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Atlas takes the weight

The news that IAG Cargo will end its contract for three Boeing 747-8 freighters at the end of April took the industry by surprise. While it had long been thought that the British Airways arm of IAG Cargo had wanted to renegotiate terms with Atlas subsidiary Global Supply Systems (GSS), a complete cancellation with two years to run on the agreement was a blow to the ACMI operator
 

The move could signal problems in the short term for the aircraft, crew, maintenance and insurance (ACMI) model in general. IAG has instead signed a long-term block space agreement with fellow oneworld member Qatar Airways Cargo. Qatar will operate five Boeing 777 freighter flights per week – 400 tonnes – between London Stansted and Hong Kong on behalf of BA.

 

“This is not a retrenchment,” says Steve Gunning, chief executive officer of IAG Cargo. “Cargo is an important part of the group and it will go from strength to strength. We don’t feel we are getting out of freighters, we are just sourcing them in a different way. We are still offering freighter capacity for our customers.”

 

Most industry analysts agree it was a good move for both IAG and Qatar. “The IAG move on partnering with Qatar is a very smart one. IAG will not have any long-term asset liability, and will now be able to benefit from more efficient and available surplus capacity,” explains Ram Menen, former chief of Emirates SkyCargo and an industry analyst. “Qatar, on the other hand, will benefit from better utilisation of its assets and capacity. We are likely to see more of this trend coming up in the future. I can see pure freighters also aligning with combination network operators, thereby benefiting from enhanced network distribution capabilities and becoming more competitive. This will be key to their survival.”

 

READ ALSO: Moving the freight of the world – We speak to Atlas Air’s Bill Flynn, CEO, and Michael Steen, CCO

 

The move could, however, have repercussions for the ACMI model, he adds. “As the existing capacities (freighters) align and are more effectively deployed, the ACMI operators are likely to struggle initially. IAG’s move is just the start: there will be more of these moves and there could be surplus ACMI capacity floating around in the short term. The ACMI operators will have to improvise on their modus operandi, taking higher risks to incentivise shorter-term contracts. This approach will allow carriers with freighter ambitions to justify capacity development without longer-term liabilities on their books.”

 

For Atlas and GSS there could be some difficult times ahead. At the time of writing, GSS was looking to diversify – it was thought to be bidding for a UPS contract. But with its only three aircraft due to return to Atlas at the end of April, there was some concern over the supplier’s ability to retain its aircraft operating certificate.

 

Meanwhile Atlas needs to find a new home for the aircraft. The steady drip of 747-8 freighters emanating from Boeing factories has not been as enthusiastically embraced as the manufacturer may have liked, with several carriers, including AirBridgeCargo, deferring deliveries in past years. It may be a challenge to find customers to take the aircraft on a long-term contract at a decent rate, which could leave Atlas choosing to operate the aircraft itself.

 

Over the past year or so, Atlas has quietly been offering scheduled services, becoming a key player in the Latin American market. In turn, using the aircraft this way could be better than waiting for new customers. However, while the ACMI model is relatively risk-free for Atlas – gaining it the approval of the financial sector – expanding its position as a scheduled all-cargo operator looks far less attractive in a capacity-strewn market.

 

It will be an interesting one to watch.

 

What does the current glut of supply, coupled with weak demand, mean for the capacity suppliers and operators? We spoke to the ACMI crowd in June


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