Air freight investors have faith in e-commerce

Somebody must be optimistic about the future of air freight. Just before Christmas, Titan Aviation, which is a subsidiary of Atlas Air Worldwide, and Bain Capital Credit announced an agreement to create a joint venture “diversified freighter aircraft leasing portfolio” stated to be “worth US$1bn”. The joint venture appears to be very much a funding platform for Titan Aviation which is already an established leaser of freighter aircraft. Even in the first round of financing Bain is injecting $360m of equity whilst Titan is allocating just $40m.

In looking at such deals it is important to remember that the finance companies are awash with capital because they are able to borrow at very low rates, so there is a lot of money looking for a home. However, it is still worth noting that Bain is willing to invest so heavily in the market for freighter aircraft. For decades freighters have been the aircraft type that has refused to die, despite a continuing increase in belly-freight and an often difficult air freight market. Yet the key in understanding their investment approach is the statement by the two companies that “the long-term joint venture aims to capitalize on demand for cargo aircraft, underpinned by robust e-commerce and express market growth”. What this joint venture aims to exploit is not the conventional cargo aircraft market but the air express services supporting e-retailing, of which Titan’s parent company Atlas is a significant provider, notably to Amazon.

The wider air freight market continues to be uninspiring. The Airports Council International reports that freight volumes at the global level declined 2.9% in October (the latest period with available data) however domestic volumes rose 0.7% year-on-year. WorldACD, who have data for November, say that volumes for the month perked-up, with both ‘direct tonne kilometres’ and ‘total chargeable weight’ being 2.5% lower as compared to the same period last year, representing an improvement on 4.7% lower number in October. It is also noticeable from ACD’s figures that certain segments of the market, such as ‘hi-tech’, pharma, fish and flowers marked up rapid growth.

The air freight sector is reflecting the sorts of changes seen elsewhere in the logistics economy, such as in warehousing or express. There is a bifurcation between the internet driven economy and the conventional economy, especially in consumer facing activities. This is complimented by a number of dynamic specialist sectors that demand high-performance services on a global level. Therefore, it is probably reasonable to say that the old air freight market is dying and a quite distinct, new structure is in the process of being born.

Source: Transport Intelligence, January 02, 2020

Author: Thomas Cullen