The spoils of war

The spoils of war

The news from the Pentagon that the U.S. will likely have to maintain its present level of forces in Iraq - about 145,000 troops - for up to four years is good news for the air-cargo industry, at least in one sense.

As long as U.S. forces remain in Iraq, supplies will have to be flown there. Likewise, the devastation caused by the war and the subsequent looting means demand will be high for equipment needed to rebuild the nation's infrastructure - everything from plumbing supplies to oilfield equipment.

Joe Bento, global chief marketing officer for EGL Inc., the Houston-based forwarder, said his company is seeing a huge amount of material going into Iraq for purposes ranging "from building a bathroom to putting in a pipeline."

But the longer it takes to restore order, the longer it will take for normal commercial traffic to develop.

EGL, which recently opened offices in Amman and Kuwait, has been chartering Antonov AN-124s for the past two months to move cargo into Basra and Baghdad. Besides charters, it's been using commercial lift, primarily Air France's two 747 freighters a week from Houston to Paris, with ongoing service to Kuwait. "Every month there's more opportunity. I'd say we've got a good two-year window for supply and reconstruction," Bento said.

Another forwarder capitalizing on its ties to the energy industry is Panalpina. "We've had a phenomenal increase in air traffic," said Bill Reddick, senior vice president for the southern U.S. Most of that demand has resulted in charters of 747s and Antonov AN 124s, along with an occasional DC-8.

Panalpina has averaged one charter flight a week from the U.S. since the late stages of the war, he said. Freight has consisted primarily of support equipment and firefighting equipment. "It's been very active," he said.

John Amos, president of consulting firm Amos Logistics, noted that most of the cargo has been military-related or emergency relief supplies. "Reconstruction equipment hasn't started to flow," he said. When it does, there will be a lot of material moving from the U.S., particularly from the Houston area. "Space will be tight," he warned.

Air France is poised to take advantage of that pent-up demand. Ann Wadman, regional director-Northeast for the Skyteam Cargo U.S. Joint Venture, formed by Air France, Delta Air Logistics and Korean Air, said she has seen strong demand on flights to the Mideast, particularly Kuwait, but also Dammam, Saudi Arabia. The cargo is mostly heavy equipment such as generators, air conditioners, machinery and Humvees, the military transport vehicles.

Demand is so heavy that SkyTeam is getting requests from charter brokers and forwarders for full charters. Despite the anti-French feelings that built up in the U.S. because of France's opposition to the use of military force, Wadman said Air France has felt no repercussions.

Germany also opposed the war, but that apparently hasn't affected Lufthansa Cargo's U.S. traffic. Helga Eder, a company spokeswoman, said Lufthansa has seen increasing demand into the Mideast since February. That demand is mainly driven by the U.S. military's need for supplies. As a result, Lufhansa has flown as many as five freighter flights a week to Kuwait, compared with its normal schedule of two.

One of the biggest beneficiaries of the war is Atlas Air Worldwide Holdings Inc., the all-cargo carrier that has been teetering on the edge of Chapter 11 since late last year. Thanks to heavy demand from the U.S. military, it has managed to avoid that.

The holding company's two subsidiaries, Atlas Air and Polar Air Cargo, are operating an average of 16 charter flights a week for the military, mostly to Kuwait, although some have gone to Saudi Arabia and Oman. The goods are trucked from those locations into Iraq.

Although Baghdad International Airport is open for relief flights, Atlas and Polar haven't flown there. Thomas Becher, an Atlas spokesman, said that's because the airport isn't safe for Atlas aircraft or their crews. He added that Atlas and Polar are prepared to fly into Baghdad once the airport is considered safe.

The U.S. authority in Iraq recently invited commercial airlines to submit applications for service to Baghdad. Carriers that have applied for those rights include British Airways, Virgin Atlantic Airways and KLM Royal Dutch Airlines.

On the commercial side, Atlas is operating more than 20 flights a week to Dubai from Europe and other points in Asia for Emirates Airlines, the Dubai-based carrier. Emirates recently signed a long-term lease for a third 747 freighter operated by Atlas. Emirates, whose volume has jumped 35 percent this year, recently increased its freighter service to and from Hong Kong to compensate for the loss in passenger capacity due to the SARS epidemic.

Ram Menen, general manager of Emirates' cargo division, said the carrier expects to benefit from the reconstruction of Iraq - and Afghanistan. "Dubai is ideally placed to mount logistics operations," he said.

But there is no land connection from Dubai to Iraq, so goods flown there must be shipped by sea to Umm Qasr, Iraq's principal seaport, or flown in. Because the Baghdad airport is not ready for long-range commercial flights, goods must be trucked in from Kuwait, Jordan or Turkey.

Trucks only drive during the day, and they move in convoys, said Roger Haeussler, Exel PLC's president for U.S. international. Despite the attacks by Sad-dam loyalists on U.S. servicemen and Iraqis working with them, Exel's experience in the last several weeks has been good, he said. "We're definitely seeing an upturn. Obviously, we're anticipating a huge surge in business with Iraq."

Exel's shipments have mainly been aid material, such as medical supplies and sanitary equipment, as well as furniture. Anticipating the eventual resumption of commercial trade, Exel is considering setting up warehouses in Iraq. But Abe Ranish, president of Matrix International Logistics Inc., a subsidiary of GeoLogistics, said he doesn't expect strictly commercial trade will begin until the killing of U.S. soldiers stops.

Other than Continental and Delta airlines' passenger flights to Tel Aviv, no U.S. carriers offer scheduled service to the Mideast. As a result, almost all commercial cargo to and from the region moves on the national carriers from those countries or the big European operators such as Lufthansa, Air France, KLM and BA. El Al, the Israeli carrier, operates four to five freighter flights a week from New York and Chicago. Flights are full in both directions, although much of the cargo is European-origin or destination freight.

Saudi Arabian Airlines has three MD-11 freighter flights a week from New York, down from four a few years ago. The freighters serve Riyadh, Jeddah and Dammam, with each flight stopping at two of those cities. Barry Lennihan, the carrier's U.S. cargo manager, said flights are full in both directions, with 85 percent of the inbound cargo consisting of garments, most of them produced on the Indian subcontinent.

Royal Jordanian Airlines operates six passenger flights a week from New York to Amman, along with four from Chicago and two from Detroit. It also has one Airbus A-310 freighter flight a week. Demand for the carrier's cargo space has been strong since before the war began, an official said. Royal Jordanian also operates charter flights from Amman into Baghdad, but it trucks most of its Iraq-bound cargo, primarily relief supplies.

Kuwait Airways does not operate any freighters, but it has five passenger flights a week from New York. "We've had a big upswing (in cargo) since last year," said Rafael Pactuk, the carrier's cargo sales manager in New York. Three flights are on 777s, which stop in London and have a cargo capacity of 20 tons, depending on passenger loads, while the other two are on non-stop Airbus A-340s, which have an average capacity of 15 tons.

Emirates, the 500-pound gorilla of the Mideast airline industry, will begin its first U.S. service next April with a daily non-stop passenger flight to New York using the Airbus A340-500, which is still in production. The plane will only have the capacity for about 13 tons of cargo because of the length of the flight, and Menen said it will sell most of that space for express and time-definite traffic.

Emirates will probably follow the New York service with a daily passenger flight to Los Angeles and San Francisco, but it's not likely to carry much cargo due to payload restrictions.

For the most part, therefore, Emirates' growth in the U.S. will continue to be through its partnerships with carriers such as Virgin Atlantic, American Airlines, Continental Airlines and US Airways.