egional air freight operators in the United States will have to fly blind through the next few months, as they wait for Washington to produce definitive cargo security regulations. Late last year, the Transportation Security Administration issued a proposed air cargo security rule, but this has produced more confusion than answers for the nation's regional cargo players.

And the questions come at a critical moment for those carriers. Industry officials say the decidedly short-haul air cargo market is showing strength in recent years, even as trends such as the move by larger carriers, shippers and forwarders to surface transport is pushing goods off cargo jets. The speed of the smaller jets remains critically important for many, however, and now some of those carriers say regulatory trends may hit them harder than any commercial decisions.

Jeanne Cook, vice president for flight operations of Bankair and chair of the security committee of the Regional Air Cargo Carriers Association, said there is no doubt security measures will be strengthened but it is unclear what exactly will be required of carriers that operate planes with payloads up to 7,500 pounds, which are governed by rules spelled out in Part 135 of the Federal Aviation Administration regulations.

"There is some confusion what exactly would apply to the 135s," she said.

To a considerable extent, the confusion is due to severe time constraints, she noted. The TSA unveiled its proposed rules in November, which gave the industry only 60 days to file its comments, a period that spanned Thanksgiving, Christmas and New Year's, when many people were on vacation. The TSA rejected requests for an extension of the deadline beyond January 10 cited time pressure from Congress.

Regional cargo carriers and the airports they serve face different issues and operational requirements than large carriers and hubs, stressed John Hazlet, director of operations of Ameriflight, who is also on RACCA's security committee.

"It does not appear that our segment is well represented in the advisory," he said. "We're concerned that the problems we face on a routine basis are not well understood by the TSA. Part 135 operators exist in a bit of a vacuum."

A lot of the uncertainty is about the inspection of cargo.

Will regional carriers be mandated to carry out such inspections? How would this be done, who would have to provide mechanical or electronic inspection equipment, who would be responsible and who would have to bear the cost? Neither operators nor regional airport authorities have ample budgets to finance such measures.

"It's not just the 135s that are concerned about that; there's concern from the airports as well," said Cook.

Beyond the security front, however, authorities in Washington seem to be moving in the right direction as far as the regional carriers are concerned.

For years, RACCA has been lobbying for a revision of the operating rules for part 135 aircraft. Currently, any plane with a payload in excess of 7,500 pounds falls under part 121, an altogether different set of rules. Upgrading to the higher level costs about $1 million and involves extensive checks by the FAA in a process that takes up to a year, which has discouraged operators from doing so, said Stan Bernstein, president of RACCA.

However, the FAA's Aviation Rulemaking Committee is now showing an open ear to suggestions to increase part 135 to payloads up to 18,000 pounds, he said. According to Bernstein, this would make a world of difference: Aircraft such as the ATR, Saab or Embraer Brasilia offer more efficiency and a higher level of safety, they're certified to a higher standard, and operators can draw on full manufacturer support as well as simulation devices for training.

Those aircraft would be readily available for conversion, Bernstein added. A lot have been parked in the desert, as passenger operators replaced their turboprops with regional jets in recent years. Moreover, all three plane makers have conversion programs in place.

This could result in a major change in the landscape, bringing regional cargo carriers more into the mainstream cargo industry, Bernstein said. These planes would be significantly more efficient than jets currently used on a lot of lane segments of up to 700 to 800 miles.

"Take Pittsburgh-Louisville. The smallest piece of equipment that UPS is using is a 727. That's not ideal for a payload of 15,000 pounds. If you replace that with an ATR, you probably have a 40 to 50 percent cost advantage," he said.

Contract flying accounts for the lion's share of the regional air cargo flying in the United States. By Bernstein's estimate, as much as 75 percent of regional carriers' business is directly related to the small package market. Feeding the large integrators appears to be a stable business, but it can never be taken for granted. Typically, those contracts are only good for one month at a time.

It's not exactly a hot segment either. "There doesn't seem to be a lot of growth on the express feeder side," said Michelle Van Ness, general manager of AirNow. The Vermont-based carrier, which operates a fleet of Cessna Caravans and Embraer Bandeirantes, does most of its business in this segment.

Feeding integrators is also a large chunk of Ameriflight's business. The carrier serves destinations in the U.S., Canada and Mexico, using a fleet of more than 170 aircraft, from Learjet 35s and Embraer Brasilias to Beech-99s and Cessna 402s. The marriage of DHL and Airborne Express, two long-standing customers, leaves Hazlet wondering what will ultimately fly on ABX Air DC-9s, Astar 727s and Ameriflight planes.

"When we got into the cargo business, really all we did was carry bank traffic," she said. "We thought that might disappear, so we got into the UPS business."

Operators do expect to see a decline in their bank volumes, following enactment last year of the law that allows banks to clear checks electronically. Until now, paper checks had to be presented for funds to clear, a requirement that spawned an industry of operators speeding checks between Federal Reserve Bank sites to capture each possible moment of accrued interest.

At this point, the industry is watching for the definitive impact of the changed environment. "We're still trying to get an accurate feel for that. Our customers haven't figured that out yet," said Van Ness. She expects the change to take several years to unfold. Given the cost involved, it is unlikely that all bank branches will be equipped with electronic imaging equipment, so there may still be some need for flying, operators say.

At Bankair, this traffic accounts for 90 percent of overall business today. Five years down the road, it may be 50 percent, Cook said. While nobody expects a rapid drop in these volumes, carriers are looking at alternatives. "We'll see if we can develop partnerships with ground couriers, so they could offer a new service to their customers," said Van Ness.

According to Bernstein, regional carriers enjoyed a strong 2004, with virtually all available planes in operation during the past holiday season. He attributed this chiefly to the rapid growth of Internet shopping, which has increased the buying opportunities for rural America.

Charter business has also gone up. To some extent, this is the result of the just-in-time concept, Bernstein said. "You would think there would be less need for charters with supply chain planning, but their narrow windows mean we're seeing more calls for that when Detroit is down for a part."

Operators are confident that 2005 will maintain the growth momentum of the past year. However, this does not translate automatically into enough business for everybody.

"We're going to see more consolidation in '05 between 135 cargo operators," said Van Ness. Yields have been under pressure as a result of fierce competition, and the barriers to enter the business are quite low, particularly at the lighter Caravan end, she said.