DHL streamlining to impact ABX Air revenues
ABX Air, the one-year-old air cargo airline spun off from courier Airborne Express following the merger with DHL in 2003, said it expects to lose $86 million to $96 million in gross revenue in 2005 as a result of route restructuring by primary customer DHL.
Airborne was forced to spin off its in-house airline to comply with U.S. corporate citizenship laws for owning domestic airlines. DHL retained ABX as its main air carrier, along with Astar Air Cargo, formerly DHL Airways.
DHL notified ABX that it no longer would require airlift on 22 routes provided by 26 aircraft. Seven of the 26 aircraft (three DC9s and four DC8s) are to be removed from service in January, with the remaining 19 aircraft removed by the end of 2005. The projected revenue reductions include money the airline made from marking up expenses to operate its planes. ABX said annual net income would take a hit in the range of $800,000 to $1.5 million. When the reduction is fully implemented the cash flow impact, including reduced depreciation, should be in the range of $3.2 million to $4.2 million.
Under its contract with DHL, if ABX cannot find other customers for its aircraft, it can require DHL to pay the lower of fair market or book value for the aircraft. Net book value for the 26 aircraft is projected to be about $13.1 million. ABX said the amount of cash it receives depends on how many of the older aircraft it makes DHL cover.
The reduction of 26 aircraft will be partially offset by providing airlift for DHL with four additional Boeing 767 freighter planes by the end of 2005. The 767s will generate about $7.4 million annually in depreciation expense, which will more than offset the cash flow from depreciation associated with the other aircraft, President Joe Hete said in a statement.
ABX, which operates a fleet of 116 aircraft, reported a profit of $7.1 million in the third quarter, $4.7 million of which came from its two contracts with DHL, compared with a $$460,000 loss in the same period last year. Excluding a $600 million charge for costs associated with establishing the new company, net income was $4.4 million last year. The company acknowledged comparing results was difficult because ABX was part of a larger organization and had a different contract rates and terms.
ABX received $289.8 million in revenue, all but $6.8 million of which was from DHL. For the first nine months of the year, ABX earned $18.9 million, but revenue was down to $841 million vs. $886.9 million, of which non-DHL revenue accounted for $14 million. ABX said its non-DHL revenues grew 78.3 percent compared to the second quarter, due largely to an increase in aircraft maintenance and engineering services it performed for other fleets.