In the next few months, Southern Air will accelerate the retirement of its 747-200s and lay off an unspecified number of employees, according to an email sent to Southern Air employees by CEO Dan McHugh and obtained by Air Cargo World. McHugh also wrote that the company will focus on ways to reduce corporate debt and improve a capital structure Southern Air inherited from the private equity firm Oak Hill Capital Partners when it acquired a majority share in the ACMI firm in 2007. Oak Hill combined an existing air cargo holding, Cargo 360, into the Southern Air fold.
“Today, a significant level of our resources and infrastructure are devoted to running and maintaining the -200s. We now must realign our organization to serve the new business model, including changes to our crew planning, and we will initiate select outsourcing of activities to better align our costs with the operating requirements,” McHugh wrote in the email, which is dated August 21.
“As a result,” he continued, “we will begin reducing headcount in both line operations and headquarters staff. There will be direct staff reductions, as well as outsourcing of some activities, and we expect the majority of the changes to be in place by the end of the year.”
Southern Air officials have also stopped the process of a possible relocation of the company’s headquarters from Norwalk, Conn. Neither McHugh nor any other Southern Air employee who could comment on the memo was in the office on Friday morning.
In the letter, McHugh wrote that he had expected to keep the -200s, known as Classics, in the Southern Air fleet until April 2013. Declining demand, higher operating costs and increasing regulations, he wrote, were deciding factors in the accelerated time table. Southern Air has been weighing the retirement for at least the past 18 months. As McHugh put it, “our traditional ACMI customer base is not actively planning to add 747-200 or 747-400 capacity in the near term.”
McHugh outlined that these fleet adjustments highlight a new strategy for Southern Air moving forward. The company will continue its relationship with DHL Express and other companies, while searching out new partners. He wrote that the fleet retirement is “not merely a short-term, cost-cutting move” and that it instead signals the start of a business transformation.
“In order to make Southern Air stronger and operate more efficiently,” he wrote, “we need to transition from a high-maintenance, depreciated classic fleet, to a modern, efficient fleet operating in more reliable, low-cost, low-risk environments.”