ABX Air’s parent company Even the revenue from DHL expanded, expanded its air operations growing about 5. 7 percent over last year. But “beyond DHL” 83 percent in with DHL business seemingly on its way out the first half of 2008, but wheth- the door, growth of non-DHL business is er that is good enough for the the company’s main priority and Hete says carrier to remain viable remains ATSG is picking up speed in areas such as an open question. outsourced, or ACMI, flight operations.
The cargo airline suffered a $526,000 Block hours — a basic measure of time net loss in the three months ending June aircraft spend in revenue flight — outside
30, but the biggest loss in the second DHL grew 53 percent in the second quarter quarter came with the announcement and 83 percent in the first half of the year. that ABX’s main customer, DHL, will uproot its business to UPS as it restructures express operations in the United States.
Pointing to support from “ pastors and politicians,” ABX says it is not giving up on keeping the
DHL
DHL business. But the airline 93..4% insists its move to diversify its cus- Other 2.3% ACMII tomer base is already accelerating Aircraft Mgt 25.0% and that a move into the red will 2007 2.7%
Source: Company reports
not send the airline into a tailspin.
“We have always planned for a future when DHL would make up a much smaller portion of our business,” Joe Hete, president and CEO of ABX parent Air Transport Services Group, told investment analysts this month. “The surprise to us was the future arrived a lot sooner than we expected.”
ATSG’s loss in the second quarter put hard financial numbers against the mounting political and civic outcry in Washington and in Ohio over the DHL action, which could cost the relatively small Central Ohio city of Wilmington more than 7,000 jobs.
With cargo airline group CHI now part of the mix through acquisition, ATSG saw revenue grow 40 percent over last year’s second quarter, to $394.9 million. The carrier’s “growth was a very direct benefit of our strategy to diversify into higher margin air cargo and related businesses,” said ATSG Chief Financial Officer Quint Turner.
deeply into what Turner calls “higher margin air cargo and related businesses.”
For now, however, the financial improvement has been in ancillary businesses. Hete says leasing “as well as our maintenance and postal opeations represent the future of ATSG.”
DHL
70.1%
The airline is adding more aircraft for such tasks, adding six 767 freighters and one 757 freighter by the fourth quarter. Five of those planes have already been placed,
including two 767s to Cargojet, the Canadian cargo operator. Turner said the airline also has “a lot of interest for 767 ‘dry leases’ in 2009,” but he did not specify airlines.
Meanwhile, ABX says the financial impact of DHL’s departure for the UPS hub in Louisville, Ky., may be eased a bit by a DHL agreement that would allow ABX to get smaller to some extent at DHL’s expense.
ACMI
3.7%
Other
2.9%
2008
Besides negotiating with DHL
over the packages that come with employee layoffs, ABX will turn nearly all of its DC- 9 freighters and half of its 767 freighters over to DHL. Because the DC-9s are so old and the 767s remnants of the old Airborne Express fleet, with special loading systems and without full cargo doors, they have little if any value on aircraft markets.
Those non-DHL operations are hardly as dependable as the DHL business has been, however, and the ACMI segment that has been the centerpiece of ATSG’s diversification strategy lost $773,000 in the quarter. Hete says the carrier spent money to get planes into operations that will start generating more revenue, and presumably profits, in coming months.
ABX and DHL also reached an agreement last week on aspects of the job cuts that will come with DHL’s departure, including severance packages for workers. ABX said it will give federally required notice next week to some 200 workers who will lose their jobs as a result of the DHL reducing its use of DC- 9 freighters.
The purchase of CHI and the outsourced flight operations, where All Nippon Airways is an anchor customer, pushes ATSG past the expedited parcel market and more
Still, Hete doesn’t sound as if he has closed the books yet on DHL as a customer. He will work on the separation agreements, he said, “until DHL completes an agreement with UPS or decides to pursue another course.”
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