Gemini Air Cargo’s business model was built to plug the airline into global trade while insulating the carrier from the uncertainties of shifting markets. Gemini wasn’t protected, however, from what appears to be a thorough collapse in its basic business and increasingly troubling questions about the state of outsourced airline operations in the international air cargo arena.
The Dulles, Va.-based operator of MD- 11 freighter aircraft ended its second flight through bankruptcy in as many years by abruptly ceasing operations last month. The collapse was the first for a U.S. carrier
Monthly year-over-year percent change in cargo
capacity for Asian airlines in the past year
6% 4% 2% 0% –2%
–4% 8/07 9/07 10/07 11/0712/07 1/08 2/08 3/08 4/08 5/08 6/08
Source: Association of Asia Pacific Airlines
since a spate of failures pulled a handful of smaller passenger airlines from the skies this spring and the largest among U.S.-based air cargo carriers since Kitty Hawk Air Cargo ceased operations in late 2007.
Gemini had been operating under Chapter 11 bankruptcy protection only since June but owners Bayside Capital, the private equity firm that took control of the carrier following the previous bankruptcy in 2006, pulled the plug after failing to come up with new financing or a new buyer.
Gemini officials did not return phone calls for comment.
The airline released only a brief statement on its Web site and referred inquiries to a creditors’ committee set up under oversight of a federal bankruptcy court in Florida.
Gemini operated four MD- 11 freighters for other carriers under “wet lease” contracts, leaving Gemini to cover the
aircraft, crew, maintenance and insurance costs. Once owned by the Carlyle Group private equity firm, Gemini served carriers such as Lufthansa, FedEx, British Airways and Finnair.
Now, those aircraft are heading back to leasing companies while much of the rest of the airline world scales back capacity to meet declining demand for expedited shipping.
“There’s not a lot of good news out there,” said Brian McCarthy, vice president of sales and marketing at Precision Conversions, an Oregon-based passen-ger-to-cargo conversion specialist.
Air cargo volume around the world has been declining at an accelerating pace since March, according to Boeing, and Gemini had a difficult time finding customers for ACMI agreements among airlines that are pulling back flights.
The International Air Transport Association said cargo capacity in Asia fell 0.9 percent in June, a dramatic change in a market that cargo officials once saw as ripe for enormous growth.
Asia’s promising expansion made the region a prime area for outsourced freighter operations, but even ACMI heavyweight Atlas Air is seeing the severe limits of the market in 2008.
Atlas Air Worldwide Holdings showed only a $1.5 million profit in the second quarter, down from $43.2 million the
year before, and the revenue from ACMI service fell 15 percent.
Atlas President and CEO William J. Flynn says the company has “an exciting and dynamic future,” however, and is above the minimum requirements for flights with all its ACMI customers this year. “Long-term supply and demand trends in the global freighter market remain favorable,” he told investment analysts last month.
The airline has backed that up by adding two 747-400 freighters this year, but Flynn says other carriers have pulled “eight or nine” freighters from trans-Pacific operations this year and that more capacity will probably leave the market in 2009.
“We think a number of operators and carriers will keep aircraft in place for this peak, and then we will likely see greater numbers of aircraft withdrawn as we come into … the first quarter,” he said.
But the growing suggestions that the fall peak may not really peak for most transportation carriers also could signal a deeper shift in the air cargo market, a shift that may have proven troubling for a widebody freighter operator such as Gemini.
McCarthy believes the average value of air cargo shipments has been growing recently while average weight, or density, has been declining as shippers move bulkier industrial shipments to ocean in the face of soaring air shipping costs.
“We’re seeing two different markets emerging, one with higher-value, higher-density goods and the other with lower-density, lower-value goods,” said McCarthy. “What we’re seeing is the lower-value cargo peeling off and moving to ocean.
That raises the question, he said, of whether “the big commodity haulers (widebody aircraft) are what you need?”
Precision Conversions, which specializes in converting 757 passenger planes to cargo configuration, would like a move to smaller planes, of course, but the company is being hit like all aviation-related businesses, by the sharply higher jet fuel costs this year.
References:
Archives