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Cargo

Going, going… gone?

The future of Martinair hangs in the balance as Air France-KLM considers its options to stem cargo losses, reports Alexandra Lennane
 

There may be signs of growth in the air freight market, but the turbulent times of the last few years continue to thwart cargo airlines.

 

As Airline Cargo Management went to press, the future of Martinair, the Dutch subsidiary of AF-KLM, was in doubt. With continuing trouble in its cargo division, which reported losses of €79 million in the first half of this year, AF-KLM announced it was considering either a partial sale or a further reduction in freighter capacity. It stopped short, however, of indicating it might close the airline completely, according to an interview in the Dutch press with KLM chief executive officer, Camiel Eurlings.

 

The group is talking with a number of interested potential investors, who would take on some of risk, as well as bringing something to the table.

 

But, as several airlines already know, there is not a huge appetite in the market for minority shares in European all-cargo airlines – and even less so for a majority share. It took the Luxembourg government a year to find an investor and agree a deal on the sale of its 35% shareholding in Cargolux.

 

AirBridgeCargo (ABC), apparently not deterred by its fateful investment in the now defunct AirCargoGermany, was reportedly in talks with the Franco-Dutch carrier. ABC, which saw volumes grow by 16% in the first half of the year, continues to look for a stronger foothold in Europe, but some players have expressed doubt over the current appetite of the EU – and the Dutch in particular – to partner with a Russian company. If EU or US sanctions widen to include Russian businesses, or limit Volga Dnepr Group’s ability to attract financing, any such partnership could look uncomfortable at best, and impossible at worst.

 

While AF-KLM’s chief executive officer, Alexandre de Juniac, indicated he’d like to sell a minority share to Etihad, at the time of writing Etihad itself hadn’t publicly expressed any interest, instead being busy working on a deal with AF-KLM partner, Alitalia.

 

Etihad has balked at owning an all-cargo airline before; it had at one time been linked to neighbour Maximus Air Cargo, but eventually declined any deal.

 

Nevertheless Etihad, a carrier which is more than familiar with minority stakes and strong partnerships, could certainly be an appealing option for AF-KLM. A potential deal would give the Abu Dhabi carrier another EU base, in buzzing Amsterdam, which must be an attractive prospect. However, Martinair itself is arguably one of the less attractive all-cargo airlines.

 

With six McDonnell Douglas MD-11Fs, three of which appear to be on lease, and one Boeing 747-400F in operation (the Safari connection freighter run in conjunction with Kenya Airways) the fleet is not an attractive acquisition prospect. In addition, Martinair also operates four of KLM’s 747-400Fs.

 

The company’s other problem for any prospective buyers is its integration into the AF-KLM Group. While there could be an argument for a cargo airline that partners with a passenger-focused group, it retains far less independence and flexibility than rivals such as Cargolux or ABC. Martinair also consists of a Regional Jet Centre, which conducts maintenance for Embraer and Fokker aircraft, and a Flight Academy, based at Lelystad Airport, which offers training to both private and commercial pilots.

There were reports in the Dutch press that indicated Martinair’s pilots were being encouraged to leave. Despite being represented by the Dutch pilots’ union VNV, they failed to receive the same collective labour agreement, and therefore rights, as KLM’s pilots, who make up the majority of the VNV union.

 

Despite a softly growing global economy, all-cargo airlines continue to find the going tough. Sources report challenges at smaller carriers, such as AV Cargo and Aerospace One. The future of Global Supply Systems too, which had housed the British Airways 747-8Fs on behalf of Atlas Air, remains in doubt at the time of writing; with no aircraft or contracts currently on its books, it is in danger of losing its aircraft operating certificate.

 

But for AF-KLM, the Martinair decision must be made soon as the losses continue to mount. A spokesman for the Group explained: “We are really considering all the possible solutions. This is not about selling Martinair or not – this is about making sure AF-KLM Cargo returns to profitability.”

 

The carrier has already taken a €106 million charge on to its books, in anticipation of reducing its cargo arm while reporting second quarter losses of €45 million.

 

Whatever decision is made, there will undoubtedly be some sense of loss in the market. Not only is the Martinair brand a strong one in the Netherlands, but KLM Cargo has been a key part of the air freight landscape. It has given the industry training, it has nurtured numerous industry executives who now fulfil leadership roles in air cargo, and it has helped to balance the might of carriers such as Lufthansa. Sources at British Airways World Cargo admitted that the decision to leave freighters took longer than it should have done, due to a sentimental attachment to the past, a similar decision must be even harder at KLM. Nevertheless, it has pledged to make an announcement in September.


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