Miami-based cargo carrier Amerijet International (M6) is facing financial challenges as it grapples with a downturn in global trade and the consequences of its aggressive expansion during the pandemic. The company's negative cash flow has prompted a series of cost-cutting measures, as detailed in an internal memo from new CEO Joe Mozzali.
Fleet Reductions
According to the memo, Amerijet is planning to park one of its freighters and defer maintenance on two other aircraft to alleviate financial strain. The decision to idle one freighter is a response to soft market conditions that have led to excess capacity. Additionally, deferring scheduled maintenance, known as a C-check, on two aircraft is a cost-saving measure. C-checks can be expensive, costing upwards of $1 million, and taking a plane out of service for several weeks.
Unfortunately, these fleet reductions come at a time when airfreight demand is typically high. As businesses prepare for holiday shopping and strive to meet end-of-year sales targets, the need for airlift is significant. Amerijet's struggles are compounded by the loss of two significant contracts with the United States Postal Service (USPS) and DHL Express (DO).
Loss of Significant Contracts
The USPS's decision not to renew two contracts for the upcoming year has dealt a heavy blow to Amerijet. Over the past two years, the Postal Service has shifted the majority of its mail and package volume to its ground transportation network, reducing its reliance on costly airlift. Similarly, DHL's cancellation of contracts to fly packages in its express network has had a major impact on Amerijet. The carrier's fleet for DHL has decreased from seven freighters last year to just two 767 freighters currently. DHL has also taken back several aircraft it owned, leaving Amerijet to operate its own aircraft on the remaining service routes.
Furthermore, Amerijet's contract with Maersk Air Cargo (DJ) faces uncertainty due to difficulties obtaining Korean approval for scheduled service at Seoul's Incheon Airport (ICN). Amerijet operates multiple routes between China and the U.S. via Incheon, but without a foreign carrier permit, the company must apply monthly for commercial access to Korea. This results in increased legal and airport fees, adding to Amerijet's financial burden.
CEO Joe Mozzali's Response
In light of these challenges, CEO Joe Mozzali hinted at the possibility of further fleet downsizing in the future. Amerijet's fleet had expanded to 22 aircraft earlier this year, excluding three freighters provided by Maersk Air Cargo for dedicated transportation service. Under former CEO Tim Strauss, Amerijet tripled the size of its fleet but faced delays in obtaining Federal Aviation Administration (FAA) approval for additional Boeing 757 converted freighters. These delays were due to the FAA's rejection of Amerijet's updated flight manuals and prolonged lease negotiations.
Amerijet has also faced competition from passenger airlines in the post-pandemic recovery phase. As passenger airline traffic resumed, lower-deck space became available for cargo transportation, leading traditional airlines to offer cheaper air transport options. This extra capacity has driven down yields and Amerijet's load factor, which is now at 50% or lower on many routes for general cargo.
Cost-Cutting Measures Implemented
To manage costs, Amerijet has implemented various measures this year. These include closing a small freight forwarding division, laying off back-office employees, offshoring accounting functions to Trinidad and Tobago for cost savings, and reducing flight schedules to destinations such as Aruba and Brussels.
Industry-Wide Challenges
Amerijet's financial challenges are not unique in the current freight recession. Global air cargo volumes have declined by 8% year over year in 2022 and an additional 6% year to date in 2023. This has resulted in a significant drop in cargo revenue for public passenger airlines and logistics companies, which serves as an indicator of financial conditions at Amerijet. Many cargo airlines have responded by halting the addition of new or converted freighters and reducing flight activity to mitigate costs.
Summary
Amerijet International is confronting financial difficulties caused by a decline in global trade and the consequences of its expansion during the pandemic. The company is taking steps to address its negative cash flow through fleet reductions and cost-cutting measures. However, challenges such as the loss of significant contracts and regulatory hurdles continue to impact Amerijet's operations. In an industry grappling with a freight recession, Amerijet is not alone in navigating tighter budgets and reduced demand for air cargo services.
(This article is sourced from airwaysmag.com and curated by Thetransporteronline24)
