US POSTAL SERVICE ENDS AIRMAIL PACTS WITH 2 CARRIERS

US POSTAL SERVICE ENDS AIRMAIL PACTS WITH 2 CARRIERS

The U.S. Postal Service has terminated two expedited-mail contracts with air cargo carriers earlier than expected and will return the business to U.S. passenger airlines.

Effective March 6, the Postal Service will cancel its D-Net contract with Emery Worldwide, Palo Alto, Calif., and its B-Net pact with American International Airways, based in Ypsilanti, Mich. The arrangements resulted

from the Kuwait crisis, during which passenger airplanes were deemed at risk

from terrorism.Analysts said the terminations were a blow to both carriers, particularly to financially troubled Emery. The freight carriers had planned to operate the contracts into October.

Industry sources valued the D-Net contract at approximately $50 million and B-Net at $20.5 million a year. The contracts called for both carriers to provide two-day deliveries of the Postal Service's Priority Mail traffic weighing one pound or more.

Sources said the Postal Service exercised a 30-day cancellation provision written into the contracts. Emery and AIA were notified Jan. 29. Sources say the carriers may be able to appeal the decision.

"I know they've given us notice," said Jim Allen, an Emery spokesman.

Post Office officials were unavailable to comment.

Emery's A-Net contract, under which the carrier moves the Postal Service's Express Mail traffic on a nightly basis, will remain in force until the contract expires Oct. 15. The Postal Service will then break out that business by lane segments and allow interested carriers to bid on the traffic.

Sources value the A-Net contract at between $85 million and $90 million a year.

Although the D-Net contract represented only a fraction of Emery's $1.3 billion in annual revenue, both postal contracts are considered solid profit centers for the company, which has sustained sizable losses over the past two years.

"It's a good chunk of their profit," an industry source said.

Ned Laird, director of Air Cargo Management Group, a Seattle-based consulting firm, said neither Emery nor AIA expected the contracts to be terminated at this time.

"The cancellation came as a disappointment as both carriers were anticipated to run their contracts until October 1992," he said.

Mr. Allen of Emery was philosophical about the news, noting that it had not planned for the business in the first place and that it had experienced a gradual reduction in D-Net volumes for several months.

"It's always been business that the post office gave us at their discretion, and we've always understood that it could be taken away at their discretion," he said.

The Postal Service caused a stir last January when it announced that, for security reasons related to the Persian Gulf war, it would divert parcel traffic from the passenger airlines to Emery.

The move infuriated the airlines, who maintained that the security issue was a smoke-screen to hide the agency's true plans to develop a freighter fleet to move its time-sensitive products.

"I guess the Post Office realizes that the war is over," said one airline industry official, who requested anonymity.