Short-Haul Goes Longer

Never mind those trucks, regional air cargo operators have become an important link for expedited freight worldwide

Robert W. Moorman
Managing Editor

n the early 1980s, one industry story goes, FedEx Chairman Frederick W. Smith, sent a note to the European manufacturer of the ATR-42 regional aircraft suggesting they make the plane, then still in the design stage, a little wider. Doing so would make it a better freighter one day, he reasoned.

Smith may not have been a customer at the time, but ATR took the advice and today FedEx is one of several carriers that have made the ATR-42 and its companion ATR-72 significant players in the air freight industry. In some ways, the role of the ATRs and other regional freighters in expedited supply chains belies trends that are pushing short-haul air cargo to trucks but industry observers say it's a role that is growing.

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The growth of the regional air cargo industry in the United States and Europe mirrors that of its counterpart passenger business. Years ago, regional air cargo operators were small mom-and-pop operations flying bulk freight with small piston-powered aircraft. Today, the operations are more sophisticated. Operators fly larger pressurized equipment and have become an integral part of the global air freight business.

The smaller operators are still around but they are shrinking due to consolidation and the rigors of today's air cargo business. Others, such as Coeur d'Alene, Idaho-based Empire Airlines, are profitable and inexorably linked to the larger players in the industry.

"There are some parallels to being a regional feeder for a major passenger airline and a regional feeder for a freight forwarder or expeditor," said Tim Komberec, president and CEO of Empire, which flies ATRs, F27s and Caravans for FedEx Express. "This seems to be the best way for companies to get their product to smaller cities at a reasonable cost."

Gary Richards is president of Burbank, Calif.-based Ameriflight, one of the larger regional cargo carriers in North America, operating more than 170 aircraft to 250 communities. He sees noticeable changes in his business since Ameriflight flew piston-powered aircraft for banks in the 1970s.

"Next-day air service forced carriers like ours to upgrade to turboprops because pistons could carry the weight, but not the bulk, typically," said Richards.

Ameriflight and others upgraded to the cargo equivalent of 15-seat, 20-seat and 30-seat freighters.

Richards credits online shopping for expediting change in this segment of the industry. Before the late 1980s, many communities did not get their mail or products the next day. Now, a computer click promises speedy delivery for all kinds of goods.

"The Internet is next-day and that too brought change," said Richards.

In the United States, today's regional air cargo industry was built partly by the banking industry.

Ameriflight and several other carriers flew checks overnight between Federal Reserve Banks in U.S. cities so the checks could be cleared, and funds transferred as quickly as possible. FedEx, as Federal Express, was built at least in part to compete for that business.

But the "Check 21" law a couple of years ago allows banks to electronically transmit checks. That, said Richards, prompted independent regional air cargo carriers to become more closely aligned with larger airlines. Ameriflight now uses only two of its five Lear 35s to fly checks; the other three are used for on-demand air charter. Ameriflight also operates Brasilias, Metro IIIs, 402s, Beech 99s and 1900s.

Most regional cargo carriers insist they are profitable but most are privately held and decline to provide financial or freight tonnage data. One significant independent operator, Utah-based Alpine Air Express, is publicly traded and earned $1.3 million in net profit in the nine months ending July 31, 2006, on revenue of $15.6 million, and counted a $2.6 million operating profit.

But most regional air cargo carriers are not required to submit Form 41 traffic and financial data to the U.S. Department of Transportation, according to Stan Bernstein, president of the Regional Air Cargo Carriers Association. Form 41 data is not required on Shorts 360 sized aircraft with a 7,500 pound payload. Above 7,500 pound payloads, the carrier would need to be a Part 121 operator unley they have an exemption.

According to RACCA, the average load for North American regional air cargo carriers is 2,500 pounds and the stage length is 110 miles. There are around 1,065 regional freighters in North America flying over 750,000 hours annually.

The apparent growth of the regional air cargo business has come with some tough scrutiny, however.

Between 1996 and 2005, there were 742 accidents involving air taxi operations working under Part 135 rules covering aircraft beneath jet size. Of those, 282 involved cargo aircraft with payload capacities of 7,500 pounds or less, according to the National Transportation Safety Board. Eighty-five of those accidents were fatal. Forty-three percent of the accidents involved two-engine piston aircraft and 14 percent involved single-engine Caravans.

Cessna recently developed an online course for flying in icing conditions, part of an industry response to accidens that have tarnished the industry's reputation.

Leaders of this segment of the industry were surprisingly candid about this safety problem.

"The safety record in our industry has not improved over the last 10 to 15 years, so it remains one of our biggest challenges," said Ameriflight's Richards. "Our pilots typically are younger and greener. So we're taking a hard look at the issue."

One way to improve safety is through additional training. Another is to acquire the now-affordable safety related technology for small regional cargo aircraft. Installing global positioning systems with moving map display as well as traffic collision avoidance warning systems would improve safety, said Richards.

RACCA plans to develop a set of recommended safety standards for its members to implement on a voluntary basis, said board member David Corey, president of AirNow, a regional freighter based in Bennington, Vt.

The standards will exceed Federal Aviation Administration minimum standards for aircraft operations and crew resource management.

For manufacturers of regional aircraft, the growing use of the planes in the air cargo business has been an important development, providing a viable aftermarket for aircraft as passenger airlines adjust and revamp fleets.

The no-longer-produced ATPs, 340 Brasilias, Bandeirantes and Shorts 360 are finding second homes with regional air cargo operators.

Even ATR - Avions de Transport Regional - which still produces the ATR-42-500 and ATR-72-500, is benefiting from the popularity of the older freighters.

"Although we don't convert ATRs, the cargo conversion improves the residual value of our product," said John Buckley, vice president of sales for ATR North America.

There are around 70 ATR freighters flying worldwide. FedEx Express has acquired just over 40 ATRs, but the carrier declined to say how many were in revenue service with its regional partners.

A 16-year-old ATR-42 passenger airliner, if available, can be acquired for around $3 million, $6.5 million for an ATR-72 manufactured in 1990, said Buckley.

The ATRs are considered ideal regional freighters because of their wide fuselage as well as the large portside door. A 117x72-inch cargo door is offered for the ATR-72-200 freighter, but the conversion cost may be prohibitive for some operators. Conversion specialist Aeronavali, a Finmeccania company, produces a large freight door for about $1.2 million, reportedly.

With the larger door, the -72 is capable of carrying five 88-inch by 108-inch pallets plus a bulk load. Depending upon the cargo loading system chosen, conversion costs vary widely from $250,000 to $1.4 million, according to one completion house.

BAE Systems Regional Aircraft has pumped new life into its ATP turboprop freighter and, possibly, its BAe-146 quad-jet freighter. TNT still uses 13 BAE-146-200 QTs in Europe and Titan Airways in the United Kingdom has three -146s.

"The ATP needed a market outlet to sustain its projected life between 30 and 40 years," said Nigel Benson, director of sales for BAE Systems Regional Aircraft.

Benson said the manufacturer got into the ATP freighter conversion business after several market studies and forming a joint venture with West Air Sweden.

Benson expects 40 of the 64 ATPs manufactured will be freighters by the end of 2007. Of that number, 17 will have the new portside freight doors and 23 will be configured for bulk freight. The other 20 remain in passenger service, with three aircraft idle, he said.

BAe is close to a decision on re-launching the -146 freighter program as a result of a "steady trickle of inquiries," said Benson. The continued demand for the -146 freighter, he said, comes from the void left between the ATP and ATRs and the larger 737-300/400 jets. But operators would have to absorb the expected increase in direct operating costs for more capacity.

In fact, the conversion market for the short-haul aircraft is as lively as that for large freighters.

So far, Saab Aircraft Leasing has seen some 20 of its 340As reconfigured for cargo service, most of them done by SAL itself.

"We've done quite well," said Michael Magnusson, president of Saab Aircraft Leasing. Cargo customers include Miami-based IBC, which has four 340 freighters. Two 340 freighters are operating with Job Air, a freighter carrier in the Czech Republic.

The larger 400 miles-per-hour, Saab 2000, however, is "too expensive," said Magnuson, at around $6 million before conversion costs.

The lack of availability and high residual value of these older regional airliners is another challenge facing manufacturers and operators. While not an ideal freighter, most Dash 8-200 and 300s remain in passenger service. Even the older 1980s- produced Dash 8s found homes with second-tier carriers in developing nations.

"I never thought this vintage would still be in passenger service," said Ron Sheridan, vice president of asset management for Bombardier Aerospace. "We looked at converting the Dash 8 for freighter service, but we never had the price levels low enough to meet the market's expectation." The 50-passenger -300 costs over $4 million before conversion, he said.

But Bombardier is attempting to market older CRJ regional jet freighters. Launch customer West Air Sweden will receive two CRJ200s freighters this spring. The Mach 0.81-capable CRJ200PF can carry a 14,000-pound payload. Most operators are waiting to see how the CRJ performs as a freighter before committing.

Sheridan described the CRJ freighter as a "nice airplane for long haul service," but concedes it can't compete with turboprops on short haul stage lengths.

OEMs are not the only vendors to prosper from the regional freighter aftermarket. Maintenance, Repair and Overhaul shops are slowly enhancing their revenue base by converting regional passenger airliners to freighters.

San Antonio-based M7 Aerospace is a top conversion house, having converted nearly 50 ATRs, most for FedEx. M7 is a preferred conversion house because it has supplemental type certificates for the passenger to freight conversion of both the ATR -72 and -42. In addition to ATRs, M7 Aerospace converts to cargo the Brasilia and Metroliners.

"It's a growing business and we plan to capture more of it the future," said Chester Schickling, vice president of business development.