After a couple of difficult years, Air Cargo Germany (ACG) is moving resolutely on.
The carrier entered the market in the midst of the recession in 2009 — clearly not the best time to start a new business. After surviving the downturn, ACG is now ready to expand, said Michael Bock, the carrier’s CEO.
The airline recently gained traffic rights to the U.S. Bock, however, appeared to be in no rush to cash them in. “We applied for U.S. traffic rights some time ago as part of our long-term growth strategy, and we have New York and Chicago as our primary target destinations,” Bock said. “But currently, we do not envisage a U.S. service start-up before 2013 and only then if there is a market demand.”
Bock is instead turning his attention to Latin America, with Sao Paulo, Brazil; Quito, Ecuador; and Bogota, Colombia, in the frame for service start-up in September.
It had been rumored that ACG was planning to add a fifth aircraft this year, with a sixth to join the fleet in 2012.
“To operate into Latin America, we will not need additional aircraft,” Bock said. “But when we start adding further destinations, we will need to look for extra capacity.” Incheon airport in Seoul, South Korea, is slated for a 2013 inclusion in the network.
Even with its long-term strategy of progressively adding scheduled services to its network, Bock appears determined to stick to a business model that will see scheduled services accounting for no more than 70 percent of its business, with the other 30 percent coming from charter work.
“At the moment, the mix is 85 percent in favor of scheduled operations and only 15 percent from charter contracts,” Bock said. “We want to balance that more in favor of charters because they provide higher margins for us.”
Margins might be an issue with Air Cargo Germany, particular in relation to its regular airfreight business. The airline makes no secret of the fact that it sells much of its capacity on a contract-rate basis to the major service providers. But indications show, according to some market analysts, that just a single service provider — DHL Global Forwarding — may be taking up as much as 70 percent of ACG’s capacity.
Like fellow European cargo carrier Cargolux, which has recently gained Qatar Airways as a strategic partner, ACG is also seeking investor support, according to Bock. “We should make it clear that we do not want a strategic partner to join our business, but instead are looking for further financial investment in the airline,” he warned.
Any potential investor should have an interesting time unraveling the carrier’s financial background. There may also be a few surprises in the structure and experience of the management team.
It is understood that Bock is a major stakeholder in ACG, with the Irish investment bank City Leasing holding the remaining 49 percent. But at the time of ACG’s launch, it was reported that much of the backing for the new venture had come from Russian businessman Viktor Ivanovich Merkulov, owner of Moscow-based Vim Airlines.
ACG also appears to have drawn its cargo management experience from Russia. It recruited Andrey Goryashko, former CEO of Aeroflot Cargo, as vice president, strategic development. He has been joined by Alexander Kirichenko, another former Aeroflot Cargo executive, who is now ACG’s director, sales and marketing. Kirichenko helped set up the Russian carrier’s European cargo hub, which is located at Frankfurt-Hahn airport.
“Andrey and Alexander have a wealth of experience and expertise from their previous roles at Aeroflot Cargo and bring with them a deep knowledge of the air cargo market,” Bock said of his Russian management team. The Russian backing and management support of
ACG is common knowledge in the German market, if not the object of some wry comment. “Locally, we refer to Herr Bock as ‘Mikhail,’ rather than ‘Michael,’ because of the Russian influence around him,” said one German forwarder.
ACG is on the cusp of more activity, but it’s had a complicated history.
A new cargo carrier was what the market needed, officials claimed, when Air Cargo Germany launched two years ago. The second German cargo flag carrier was to secure more business in the home market and assert Frankfurt’s pivotal position in Europe.
Lufthansa Cargo would argue both counts. Lufthansa was already fully occupied, fending off a myriad of foreign scavengers at its home base; the further intrusion by one its “own” would not be welcome.
Air Cargo Germany had been wise enough, at least, to stay out of immediate sight of its irritated elder by establishing itself at neighboring Hahn airport. Neighborly enough, that is, to still be able to claim the prefix Frankfurt-Hahn.
The German start-up had also been honest enough to admit that it hit the market at precisely the wrong time. A projected launch for 2008, in the midst of one of the worst global downturns, was pushed back until July 2009.
“By that time there was no turning back. We had acquired our first two aircraft, and we needed to launch to start earning revenue,” Bock said.
ACG had acquired two B747-400SF conversions on lease from Avion Aircraft Trading. Initial service included Shanghai and Hong Kong. Business grew sufficiently for the new airline to acquire two more B747-400 BCF aircraft on lease from Martinair in July and October of last year. This allowed the airline to increase frequencies on its two China routes and also to start service to Johannesburg, South Africa.
Shortly after delivery of the two Martinair freighters, one of the aircraft suffered a mishap when part of its landing gear collapsed at Hong Kong International Airport. It was subsequently discovered that prior to delivery to ACG, the aircraft had undergone a major maintenance check in Europe.
“Air Cargo Germany was able to recover the costs of the repairs from insurance,” said one industry observer. “But this did not account for operational losses whilst the aircraft was out of action for three weeks, which put a severe strain on its resources at the time.”
According to Bock, the incident pushed the airline into a minor loss for 2010 — an outcome not helped by a poor peak season out of China. ACW