y now, the founders and executives of CargoLifter, a German-based company with dreams of turning a 858-foot-long airship into a profit machine, are accustomed to blank stares. Despite four years of mounting hype since the venture was incorporated, bewilderment is still the typical reaction when government regulators, insurers, customs inspectors and even some potential customers learn of the concept. Yet the company has lined up over $300 million - including $84 million from a public offering last May - to begin constructing the first 160-tonne-capacity airship next year, a testament to the idea that there may be a new way of shipping that's lighter than air.

Since its inception, CargoLifter has cleared many potentially deflating hurdles. But as the project moves closer to reality, it is facing a host of new questions and challenges.

Does this untested market even exist? And even if it does, will the idea of ferrying oversized cargo in a massive helium-filled dirigible 6,000 feet above population centers be hard to swallow for anyone who has decide whether to clear the ship for take-off?

For backers of the airship - and please don't call it a blimp, they say - there is nothing in such questions to dim their confidence.

"We're really creating a new industry," says Charles H.W. Edwards, president of CargoLifter's U.S. holding company. "It's not just a new vehicle to carry freight."

Indeed, for a technology that is fundamentally very old, the CargoLifter project blends shippers and transport in entirely new ways. The CL160 airship would create a new niche and something of a new mode within today's generally black-and-white world of transportation.

It flies, so it's like an airplane. But it's slower than a truck. And it's bigger then just about any vehicle on the ground or in the air, allowing it to carry cargo that can now only move from port to port by ship.

With a nod toward the small but fast-growing market for oversized cargo shipments, CargoLifter's backers say their studies suggest room for some 200 cargo-carrying dirigibles. But the company is really flying through uncharted skies.

From a regulator's perspective, the vehicle is tough to define, presenting potentially enormous barriers. Since it flies, the airship must come under the scrutiny of aviation regulators across the world. And since it flies slower and cruises closer to the ground than any other long-range airborne vehicle, it opens a Pandora's Box of potential problems.

Before it has even proved whether its craft can fly, CargoLifter will have to prove whether it will be allowed to.

The airship's proponents hope to fly into a market that barely existed on the air cargo radar screen two decades ago. Those who take part in the world of so-called project cargo - the movement of shipments so large that they require the entire capacity of a single, oversized aircraft and tightly-coordinated handling on the ground - say it is growing faster than other segments of the air freight world.

Market forecasts have pegged annual growth for project air cargo at between 10 and 12 percent annually, compared to 6 to 8 percent for traditional air cargo.

"The potential of this market we value at $2.5 billion, which is virtually 10 times more than the market has achieved today," says Alexey Isaikin, general director of Russia's Volga Dnepr Airlines, one of a handful of freighter operators offering oversize cargo services with its fleet of Russian-built Antonov An-124 aircraft.

Of course, the current base is very small. By revenue, project cargo accounts for an estimated 0.6 percent of air cargo and by weight it accounts for an estimated 0.4 percent. Even factoring in the anticipated growth, that's not a large pie.

But CargoLifter doesn't see itself vying much for the freight that now is in the hands of niche air carriers and realizes it must win a wide range of business to survive. The real target will be the shippers that now buy from ocean and truck carriers, much larger markets from which CargoLifter hopes to slice off thin pieces.

Ocean shippers especially see an opportunity for CargoLifter if it can compete with steamship operators on oversized intercontinental moves. For example, automaker Toyota, whose free-wheeling logistics department purchases transportation directly from asset-based providers, would consider shifting some of its business away from the ocean carriers to CargoLifter.

"I think there's a lot of potential out there," says Wilson Johnson, logistics operations manger for Toyota's North American Parts Logistics division. "The idea is great. The potential is there for cost savings. It will be interesting to see if it gets off the ground."

Specifically, CargoLifter is targeting traffic with an inland origin or destination, oversize shipments that now can only be moved overseas through a sea-truck combination. Such intermodal moves can take weeks and be difficult to coordinate. CargoLifter would remove the transfer and, for some shipments, costly deconsolidations.

"We can go point-to-point. The ship has to end at the wharf," says Edwards. "The real demand isn't a trans-oceanic crossing. It's inland to port or vice versa."

Of course a shipper could pay CargoLifter to move oversize cargo between ports, but the company admits it couldn't compete in this far larger market. There are already plenty of heavy-lift ships in the sea and they are not much slower than a dirigible, which takes at least five days to cross the Atlantic, and are cheaper to operate.

"Quite frankly, we're more expensive than a ship," says Edwards.

Aircraft are also in an entirely different category. Most shippers who spend more than $100,000 to charter an An-124 or Ilyushin Il-76 don't have a week to spare. And the operators that fly these bulky behemoths don't see CargoLifter posing a threat. In fact, they see CargoLifter complementing their business.

"It may have some (negative) effect," says Christopher Foyle, chairman of Air Foyle, the British company which markets the An-124 in concert with Russia's Antonov Design Bureau. "But what it may do is grow the whole marketplace."

"There is no competition between these means of transport," maintains Volga Dnepr's Isaikin. "They only contribute to one another for the benefit of the customer."

Perhaps the biggest similarity between CargoLifter and oversize cargo specialists like Volga Dnepr is their drive to carve out a new segment in the industry.

Over the last dozen years, the An-124 and its unique dimensions have become accepted in many shipping circles as the only alternative for moving the largest, most complex types of urgent shipments.

"The emergence of this aircraft changed the mentality of customers," says Isaikin, arguing that his business has changed the project air cargo market "from ad hoc charters to planned logistics."

CargoLifter has to hoe a similar path to reach success and must court logistics managers in many of the same vertical industries - aerospace, automotive, construction, energy - as well as those overseeing humanitarian and peacekeeping missions. But it has to make more than just a business case.

Sure, An-124 and Il-76 operators had a mountain of certification paperwork to overcome before flying the giant freighters into each major city and the same carriers face similar obstacles in securing approval for a new breed of Russian and Ukrainian monsters. But many obstacles in CargoLifter's flight path are entirely without precedent because CargoLifter is, well, not exactly your average aircraft.

For instance, CargoLifter is trying to convince aviation regulators to treat it like a ship rather than a plane when it comes to such regulations as crew rest. After all, the CL160's crew size and format resembles a container ship: there are 10 to 12 crew members on board at any given time, including pilots, mechanics, engineers and a cook.

And, "we measure our flights in days, not in hours," says Edwards.

That's where one problem lies: U.S. aviation regulations prevent crews from duty times exceeding 14 hours, and European authorities have similar caps. To comply, CargoLifter would somehow have to change crews over the Atlantic about eight times.

Clearly, a change in regulations is required but that can be a bureaucratic nightmare. So far all CargoLifter executives have received from regulators, acknowledges Edwards, are "blank stares."

Changes to maintenance regulations are also on order, as are new customs processes. CargoLifter's success depends on bypassing ports and proceeding straight to the final destination, often remote construction, manufacturing or oil exploration sites. If it has to stop at a port to unload, pass inspection and reload, CargoLifter's competitive advantage is thrown out the window. But convincing customs authorities across the globe to grant CargoLifter an exception will require a fundamental mindset shift.

Once the cargo passes inspection and arrives at the destination, CargoLifter then must orchestrate the unloading of the cargo and alert all the proper authorities of the process. This requires special oversight because CargoLifter won't be landing at airports and unloading at typical air cargo facilities. Instead, the dirigible will be unloaded while airborne at sites without airport infrastructure through what CargoLifter calls a load exchange process.

"We will never land," says Edwards.

That in itself presents a whole slew of challenges to those overseeing airspace. Most aircraft are land-based and once they reach the skies they don't cruise along at 55 miles per hour. In urban areas, the airspace is too congested to throw such a large, slow and awkward vehicle as the CL160 into the mix. Except in emergency or natural disaster scenarios, CargoLifter is precluded from operating into many of the world's largest cities such as New York.

The company hopes it can overcome this limitation by flying loads directly into remote areas. But airspace in such areas is usually unrestricted, meaning it will have to see and avoid other traffic at its own risk. Because it cruises well below commercial airliners at flight levels that are also uncontrolled, the same rules will apply for cruise.

Which makes it that much more stickier for potential insurers trying to quantify the liability of CargoLifter's operation. Along with maintenance and personnel, insurance is one of the three main cost drivers in the company's model. Edwards says there's a 20 percent sensitivity zone built into the model to control for uncertainties. But if insurance costs grow out of control - and insurers haven't exactly lined up with quotes yet - the entire business case could fall flat on its face.

One crash, even during flight testing, could also scare off insurers and kill the project before commercial services are even launched.

Even so, Edwards doesn't consider insurance the project's biggest obstacle. Maintenance, crew regulations and airspace pose considerable challenges but also aren't at the top of Edward's long list of obstacles. After all, none of these say anything about the physical challenges of developing a monstrous airship to specifications that Edwards calls awe-inspiring.

"Quite frankly, (the biggest obstacle) is how do you build such a vehicle," he says. "You can run the numbers, but how do you assemble it?"

Before the end of this year, CargoLifter hopes to take several important steps toward getting its idea in the air. The project's first hangar, an $80 million two-bay facility providing 192 million cubic feet of undercover space, will open in Germany at the end of the month, paving the way for the construction of the first full-size prototype.

This month, CargoLifter will also select a site in North Carolina for its second construction facility, which Edwards promises will be even bigger. Additional hangars are on the drawing board for Brazil, Australia and "definitely China," Edwards says.

After years of tweaking, CargoLifter will also freeze the CL160's design and focus on ramping up for construction and testing of a prototype.

If its schedule holds, the company may launch commercial service in 2004 or 2005. CargoLifter projects it will be cash flow positive within two years after the launch and profitable a year after that. That's ambitious for a company that will have to recover eight years of net losses - including a $28 million hit in their last fiscal year - before revenue starts to trickle in.

"It's very fast," acknowledges Edwards. "But our cash flow is low relative to aviation."

Of course, in the end it will be up to shippers to dictate whether the concept flies. CargoLifter has signed letters of intent with about 25 shippers, a handful of which have agreed to participate in CargoLifter's lead-user program.

These letters don't constitute a formal commitment but only involve sharing of information.

Nearly all have a vested interest in CargoLifter's future, however, with industrial companies such as Siemens, ThyssenKrup and Mitsui said to be among the investors.

Forwarders Schenker and Danzas are also stockholders.

"They really got some specific business lined up years in advance with some of their shareholders," says Foyle.

"It's an indication of their support," said Edwards. Some of the business and shareholder relationships do appear to be very tightly interwoven. A subsidiary of the Siemens industrial conglomerate did planning work on the hangar in Germany, for instance.

To create enough demand to operate a projected fleet of 200 airships, however, will require more widespread support. So far, CargoLifter has had some success with heavy equipment manufacturers in Europe and construction and engineering companies in North America. It also has the support of the United Nations for relief flights.

"We're already a registered service supplier for the U.N.," notes Edwards. "We don't have a ship, but they're convinced."

Prospects in the oil exploration and automotive sectors, however, haven't been as eager to even engage in discussions. "When it exists we'll take a look at it," says Jerry Joyce, director of global logistics for automotive giant Ford. "We will look at any opportunity in the world, but we're not significantly engaged (with CargoLifter)."

That reflects the wait-and-see attitude of most shippers. Why ante up, or even divulge proprietary information, when you don't have to? "Not all companies want to seek risk and that's okay," says Edwards.

That leaves CargoLifter highly exposed. Airships haven't made much noise since their heyday in the 1920s and 1930s and a concept of this magnitude has never been tested. Other companies are experimenting with dirigibles but are focusing more on scenic trips for tourists or smaller loads of cargo.

"We've been trying to estimate how big the market is (but) you get a lot of anecdotal information," acknowledges Edwards.

With investment in and development of the Third World accelerating, the overseas movement of oversize cargo will surely become more commonplace. But trying to anticipate the specifics of such moves is nearly impossible. Whether CargoLifter can find a home in the cost equation of shippers is therefore far from a certainty.

"You don't know what your application is going to be two years down the road, that's the thing with project cargo," says John Amos, a former logistics chief with the Bechtel construction firm and now a consultant whose clients include CargoLifter.

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