Japanese ocean shipping and transport company Nippon Yusen Kabushiki Kaisha, also known as NYK Line, on Tuesday announced it will sell Nippon Cargo Airlines to All Nippon Airways. The decision reverses a new trend of vessel operators establishing their own freighter airlines.
Publicly traded NYK Line said it is exiting the air cargo business because it has become too expensive to run a profitable airline and grow to meet new demand. NCA owns and controls 15 Boeing 747 jumbo freighters: eight 747-8s it flies on its own, plus five older 747-400s operated on its behalf by U.S.-based Atlas Air (NASDAQ: AAWW) and two 747-400s crewed by ASL Airlines Belgium.
“The continuous introduction of new aircraft to expand the operation and maintenance system, and the continuous training of personnel engaged in operation and maintenance required a considerable expenditure,” the company said in a news release. “In the highly volatile business environment of airfreight transportation, NCA has been facing challenges in expanding its business scale at a level that is commensurate with such costs.”
The acquisition will help All Nippon Airways, which operates nine Boeing 767 medium widebody freighters and two large 777 freighters in addition to 225 passenger aircraft, achieve its goal of expanding its international air cargo network and related products to better support shippers. ANA is a large airline – the 17th largest cargo carrier by volume – with a much wider scale of operations, making it better positioned to grow than NCA.
“For ANA, the deal strengthens their cargo arm dramatically. The different aircraft types complement the network needs, [allowing the 767s to focus on intra-Asia routes],” said Michael White, a veteran air cargo executive who now runs his firm, Trade Network Consultants. “There are synergies in scheduling, capacity and maintenance that should have value in reducing cost.”
ANA’s passenger network offers connections for shippers that freighters alone can’t meet, while the freighters provide the ability to create more precise service for heavy cargo routes.
Last month’s updated corporate strategy helps explain ANA’s renewed interest in pursuing cargo opportunities. The document lays out expectations for demand in all-cargo aircraft to increase in the medium term as airlines downsize passenger aircraft, leaving less room for freight. Yields will be double the pre-COVID level, it forecast.
ANA recently reported estimated cargo revenue of 269 billion yen ($2 billion) for fiscal year 2022, down 25% from the extraordinary high the prior year. The 2025 plan is for $1.9 billion in cargo revenue, down 14% from this year’s budget as the market normalizes after the COVID crisis.
NYK Line, by comparison, estimated Feb. 3 that NCA’s fiscal year 2022 revenue will top $1.6 billion, 2% lower than the prior year, but that operating income will fall 15% to $462 million because cargo volumes didn’t achieve their normal seasonal peak at the end of ’22.
NYK Line said how Nippon Cargo Airlines’ shares will be transferred to ANA, as well as the terms and conditions, remain to be determined. The parties expect to finalize the deal by Oct. 1, subject to regulatory review, unless they agree on another date.
The two companies have a long relationship. NCA was established in 1978 by a group of shareholders. NYK Line in 2010 took control of the entire company by buying out ANA’s 27.6% stake with the goal of becoming an integrated logistics company offering ocean, land and air transportation. In 2018, ANA started a business alliance with NCA that included a codeshare.
“They can integrate nicely with the different types of aircraft to plan their network capacity and yield,” said Christos Spyrou, the CEO and founder of central buying organization Neutral Air Partner. “Combining the different aircraft and services is an advantage.”
Shipping lines start flying
NYK Line technically doesn’t operate container vessels anymore, having placed its assets in shipping line ONE in 2018 but does run a large fleet of car carriers and bulk vessels. It also owns port terminals and a large logistics company.
The striking aspect of NYK’s decision to offload NCA is that other ocean carriers during the past two years have heavily invested in air cargo and freight logistics. NYK is going in the opposite direction to focus on its core business.
Maersk, the No. 2 container line in the world, has poured billions of dollars into becoming a full-service cargo airline that can offer a full suite of logistics options for its largest customers. Maersk has long operated freighters to provide outsourced air transport for express carriers like UPS in the European market but in late 2021 decided to provide airfreight service directly to its own customers.
Since then it has acquired freight forwarder Senator International, ordered two 777 cargo jets from Boeing, bought three production 767s, leased four 767 converted freighters and launched a biweekly service from Seoul, South Korea, to South Carolina.
CMA CGM, another large container line, established an air cargo business in early 2022 and now operates four Airbus A330s and two 777 freighters to the U.S. and Hong Kong from Paris.
Mediterranean Shipping Co. recently launched a new intercontinental cargo airline, with crews and maintenance provided by Atlas Air.
All three carriers have also acquired multiple logistics service providers able to support e-commerce fulfillment, last-mile delivery, warehousing and freight management.
Meanwhile, China’s state-owned Cosco Shipping has had an air logistics arm that books shipments with airlines since 1995. Cosco Shipping Air also owns a piece of China Cargo Airline. Last month, it opened a logistics facility in the Guangzhou Airport’s economic zone that provides warehousing, e-commerce and temperature-controlled freight handling, according to reporting by The Loadstar and another trade publication.
Click here for more FreightWaves and American Shipper articles by Eric Kulisch.
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