5 percent in2006. Along with imports, Asian air export demand fromEurope showed modest growth over 2005, with Ger-many, United Kingdom, and France all showing gains.

BACK expects continued European currency strengthsupported by improving Asian purchasing power (espe-cially in China) to have a positive impact on this tradelane over the next 10 years. Because many airlines op-erate their Europe-to-Asia networks through the Mid-dle East, carriers can supplement European-Asian traf-fic with the rapidly growing Middle East market to fur-ther enhance profitability in this trade lane.

BACK forecasts a 10.1 percent average annual growth inthe Western Europe-Asia (excluding China) market, withAsia-to-Europe (excluding China) growth (11.6 percent)outpacing Europe-to-Asia (excluding China) growth (8.6percent) while Europe-China segment is forecast to aver-age 11.5 percent growth per year over the next 10 years.

Europe-Middle EastAfrica and the Middle East displayed strong air freight

growth in 2006, driven by robust construction, tourism,and oil and natural gas industries.

The Middle East in particular has become a prominentplayer in global air freight, highlighted by the heavy in-vestment by Emirates and other key regional carriers infreighter and widebody aircraft. Given that foreign directinvestment and governmental policies favoring econom-ic expansion should continue for the foreseeable future,air freight is well positioned to reap the benefits of thiscontinued economic expansion.

Therefore, BACK sees trade between Europe and theMiddle East averaging a 6.8 percent average annualgrowth over the next 10 years with Western Europe-Mid-dle East volume expanding 7.3 percent, faster than the4.8 percent average annual growth of Middle East im-ports into Europe, as Europe will be a primary exporter ofintermediate goods and capital equipment.

Intra-AsiaDriven both by regional demand and by larger global

sourcing and manufacturing trends, the intra-Asia mar-ket remains a profitable sector of the air freight indus-try, providing transportation between key Asian manu-facturing and consumer markets.

BACK estimates approximately 6 percent of theworldwide air freight traffic is generated in the intra-Asian market. As manufacturing capacity shifts to lowerproduction countries and the global supply chain be-gins to incorporate more production facilities in emerg-ing markets, particularly in Asia, this region will prosperwell into the future.

Intra-Asia traffic has averaged approximately a 4 per-cent compound annual growth rate over the last fiveyears but BACK expects this market to exceed its histori-cal average growth over the next 10 years. BACK fore-



2005 2006E 2007F 2011F 2016F

Forecasted CAGR: W. Europe - Middle East...7.3% Middle East - W. Europe...4.8%Total...................................6.8%

0

1

2

3

4

5

6

7

0.8 0.8 0.9 1.1 1.4

2.5 2.6 2.9

4.2

6.0

Bill

ions

of

FTK

s

Western Europe – Middle East Air Freight Traffic:2007–2016

Bill

ions

of

FTK

s

2005 2006E 2007F 2011F 2016F02468

1012141618

3.4 3.6 4.1

6.9

12.1

4.5 4.7 5.5

9.4

16.5Forecasted CAGR:

China–W. Europe....... 11.6% W. Europe–China....... 11.4%Total............................11.5%

Western Europe – China Air Freight Traffic: 2007–2016

Bill

ions

of

FTK

s

2005 2006E 2007F 2011F 2016F

30

25

20

15

10

5

0

CAGR: 6.7%

9.9 10.3 11.617.3

25.7

Intra-Asia Air Freight Traffic: 2007 - 2016


casts this market to grow at 6.7 percent per year overthe next decade, fueled by demand for air freight capac-ity between Thailand, Singapore, Japan, South Korea,and Taiwan.

Our growth forecast is buoyed by the significant in-vestment in capital and infrastructure that is going intodomestic China. That investment is bolstered by expecta-tions for China’s domestic air cargo market as consumerdemand fuels internal shipping across China’s vast interi-or and by the extension of manufacturing and industrialdevelopment in Central and Western China.

World Freighter ForecastThe global freighter fleet numbers approximately

1,854 aircraft, of which some 50 percent are widebodyaircraft. The vast majority of the freighter lift is owned byairlines operating in North America, Asia, and Europe.

BACK expects the global freighter fleet to grow an av-

erage of 3.5 percent per year over the next decade to keeppace with expected freight traffic growth, reaching 2,580aircraft by 2016.

By category, BACK forecasts the widebody segmentwill account for nearly 65 percent of all freighter aircraftadditions, including the addition of 255 large widebodyand 217 medium widebody aircraft over the forecast pe-



0

500

1,000

1,500

2,000

2,500

3,000

End of 2006 2016

Airc

raft

in F

leet

Large Widebody Medium Narrowbody Medium Widebody Small Narrowbody

638 893

374548274

491568

648

CAGR: 1.2%

CAGR: 3.5%

CAGR: 5.4%

CAGR: 3.5%

CAGR: 3.1%

1.854

2.580

Freighter Fleet Forecast (2007-2026)


http://www.qrcargo.com

riod. We forecast the medium widebody market to aver-age 5.4 percent growth per year over the next 10 yearsas airlines add this size category aircraft to ‘right-size’their fleets to meet traffic growth in regional marketssuch as intra-Europe, intra-Asia and domestic Chinawhile large widebody aircraft will see steady growth of3.1 percent average annual growth through 2016, sup-plying capacity to long-haul intercontinental markets.

In the narrowbody segment, aircraft will be used primar-ily to replace retiring aircraft and fulfill short-haul marketsegments. BACK expects most of the narrowbody freightergrowth to occur in the medium narrowbody segment,which we forecast to grow at a 3.5 percent annual rate overthe next decade, while the small narrowbody fleet willgrow only 1.2 percent per year. Airlines will limit invest-ment in smaller aircraft in favor of the larger payload andmission capabilities of the medium widebody aircraft.

One of the overarching trends in fleet developmentnow is that carriers are expediting the retirement of

aging, inefficient aircraft.In our forecast last year, we noted aging aircraft were

becoming increasingly difficult to operate given the cur-rent elevated fuel environment and would eventuallyneed to be replaced.

Since then, this has come to be a reality as severalprominent carriers have announced fleet renewals. AirFrance announced it will accelerate the retirement of747-200 freighters in favor of 747-400 convertedfreighters and, eventually, 777 freighters. FedEx an-nounced it will acquire nearly 90 757 aircraft for cargoconversion (to be converted by ST Aerospace) as it beginsreplacing its 727 fleet starting in 2008, and UPS recentlyplaced a large 767-300 freighter order with Boeing.

As FedEx’s fleet decision illustrates, the vast majority ofthe narrowbody fleet (excluding a relatively young global

757-200 fleet) will be replaced over the next 10 years infavor of more fuel-efficient aircraft such as converted 757(which offers approximately 25 percent lower operatingcosts versus the 727), converted 737-300/400, and the re-cently launched Airbus A320 conversion.

However, as with any conversion aircraft, passengeraircraft values must reach a level at which it makes eco-nomic sense to take the aircraft out of passenger serviceand convert into freighter configuration.

In today’s aircraft market, the lease values placed onthese aircraft are such that many carriers are finding itdifficult to acquire aircraft for these conversion programs.But over the next 10 years, as next-generation narrow-body aircraft enter the global passenger fleet, a sufficientfeedstock will be made available to meet the expected de-mand for converted narrowbody aircraft.

In the widebody segment, we expect the majority ofretirements to be older vintage aircraft such as early vin-tage A300, A310, 767-200, DC10, and 747-200 freighters.However, given the current strong aircraft market, someof these aircraft may have to be extended for a few yearsbeyond their intended retirement until satisfactory re-placement aircraft are acquired from an original manu-facturer or a third-party conversion shop.

In total, BACK expects approximately 600 freighter air-craft will retire over the next 10 years, leaving only 1,266freighters remaining from the current fleet.

Another important trend in the freighter market isthat converted aircraft will play major fleet renewal

role, especially in narrowbody segment.BACK expects nearly 70 percent of the fleet renewal

will be converted passenger aircraft. We expect 870 con-verted aircraft to enter the freighter fleet while less than450 new freighter aircraft will enter service over the next10 years. Given the inherent lower aircraft utilizationrates of freighters relative to passenger aircraft, acquisition



Airc

raft

400

0

800

1,200

1,600

2,000

2,400

2,800

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016Current Fleet New Freighters Incremental Conversion Freighters

870 converted freighters

444 new freighters

1,266 current freighters remaining

Freighter Fleet


cost plays a larger role in freighter aircraft selection than itdoes in passenger aircraft selection. Given historical dis-crepancies in acquisition costs between factory built newfreighters and conversion freighters, carriers typically pre-fer the lower acquisition cost of converted freighters.

However, given the strength of the current aircraftmarket, with the relatively scant availability of conver-sion candidates, carriers are being forced to consider fac-tory freighter aircraft.

Of course, while commanding higher acquisitionprices, new freighter aircraft provide carriers with im-proved operating economics and better payload perfor-mance relative to converted aircraft. Yet, with new pas-senger aircraft such as the A380-800, 787, A350XWB, andthe 747-8 on the horizon, freighter operators can expectlease rates to begin to recede on passenger aircraft valuesand begin to approach attractive levels for conversionover the next five to seven years.

It is anyone’s guess how long the current strength in

aircraft values will remain. But it is clear operators have awide array of excellent fleet renewal options both interms of factory freighters such as the 777, 767-300, and747-8 as well as a plethora of conversion programs of-fered by original manufacturers and third-party mainte-nance and conversion houses.

SummaryAlthough 2007 has started slowly, BACK expects the

long-term outlook for the air freight industry to remainbright, fueled by continued growth in the China, Asiaand emerging markets such as India and Russia.

However, the larger question is how the industry willmanage this growth in the face of continued expansionof Chinese capacity, ramifications of the recently an-nounced U.S-E.U “open skies” agreement, and continuedtrade imbalances, all of which may exert further down-ward pressure on the overall economics of air freightgrowth over the next 10 years. ■




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Region Focus:Europe

Europe’sAsianAngst

Europe’sAsianAngst

by Peter Conway

32F2-EuropeINT 4/20/07 10:30 AM Page 32

There is a ratherdownbeat air in Euro-

pean air cargo as the continent’scarriers watch a new wave offreighter operators eat into their tra-ditional market share on Europe toAsia routes.

The consensus of various industryexperts is some 1,000 to 1,500tonnes of capacity has been addedon China-Europe routes in recentmonths, mainly from Chinese andMiddle Eastern carriers.

The carriers involved include JadeCargo International, using its third

freighter to fly from Shenzhen toLeizpig and Stockholm; Yangtze Riv-er Express starting a four times aweek service from Shanghai to Lux-embourg; and Great Wall Airlines,boosting its newly resumed servicesto Amsterdam from six to 10 weekly.

European carriers are also addingcapacity. TNT now flies three times aweek from Liège in Belgium toShanghai, and Italy’s Cargoitalia andOcean Airlines are ramping up ser-vices to China. But there is littledoubt that the European majors arefeeling beleaguered.

“In the short term, we cannotdeny that all the European carriers,including Air France-KLM, are facedwith a new balance of capacity,” saidMichael Wisbrun, chairman of thejoint cargo management committee

of the Franco-Dutch airline. “If youlook at the manufacturing ordersand aircraft conversions, there isalso no doubt that the drive of ca-pacity is coming mainly from Asia.”

All this is worrying for Europe’scarriers because cargo out of Asia,China particularly, has been thehoney pot for them in recent years— abundant, high-yield traffic dri-ving their growth and profitability.If that market is eaten away by whatEuropean cargo managers have tak-en to dubbing low cost Chinesecompetition, then the prospects

could be worrisome.Carriers on trans-Pacific routes

already have seen the impact of therapid drive to build capacity; ex-port demand out of Shanghai re-mains strong, but yields are de-pressed, excacerbating the trou-bling imbalance there.

“We have not so far seen anyproblem with rates out of Asia, but Icannot imagine that the capacity in-crease we are seeing won’t have animpact,” said Pierre Wesner, vicepresident Europe, Africa and MiddleEast for Cargolux.

Stan Wraight, head of Russian car-rier AirBridge Cargo is more direct.“There will definitely be overcapaci-ty out of China,” he said. “Yields arealready only being maintained inSeptember, October and half of No-

vember. What happens when all thenew guys come in? I don’t know. Itis a fool’s paradise.”

European carriers are alreadyfeeling some impact. Air France-KLMreported a sluggish performance inthe final quarter of 2006, with cargorevenue down 3 percent year onyear on a 0.1 percent rise in traffic.Contrast that with a booming pas-senger business, where revenue rose7.1 percent.

Currency factors and high oil

prices had something to do withthese figures, but the carrier also ad-mitted Asian competition was start-ing to bite.

“Asia has been the money-makerfor this industry for the last three,four years, and we can’t help but feelthe impact of the supply and de-mand situation on Asian routes,”said Wisbrun.

Air France–KLM is not alone. Fig-ures from the Association of Euro-pean Airlines show traffic by its mem-ber airlines to the Far East and Aus-tralasia falling 3.6 percent in the firsttwo months of 2007, against a rise of4.7 percent in the first half of last yearand 7.7 percent in the first quarter.

No one says the growth in Asia-Europe trade is slackening, suggest-ing European carriers are not win-


Chinese and Middle East cargo airlines aretaking business in Europe, and that has

European carriers looking to respond


ning their share of growth.The same is true on Middle East-

ern routes, where AEA carriers sawtraffic down 5.5 percent in Decem-ber, as compared to a rise of 8.7 per-cent in the first half and 12 percentin the first quarter. The meteoricgrowth of Emirates, Etihad, QatarAirways is undoubtedly the cause ofthis phenomenon.

Carsten Spohr, Lufthansa Cargo’schairman, even cited Emirates byname at the carrier’s annual resultspress conference in March as onecarrier “trying to grab market sharewith lower freight rates.”

Competition on Middle Easternroutes is something of a doublewhammy for European carriers, as itboth adds capacity on Asia to Eu-rope routes — Emirates and its com-petitors all rely heavily on transittraffic — and threatens a usefulsource of high yields eastbound.

This is because European carriershave until now been able to balanceweak demand to Asia by stopping inDubai or other Gulf locations on theway. Cargolux is arguably the mostproficient practitioner of this ap-proach, serving places far off theroutine trade lanes such as Damas-cus, Tehran, Kuwait and Oman onthe way to Far East destinations. Aswell as cargo from Europe, transitcargo from the United States is astrong component of this traffic.

Wesner said about half of east-bound capacity on its Asianfreighters is dedicated to this MiddleEast market, and until now there hasbeen a “big difference” in rates com-pared to what Cargolux could get forEurope-Asia cargo, although he de-clined to be more specific.

“This has enabled us as much aspossible to keep out of the rate battleto Asia,” he said.

One further source of betteryields for European carriers has beenperipheral markets such as Scandi-navia, Italy and Spain, which theycan penetrate with their efficienttrucking networks, and feed cargointo their central hubs.

But here again, the opposition isparking its tanks on their frontlawns. Korean Air, Cathay Pacific,Air China and China Cargo Airlinesbegan freighter services over the pastyear to Stockholm and Copenhagen.

Given this pressure, what can Euro-pean carriers do? Air France and KLMin part created a joint cargo businessto find synergies, cut costs and aremore competitive against Asian carri-ers. This remains the strategy.

“We have to sweat it out andmaximize our ability to compete.Continual pressure on unit costs,one roof handling, one IT system, allof this helps,” said Wisbrun.

But he hinted the carrier mighthave to be choosier about the

routes its freighters fly.“A number of carriers are adding

capacity for capacity’s sake,” saidWisbrun. “That is the illness of ourindustry. So in our network we mayhave to ask if we can fly to every-where that our customers want, or ifwe have to focus more on a morelimited number of destinations.”

He said cargo needs to learn thelessons the passenger industry hasabsorbed in the last decade. “Eightto 10 years ago, they had the sameovercapacity problems, but now wesee a smarter equilibrium betweensupply and demand,” he said.

One thing Air France-KLM is notdoing is adding more maindeck ca-pacity, a contrast to its Sky Teampartner Korean Air Cargo. Ken Choi,president of the world’s largest inter-national freight airline, responds toquestions about overcapacity with“when the road gets steeper, youpedal harder.”

A fourth 747-400 extended-rangefreighter due to go to KLM in Febru-


Region Focus:Europe

–6%–4%–2%

0%2%4%6%8%

10%12%

Asia-PacificOverall

2/071/0712/0611/0610/069/068/067/066/065/064/063/062/061/06

CARRYING EUROPE

Source: Association of European Airlines

CARRYING EUROPEMonthly year-over-year percent change in overall freight trafficand Asia-Pacific freight traffic for European airlines.


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ary has been diverted toAir France to help the car-rier phase out its remain-ing 747-200 freighters.Separately, both carriersare rolling out 777-300 ontheir passenger routes, whichoffer as much as a 50 percentincrease in belly capacity. Thatmove will help Air France-KLMmaintain market share while ridingout the overcapacity storm.

Lufthansa Cargo seems tohave no particular plans to add ca-pacity. Spohr praises the MD-11freighters the German carrier uses,saying they’ve got plenty of life left.In a recent press briefing, he point-edly did not allude to any newfreighter orders.

Spohr spoke about cost cutting tomeet rate-cutting competition, andfocusing on per flight profitability.

“If we don’t see a chance to prof-itably expand, then we won’t,” hesaid. “That is what makes us differ-ent from our competitors.”

But Spohr admits Lufthansa couldnever match Asian unit costs. In-stead he believes quality service isthe answer, pointing to LufthansaCargo’s recent creation of “compe-tence centers,” which have designat-ed experts in mail, live animals,high-value cargo, and temperature-sensitive goods.

Having a 25 percent share in JadeCargo International helps bolsterLufthansa’s competitive standing.But does this stake enable the carrierto ride the Chinese dragon or just tocling onto its tail? Spohr, fresh backfrom a visit to Shenzhen, insists therelationship of the two carriers re-mains close, but Jade’s decision tofly to Leipzig in Germany with its

third freighter raised some eyebrowsin Europe’s air cargo community.

“Of course we have to decide howmuch independence we want foreach subsidiary in each market, andthat can be challenging,” said Spohr.

Air France-KLM is attempting toforge a cargo joint venture with Chi-na Southern, but even here there isuncertainty. Far from being a pre-ferred partner for the Chinese carri-er, it now seems the European carri-er is just one possible bidder in thetender process. If a deal is reached, itwould have to “deliver value to thebottom line,” Wisbrun said, suggest-ing the partnership is not seeking atie-up at any cost.

Partnerships can be a double-edged sword. SAS has worked withKorean Air, Singapore Airlines andJapan Airlines to get maindeck ca-pacity to Asia. But some observersregard this move as having helpedKorean Air get into the Scandinavianmarket. With Jade and other Chi-nese joint ventures, the suspicion isthe Chinese partners are tapping theexperience of their European coun-terparts as a prelude to more opencompetition with them.

A trump card for the Europeancarriers here could be their close rela-tionships with the major global for-warders – the Panalpinas, Kuehne &Nagels and Schenkers. Comments by

two senior Panalpina executives –Wolfgang Meier, head of networksand Robert Frei, head of air freight –at the World Air Cargo Event confer-ence in Dubai in February suggesteda certain nervousness by forwardersabout how the new capacity floodingthe market will affect their business.

Meier said overcapacity and lowerrates could lead to weaker serviceand less consistency in routes, whileFrei said commitment and guaran-teed capacity was what for the for-warder was looking. European carri-ers could still retain substantial mar-ket share among the major for-warders if they meet such needs.

As a last resort, there is always cre-ative routing, which is easier for Eu-ropean carriers than their NorthAmerican counterparts. Cargolux re-sponded to the competition on Mid-dle East routes by routing more of itsAsia-bound freighters via CentralAsia. In the past few years, Cargoluxhas also turned its attention toAfrica, starting service to eightplaces, including Lagos, Ndjamena,Abidjan, Accra and Kinshasa.

Wesner said West Africa is a goodsource of cargo — in particular oilequipment and consumer goods forworkers. And there is the still grow-ing perishables market from Africato Europe.

“At the end of the day, we justhave to keep one step ahead of themarket,” said Wesner. “We have tocarry on being creative.” ■


Region Focus:Europe

22.2%

16.2%

14.2%

13.4%

13%

22.2%

16.2%

14.2%

13.4%

13%4%

3.7%

2.9%

2.8%

2.9%

2.8%

1.7%

5.9%

DIVIDING EUROPEShare of air freight market dividedby European airlines in 2006,based on freight tonne kilometersperformed.

LufthansaAir FranceCargoluxKLMBritish AirwaysAlitalia

VirginSWISSIberiaSASOthers

Source: Association of European Airlines



Feature Focus:Regional Freighters

Short-HaulGoes Longerby Robert W. Moorman

In the early 1980s, one industry story goes, FedEx

Chairman Frederick W. Smith, sent a note to the

European manufacturer of the ATR-42 regional

aircraft suggesting they make the plane, then still

in the design stage, a little wider. Doing so would

make it a better freighter one day, he reasoned.

Smith may not have been a customer at the time, but

ATR took the advice and today FedEx is one of several

carriers that have made the ATR-42 and its companion

ATR-72 significant players in the air freight industry. In

some ways, the role of the ATRs and other regional

freighters in expedited supply chains belies trends that

are pushing short-haul air cargo to trucks but industry

observers say it’s a role that is growing.

Never mind those trucks, regional air cargo operators havebecome an important link for expedited freight worldwide

37F3-RegionalFreighterINT 4/20/07 10:37 AM Page 37

The growth of the regional air car-go industry in the United States andEurope mirrors that of its counter-part passenger business. Years ago,regional air cargo operators weresmall mom-and-pop operations fly-ing bulk freight with small piston-powered aircraft. Today, the opera-tions are more sophisticated. Opera-tors fly larger pressurized equipmentand have become an integral part ofthe global air freight business.

The smaller operators are stillaround but they are shrinking dueto consolidation and the rigors of to-day’s air cargo business. Others, suchas Coeur d’Alene, Idaho-based Em-pire Airlines, are profitable and inex-orably linked to the larger players inthe industry.

“There are some parallels to beinga regional feeder for a major passen-ger airline and a regional feeder for afreight forwarder or expeditor,” saidTim Komberec, president and CEOof Empire, which flies ATRs, F27sand Caravans for FedEx Express.“This seems to be the best way for

companies to get their product tosmaller cities at a reasonable cost.”

Gary Richards is president of Bur-bank, Calif.-based Ameriflight, one ofthe larger regional cargo carriers inNorth America, operating more than170 aircraft to 250 communities. Hesees noticeable changes in his businesssince Ameriflight flew piston-poweredaircraft for banks in the 1970s.

“Next-day air service forced carri-ers like ours to upgrade to turbo-props because pistons could carrythe weight, but not the bulk, typical-ly,” said Richards.

Ameriflight and others upgradedto the cargo equivalent of 15-seat,20-seat and 30-seat freighters.

Richards credits online shoppingfor expediting change in this seg-ment of the industry. Before the late1980s, many communities did notget their mail or products the nextday. Now, a computer click promisesspeedy delivery for all kinds of goods.

“The Internet is next-day and thattoo brought change,” said Richards.

In the United States, today’s region-al air cargo industry was built part-

ly by the banking industry. Ameriflight and several other carri-

ers flew checks overnight betweenFederal Reserve Banks in U.S. cities sothe checks could be cleared, andfunds transferred as quickly as possi-ble. FedEx, as Federal Express, wasbuilt at least in part to compete for

that business. But the “Check 21” law a

couple of years ago allowsbanks to electronically trans-

mit checks. That, said Richards,prompted independent regional aircargo carriers to become more closelyaligned with larger airlines. Ameri-flight now uses only two of its fiveLear 35s to fly checks; the other threeare used for on-demand air charter.Ameriflight also operates Brasilias,Metro IIIs, 402s, Beech 99s and 1900s.

Most regional cargo carriers insistthey are profitable but most are pri-vately held and decline to provide fi-nancial or freight tonnage data. Onesignificant independent operator,Utah-based Alpine Air Express, ispublicly traded and earned $1.3 mil-lion in net profit in the nine monthsending July 31, 2006, on revenue of$15.6 million, and counted a $2.6million operating profit.

But most regional air cargo carri-ers are not required to submit Form41 traffic and financial data to theU.S. Department of Transportation,according to Stan Bernstein, presi-dent of the Regional Air Cargo Carri-ers Association. Form 41 data is notrequired on Shorts 360 sized aircraftwith a 7,500 pound payload. Above7,500 pound payloads, the carrierwould need to be a Part 121 operatorunley they have an exemption.



The ATRs are consideredideal regional freightersbecause of their widefuselage as well as thelarge portside door.

2007




According to RACCA,the average load forNorth American regionalair cargo carriers is 2,500pounds and the stagelength is 110 miles. Thereare around 1,065 regionalfreighters in North Amer-ica flying over 750,000hours annually.

The apparent growthof the regional air

cargo business has comewith some tough scruti-ny, however.

Between 1996 and2005, there were 742 acci-dents involving air taxioperations working underPart 135 rules coveringaircraft beneath jet size.Of those, 282 involvedcargo aircraft with pay-load capacities of 7,500pounds or less, accordingto the National Trans-portation Safety Board.Eighty-five of those acci-dents were fatal. Forty-three percent of the acci-dents involved two-en-gine piston aircraft and 14percent involved single-engine Caravans.

Cessna recently developed an on-line course for flying in icing condi-tions, part of an industry response toaccidens that have tarnished the in-dustry’s reputation.

Leaders of this segment of the in-dustry were surprisingly candidabout this safety problem.

“The safety record in our industryhas not improved over the last 10 to15 years, so it remains one of ourbiggest challenges,” said Ameriflight’sRichards. “Our pilots typically are

younger and greener. So we’re takinga hard look at the issue.”

One way to improve safety isthrough additional training. Anoth-er is to acquire the now-affordablesafety related technology for smallregional cargo aircraft. Installingglobal positioning systems withmoving map display as well as trafficcollision avoidance warning systemswould improve safety, said Richards.

RACCA plans to develop a set ofrecommended safety standards for

its members to imple-ment on a voluntary ba-sis, said board memberDavid Corey, presidentof AirNow, a regionalfreighter based in Ben-nington, Vt.

The standards will ex-ceed Federal AviationAdministration mini-mum standards for air-craft operations and crewresource management.

For manufacturers ofregional aircraft, the

growing use of theplanes in the air cargobusiness has been animportant development,providing a viable after-market for aircraft aspassenger airlines adjustand revamp fleets.

The no-longer-pro-duced ATPs, 340 Brasilias,Bandeirantes and Shorts360 are finding secondhomes with regional aircargo operators.

Even ATR — Avionsde Transport Regional —which still produces theATR-42-500 and ATR-72-500, is benefiting from

the popularity of the olderfreighters.

“Although we don’t convert ATRs,the cargo conversion improves theresidual value of our product,” saidJohn Buckley, vice president of salesfor ATR North America.

There are around 70 ATRfreighters flying worldwide. FedExExpress has acquired just over 40ATRs, but the carrier declined to sayhow many were in revenue servicewith its regional partners.

West Air Sweden believes in the freight haulingpotential of converted regional passenger air-liners. The Gothenburg-based all-cargo carrieroperates 18 ATPs twin-engine turboprop onbehalf of integrators, various Scandinavianpostal authorities and logistics providers.

The long-term plans call for 28 ATPs, somewith large cargo doors for containerized cargo.

The regional carrier made its decision back in 1998,when a study showed the ATP had the lowest costs. Thecarrier signed a long-term joint venture with BAE Sys-tems Regional Aircraft to modify and lease the aircraft,which are no longer being built.

Gustaf Thureborn, West Air’s president and managingdirector, said the airline faces operational and regulato-ry challenges in expanding its business more rapidly.

“In Europe, we’re still not adequately utilizing airfreight solutions as they do in the United States,” hesaid. Mail is the airline’s biggest single source of revenue.

This spring, West Air will become a guinea pig ofsorts. The carrier will receive the first two BombardierAerospace CRJ200 regional jet freighters made. Regionalcargo operators will follow closely the freighter poten-tial of the CRJ200. Many operators question whether theCRJ will ever compete well with turboprops for freighterbusiness because of the newer plane’s higher operatingcosts. But they said the same thing years ago about theRJ’s potential as a passenger hauler.

Elsewhere in Europe, many regional airlines operate acombi-passenger and freight carrying services, accord-ing to the European Regions Airline Association. Adria,Aegean and Air Atlantique all operate cargo services,said ERAA spokeswoman Lesley Shepherd. ■

Hauling Sweden




A 16-year-old ATR-42 passengerairliner, if available, can be acquiredfor around $3 million, $6.5 millionfor an ATR-72 manufactured in1990, said Buckley.

The ATRs are considered ideal re-gional freighters because of theirwide fuselage as well as the largeportside door. A 117x72-inch cargodoor is offered for the ATR-72-200freighter, but the conversion costmay be prohibitive for some opera-tors. Conversion specialist Aeron-avali, a Finmeccania company, pro-duces a large freight door for about$1.2 million, reportedly.

With the larger door, the -72 iscapable of carrying five 88-inch by108-inch pallets plus a bulk load.Depending upon the cargo loadingsystem chosen, conversion costsvary widely from $250,000 to $1.4million, according to one comple-tion house.

BAE Systems Regional Aircraft haspumped new life into its ATP turbo-prop freighter and, possibly, its BAe-146 quad-jet freighter. TNT still uses13 BAE-146-200 QTs in Europe andTitan Airways in the United King-dom has three -146s.

“The ATP needed a market outletto sustain its projected life between

30 and 40 years,” said Nigel Benson,director of sales for BAE Systems Re-gional Aircraft.

Benson said the manufacturer gotinto the ATP freighter conversionbusiness after several market studies

and forming a joint venture withWest Air Sweden.

Benson expects 40 of the 64 ATPsmanufactured will be freighters bythe end of 2007. Of that number, 17will have the new portside freightdoors and 23 will be configured forbulk freight. The other 20 remain inpassenger service, with three aircraftidle, he said.

BAe is close to a decision on re-launching the -146 freighter pro-gram as a result of a “steady trickleof inquiries,” said Benson. The con-tinued demand for the -146freighter, he said, comes from thevoid left between the ATP and ATRsand the larger 737-300/400 jets. Butoperators would have to absorb theexpected increase in direct operat-ing costs for more capacity.

Utilicraft Aerospace Industries has a new name and new head-quarters as it renews its efforts to build a new short haul region-al freighter turboprop.

Formerly based in Lawrenceville, Ga., as American Utili-craft, the company now is working on its plan out of Albu-querque, N.M.

The company now plans to roll out a prototype of its twin-engine, single propeller freighter, dubbed the FF-1080 freight

feeder, in November 2007, and certify the aircraft in 2009, says VicePresident of Marketing Scott Jacox.

The aircraft could be described as a larger, boxier version of the Cess-na Caravan. At 112 feet long, the FF-1080 is designed for short takeoffand landing operations. It will have an operating range payload of20,000 pounds over 2,000 nautical miles.

In January, Utilicraft signed a letter of intent with Swansea, Ill.-based Mid America Aero for the purchase of 10 FF-1080-300s. At$13.2 million per copy, the order has a potential value of around$130 million.

But the company has a checkered history. American Utilicraft wasforced to shut down its Georgia operation after several orders were can-celed. In 2004, the renamed company led by CEO John Dupont resur-faced in Alburquerque, looking for necessary funding to bring the air-craft to market. ■

Propping Up Planes


In fact, the conversion market forthe short-haul aircraft is as lively

as that for large freighters.So far, Saab Aircraft Leasing has

seen some 20 of its 340As reconfig-ured for cargo service, most ofthem done by SAL itself.

“We’ve done quite well,” saidMichael Magnusson, president ofSaab Aircraft Leasing. Cargo cus-tomers include Miami-based IBC,which has four 340 freighters. Two340 freighters are operating withJob Air, a freighter carrier in theCzech Republic.

The larger 400 miles-per-hour,Saab 2000, however, is “too expen-sive,” said Magnuson, at around $6million before conversion costs.

The lack of availability and highresidual value of these older regionalairliners is another challenge facingmanufacturers and operators. Whilenot an ideal freighter, most Dash 8-200 and 300s remain in passenger ser-vice. Even the older 1980s- producedDash 8s found homes with second-tier carriers in developing nations.

“I never thought this vintage wouldstill be in passenger service,” said RonSheridan, vice president of asset man-agement for Bombardier Aerospace.“We looked at converting the Dash 8for freighter service, but we neverhad the price levels low enough tomeet the market’s expectation.” The50-passenger -300 costs over $4 mil-lion before conversion, he said.

But Bombardier is attempting tomarket older CRJ regional jetfreighters. Launch customer West AirSweden will receive two CRJ200sfreighters this spring. The Mach 0.81-capable CRJ200PF can carry a 14,000-pound payload. Most operators arewaiting to see how the CRJ performsas a freighter before committing.

Sheridan described the CRJ

freighter as a “nice airplane for longhaul service,” but concedes it can’tcompete with turboprops on shorthaul stage lengths.

OEMs are not the only vendors toprosper from the regional freighteraftermarket. Maintenance, Repair

and Overhaul shops are slowly en-hancing their revenue base by con-verting regional passenger airlinersto freighters.

San Antonio-based M7 Aerospaceis a top conversion house, havingconverted nearly 50 ATRs, most forFedEx. M7 is a preferred conversionhouse because it has supplementaltype certificates for the passenger tofreight conversion of both the ATR -

72 and -42. In addition to ATRs, M7Aerospace converts to cargo theBrasilia and Metroliners.

“It’s a growing business and weplan to capture more of it the future,”said Chester Schickling, vice presidentof business development. ■



Where the airport industry comes together

Make sure

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www.interairport.comwww.interairport.com

The 16th International Exhibition for Airport Equipment, Technology & Services

For the latest show information: Tel +44 (0)1727 814 400 or [email protected]

All-cargo turboprop freightersworldwide listed by regionsUSA . . . . . . . . . . . . . . . . . . . . . . . . . . .821Europe . . . . . . . . . . . . . . . . . . . . . . . .357Africa . . . . . . . . . . . . . . . . . . . . . . . . .142Canada . . . . . . . . . . . . . . . . . . . . . . . . .56South America . . . . . . . . . . . . . . . . . .41Middle East . . . . . . . . . . . . . . . . . . . . .33Far East . . . . . . . . . . . . . . . . . . . . . . . .32Central America . . . . . . . . . . . . . . . .30Australia . . . . . . . . . . . . . . . . . . . . . . .27Carribean . . . . . . . . . . . . . . . . . . . . . . . .7Total . . . . . . . . . . . . . . . . . . .1,546Source: BACK Aviation Solutions



http://www.interairport.com

Airlines

Atlas Air: Atlas AirWorldwide Holdingsnamed former KLM Cargoexecutive Michael T.Steen senior vice presi-dent and chief marketingofficer, replacing RonaldLane, who is retiring atthe end of the year. Lane

will remain a senior vice presidentand special advisor through Dec. 31.Steen, 40, has been with Exel mostrecently in senior positions in logis-tics and supply chain management.He was with KLM for 11 years beforethat, including positions as vice presi-dent for the Americas, head of globalsales and marketing and director ofsales for Northern Europe.

Martinair Cargo: The Dutch car-rier named Iris Van Goethem di-rector of capacity revenue manage-ment. She has been an analyst in theCRM division and earlier was deputystation manager in Miami. She holdsan economics degree and a master’sdegree in music and education fromthe Royal Flemish University.

Maskargo: Malaysia Airlines Car-go promoted three executives: ChanChee Huat, former senior managerof finance, was named general man-ager of finance. Shahari Sulaiman,former general manager for businessdevelopment and sales, becomes gen-eral manager of cargo operations re-sponsible for systemwide operations.And Mohd Yunus Idris, formergeneral manager of cargo operations,becomes general manager of businessdevelopment and sales.

Integrators

DHL: The express carrier namedCharles Graham global chief execu-

tive officer for avia-tion, a position thatincludes membershipon the company’sglobal express man-agement board. Hesucceeds TerryNord, who retired.Graham had beenCEO of AWAS, for-merly Ansett World-wide, for 10 years.DHL Express alsonamed RaymondLeong national mar-keting manager inSingapore. Leongjoined the companyin 1996 in Malaysia as a marketing re-search and planning manager aftergetting an engineering degree and amaster’s in business administrationfrom the University of South Carolina.

ANC Express: Recently acquiredby FedEx Express, the British operatorsaid Michael Holt was promoted tochief executive on the retirement ofMark Gittins and longtime FedExexecutive Trevor Hoyle was movedto ANC as group operations director.Holt, 45, had been group operationsdirector at the carrier since 2000.Hoyle, 46, has been with FedEx Ex-press in United Kingdom for 13 yearsand became managing director of op-erations in 2002.

Third Parties

Meridian IQ: Thelogistics subsidiary ofYRC Worldwidenamed John Carrpresident of theAmericas and Europe.Carr was most recent-ly president of globalsupply chain manage-

ment at BAX Global. He earlier heldmanagement posts at the Fritz Cos.,Geologistics, Pandair and Behring In-ternational. Meridian IQ also namedRoland Chong managing directorfor Asia, a position that includes over-sight of the company’s joint forward-ing venture with JHJ InternationalTransportation in China. Chong hasworked with companies includingExel, Kyocera, AT&T, and Crown Pacif-ic. He also serves as an economic con-sultant and advisor for the Chinesegovernment in development of theTianjin airport and free trade zone.

Famous PacificShipping: The Asianforwarder, seeking tobranch out from ser-vices largely identifiedwith the ocean indus-try named AkanesiOfahengaue manag-er for the FPS airfreight division in New Zealand. Shehad most recently been at Air NewZealand Cargo managing the airline’sportfolio of forwarder customers.

Global Link Logistics: The At-lanta-based import logistics servicesprovider to the North American homefurnishings industry named Chris-tine Callahan chief operating officerfor the company. A 25-year logisticsindustry veteran, Callahan had beenvice president of global ocean freightservices at UPS Forwarding and joinedthe company through its acquisitionof Menlo Worldwide Forwarding.

Agility: The Kuwait-based for-warder named Anthony E. Enright,a former top executive at UPS SupplyChain Solutions, senior vice presidentof sales and marketing for the Americ-as. Enright replaces John Kincheloe,who moved to the Global IntegratedLogistics sales team. A 30-year indus-try veteran, the former executive at

People

Steen

Graham

Chong

Ofahengaue

Leong


42PeopleINT 4/20/07 2:01 PM Page 42

AEI, Target Airfreight and DatelineForwarding also was on the acquisi-tion teams for the purchase of FritzCos. and Menlo Forwarding.

Adcom Worldwide: The Min-nesota-based forwarder named JohnKlesch vice president of sales andmarketing and Richard Flandersvice president of national sales. A 30-year industry veteran, Klesch heldmanagement roles at Circle Interna-tional and Eagle Global Logistics.Flanders worked in national sales atforwarders Seko and Pilot.

Associated Global Systems:The U.S. forwarder Bob Reilly direc-tor of government services. Reilly be-gan his career in 1978 with DHL andlater worked at Emery Worldwideand UPS Supply Chain Solutions.

Lynden International: The Seat-tle-based forwarder named Stella Lu-dovicy an account executive in theMidwest. A 20-year industry veteran,she had been with Panalpina for fouryears. Lynden also named JimmyCahill, formerly of Exel and BAXGlobal, a Midwest account executive.

Mundays: The British law firmspecializing in the air cargo and logis-tics industry named OIiver Jacksonan attorney with the firm. Jackson isa specialist in dispute resolution, in-solvency and business recovery andhas worked in areas including fran-chise agreements and overseas judg-ment enforcement.

Manufacturers

Airbus: Airbus North America pro-moted Andrew Shankland to seniorvice president for sales and marketing.A 15-year Airbus veteran, Shanklandhad been vice president of sales. Previ-ous positions include ANA vice presi-dent for business development.

Driessen: The Netherlands-based

maker of air cargoequipment namedPaul Verheul chiefexecutive officer. Hejoined Driessen aspresident of the Eu-rope galleys divisionand before that wasvice president of Schreiner AviationGroup and vice president of engi-neering and maintenance atTransavia Airlines.

Utilicraft Aerospace: The NewMexico-based manufacturer of aprospective regional cargo feeder air-craft named Randy Moseley chief fi-nancial officer. The former CFO,Karen Schoemaker, will remain asas vice president and controller.

Trucking

Forward Air: The U.S. air freighttrucker elected Tracey A. Leinbach,the former chief financial officer ofRyder System, as a member of itsboard of directors. She retired fromRyder last year after more than 20years with the company. ■

People

Verheul

Aeronautical Engineering..................................6Alitalia...............................................................CV2All Nippon Airways .............................................3Austrian Airlines ................................................23Boeing.............................................................24-25China Trade & Logistics Conf.......................CV3Cologne-Bonn Airport .......................................15Continental Airlines .......................................CV4Coyne Airways....................................................12Dallas-Fort Worth Int’l Airport ..........................7Delta Air Logistics ...............................................9Mack-Brooks ......................................................41Malpensa Logistics ...........................................31Qatar Airways.....................................................29Royal Jordanian Cargo .......................................8Vienna Airport.....................................................35

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May 15-17

Baku, Azerbaijan: Caspian AirCargo Summit 2007, organized byEuroavia International and Silk WayAirlines, focused on the Caspian, CISand Central Asia market. For infor-mation, call +47 70 483 6474 or visit:www.euroavia.com/caspian/

May 22-23

London: World Mail & Ex-press, the European conference andexhibition at the Novotel Hammer-smith, sorting out how deregulationwill push the envelope on privateand postal delivery services. For infor-mation, call +44 870 950 7900 or vis-it: www.triangle.eu.com.

June 3-5

Vancouver, B.C.: IATA AnnualGeneral Meeting and WorldTransport Summit, the high-levelgathering of senior airline executivesfocused on self-sorting cargo, or pas-sengers, is an invitation-only event.For information, visit: www.iata.org.

June 4-5

Savannah, Ga.: China Trade &Logistics Conference, at the inter-national trade and convention cen-ter, the Journal of Commerce confer-ence and includes speakers from Chi-na ports and logistics companies. Forinformation, call (760) 294-5563 orvisit: www.joc.com/conferences/ctl.

June 12-15

Munich: Air Cargo Europe,within the transport logistic Interna-tional Trade Fair for Logistics orga-nized by Messe Muenchen. For in-

formation, call +49 89 949 20270 orvisit: www.messe-muenchen.de.

June 13-14

Tianjin, China: CSCMP China2007, the Council of Supply ChainManagement Professionals brings itsfocus on shippers and logistics toChina. For information, call (630)574-0985 or visit: www.cscmp.org.

June 25-27

Atlanta: Fifth annual 3PLSummit at the InterContinentalBuckhead, the eyefortransport eventfeatures takes place alongside theOutsourcing Logistics summit. For in-formation, call +44 207 375 7231 orvisit: www.eyefortransport.com.

Sept. 3-6

Hong Kong: Air Freight Asia2007, annual cargo industry confer-ence and exhibition, alongside AsianAerospace. For information, visit:www.airfreightasia.com.

Sept. 18-20

Warsaw: Cargo in EmergingMarkets–Eastern Europe, theIATA conference is the third in a se-ries of events that looks at challengesand opportunities outside the maintrade lanes. For information, visit:www.iata.org/events/calendar

Sept. 23-25

Stockholm: World Route De-velopment Forum, with the new

“Routes Cargo Zone,” the popularevent brings together airlines, air-ports and service strategies, includingpopular one-on-one sessions betweenroute planners and airports. For infor-mation, call +44 162 550 2545 or vis-it: www.routesonline.com.

Oct. 9-12

Munich: inter airport Europe2007, the annual event looks atramping up airport operations. Forinformation, call +44 (0) 172 7814400 visit: www.mackbrooks.co.uk.

Oct. 21-24

Philadelphia: CSCMP 2007, atthe Pennsylvania Convention Center,the annual meeting of the Council ofSupply Chain Management Profes-sionals, where shippers own thefreight and the event, the logisticsworld’s largest gathering of shippersincludes a keynote by the formerHewlett-Packard chief Carly Fiorina.For information, call (630) 574-0985or visit: www.cscmp.org.

Oct. 18-22

Dubai: FIATA World Congress,at the Grand Hyatt Hotel, the annualmeeting of the worldwide freight for-warder association. For information,call +41 43 211 65 00 or visit:www.fiata.org.

Nov. 7-9

Miami: Air Cargo Americas, atthe Sheraton Center, the ninth edi-tion of the bi-annual definitive eventlooking at air trade to, from andwithin Latin America. For informa-tion (305) 871-7904 or visit:www.aircargoamericas.com. ■


Events

For more events, visit:www.aircargoworld.com/dept/events.htm

44EventsINT 4/20/07 10:41 AM Page 44

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AirCargoWorld May 200746

Bottom LinetheAirCargo

–6%

–3%

0%

3%

6%

9%

12%

15%

InternationalDomestic

2/071/0712/0611/0610/069/068/067/066/065/064/063/062/061/0612/0511/0510/059/05

Source: Air Transport Association of America

U.S. Airlines

Monthly year-over-year percent change in domestic and international cargo trafficfor U.S. airlines.

48

50

52

54

56

58

60

3/072/071/0712/0611/0610/069/068/067/066/065/064/063/062/061/0612/0511/0510/05

Source: Institute of Supply Management

Making Goods

Monthly U.S. manufacturing index, indicating manufacturing activity in Americaneconomy. A reading above 50 shows expansion, below 50 contraction.

– 10%

0%

10%

20%

30%

40%

50%

60%

RotterdamSingaporeNew York

1Q’074Q’063Q’062Q’061Q’064Q’053Q’052Q’051Q’05

* Through March 23Source: Energy Information Administration, Bank of America Securities

Filling Up

Year-over-year percent change in average quarterly jet fuel prices in Europe, Asiaand the United States.

46BottomLineINT 4/20/07 10:40 AM Page 46

AirCargoWorldMay 2007 47

Belly Bust

0

10,000

20,000

30,000

40,000

50,000

’10’09’08’07’06’05’04’03’02’01’00Forecast

12,20511,118 9,931

10,594 10,59410,674

11,493 11,94112,568

13,16513,768

17,852 17,363 17,832 22,218 22,920 25,789 28,296 29,582 31,490 33,454 35,249

All-CargoPassenger

PassengerAll-cargo

1997 2006 2017

59.6%

40.4%

28.6%

71.4%

26.6%

73.4%

Past and forecast traffic carried by U.S.passenger and all-cargo airlines.(in millions of cargo ton miles)

Sharing Bellies

Historical and forecast division ofcargo traffic in the United Statesbetween all-cargo carriers andpassenger airlines, for all services.

Source: Federal Aviation Administration Source: Federal Aviation Administration

Sharing FedEx

Domestic expressInt’l express

Air freightFedEx Ground

FedEx FreightKinkos

Other

2001 2006

52.8%

32.5%

18.7%5.6%

13.3% 52.8%

18.7%

13.3%

5.1%

4.5%

18.6%18.6%

10.8%

17.7%

32.5%

10.8%

17.7%

12.8%

5.6%

FedEx overall revenue divided bybusiness in 2001 and 2006 third quarter.

Source: Company reports

Cargo revenue in 2006 and percentchange from 2005 for the major U.S.combination airlines.(in US$millions)

AIRLINE 2005 2006 % CHANGE

1. Northwest $947 $946 –0.1

2. American $784 $827 5.5

3. United $729 $750 2.8

4. Delta $524 $498 –5.0

5. Continental $416 $457 9.9

6. US Airways/America West n/a $153 n/a*

7. Southwest $133 $134 0.8

8. Alaska $94 $97 3.2* Figures combine US Airways and

America West into US Airways GroupSource: Company reports

Carrying International

1%

2%

3%

4%

5%

6%

7%

2/071/0712/0611/0610/069/068/067/066/065/064/063/062/061/06

CapacityTraffic

Monthly year-over-year percent change in total scheduled international freight trafficand capacity worldwide, in freight tonne-kilometers and available tonne-kilometers.

Source: International Air Transport Association

Cargo Revenue

46BottomLineINT 4/20/07 10:40 AM Page 47

China Brandon Fried • Executive Director • U.S. Airforwarders Association

Airline connections to China are growing, but is business onthe ground ready to keep up?


United Airlines recently hosted an intimategathering in Washington to celebrate itsnew “Capital to Capital” nonstop service

to Beijing. The event attracted many governmentand industryy officials, many of whom were tak-ing the first flight — fully booked — the nextmorning. It also marked the opening of a newroute in what has become the world’s largest-ever economic boom markets — China.

It is no secret companies worldwide are gaining eco-nomic advantages through manufacturing in China.

The country creates domestic infrastructure the size ofthe city of Philadelphia every 90 days. China’s exportmarket has driven economic growth in the country that isapproaching 10 percent annually. China alone will con-tribute 30 percent of the world’s air cargo growth by 2010.The China-North America cargo market has now achievedthe highest position in the trans-Pacific sector and is set togrow larger as freighters pour into the region.

China is building and expanding airports at an un-precedented rate. The country plans to spend US$17.4billion over the next five years to build 42 airports. Anoverabundance of labor recently had 35,000 workerscommitted to building the world’s largest terminal struc-ture at the Beijing airport.

Air cargo remains the growth point as the governmentencourages the establishment of cargo and combinationcarriers to support its air transportation demand.

Unfair BalanceDespite the excitement of this increased economic ac-

tivity, one wonders if China will effectively deal with thechallenges created by its own success.

Airlines have dealt with the challenge of an imbal-ance of trade for a long time. Simply put, airlines flymore freight out of China than in. Inbound planes arehalf-empty which makes it difficult for the airlines tomake profits for the roundtrip flight. Export yields havecompensated for weak import rates, but threateningovercapacity could limit the industry’s growth.

Sharp capacity additions have created a new feature in

the Chinese export, discounted and ad hoc rates. Toomuch capacity chasing too few shipments could be thereal dilemma facing airlines.

Lower-cost carriers such as Jade International Cargo arelaunching with less overhead, ready to deal with higherfuel prices, more competition and lower volumes.

Paved IntentionsAnother threat to air cargo growth in China is infra-

structure bottlenecks brought about by overproductionand a lack of road planning. What good are big andbeautiful cargo airports if the highways cannot efficient-ly accommodate the trucks tendering shipments toflights in a timely manner?

China is working at a rapid pace to improve its roadconnections between large cities, but it will take yearsbefore the linehaul capabilities in China’s interior are ad-equate. If airport access issues jeopardize the speed of airfreight, shippers are likely to shift to other modes of sur-face transport to improve efficiencies.

As the world increasingly focuses on the security of aircargo, will China be able to efficiently deal with thescreening demands to assure flying safety? Can shippersand forwarders who have created security programs in Eu-rope and North America assure the security of their Chi-nese manufacturing supply chains?

The biggest challenge could be the environmental im-pact of air traffic growth. Such concerns have never beenhigh on the agenda for China’s aviation regulators.

Leaving the world’s fastest growing aviation sector un-restrained by pollution regulations would be a dangerousmistake. Many hope the rush of investors and aviationinterests will not only attract more airlines and airports,but those urging an increased environmental conscious-ness as well.

New flights prove the key to success in China is reallyin the logistics sector. Amid the excitement, huge chal-lenges remain with improvements coming every day.

The rest of the world can help China remain a preferredmanufacturing center by promoting reliable security andresponsible environmental behavior. ■

ForumForwarders

48ForwardersForumINT 4/20/07 10:42 AM Page 48

June 4 & 5, 2007Savannah InternationalTrade & Convention CenterSavannah, Georgia

Industry leaders will discuss and

debate the major issues involved

in the U.S-China international

shipping market, with an emphasis on

all-water and intermodal traffic. Over

the course of two days, executives

from shippers, carriers, ports, logistics

companies and others involved in the

U.S-China trade will take part in this

comprehensive briefing on the state

of the market and current strategies.

Produced by: Hosted by:

Plan to attendContact JoC Conferences at 760-294-5563 or [email protected]

Plan to sponsorContact Yvonne Berry at 209-369-0003 or [email protected]

Topics to Be Discussed:• How China's 5-year Plan Impacts Logistics &

Transportation• Sourcing from China• Port Development in China• All-Water Routes to Asia• Pros and Cons of Doing Business in China• Pearl River versus Yangtze River Delta

Development• Inland Transportation Opportunities in China• Ocean Carrier Expansion into China• A Chinese Millennium?

For more information or to register online visitwww.joc.com/conferences/ctl

Sponsored by:

A Symposium:Capping China’sPotential

Old Dominion Freight line, Inc.

McDonald Development

M_CTL_9020_FP_Revised.qxd 3/23/07 2:23 PM Page 1



http://www.joc.com/conferences/ctl

Work Hard.Fly Right.SM

© 2007 Continental Airlines, Inc.

The inauguration of daily flights between Newark and Athens on June 7 will boost ourtotal destinations served up to 285 and our total European cities served to 27.

So does that mean your world is getting bigger or smaller? Maybewe should just say closer and call it even. For more

information or to book a shipment, contactyour Continental Airlines Cargo

sales manager or visitcocargo.com.

Some service operated by ExpressJet Airlines, Inc., d/b/a Continental Express.

IT’S YOUR WORLD.WE JUST FLY AROUND IN IT.The most international destinations of any U.S. airline.


http://cocargo.com

air cargo world - may, 2007€¦ · freight forecast, back avi-ation solutions sees china and the...

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