Having it both ways: How much of AirBridge Cargo’s problems are due to the 747-8F?

In an interview in Russian business journal RBC Daily, Volga-Dnepr Group President Alexey Isaikin said the company would report a full-year 2012 loss of US$38 million, down from a $71 million profit in 2011. RBC Daily quotes Mr. Isaikin as saying that while Volga-Dnepr Airlines’ heavylift operation was profitable (though less so than in 2011), losses at scheduled-service subsidiary AirBridge Cargo dragged the Group to the overall loss. 

In the interview, Mr. Isaikin appears to place much of the blame for the problems at AirBridge on the carrier’s acquisition of three 747-8Fs in 2012, and says the Group is in talks with Boeing to postpone delivery of the remaining two 747-8Fs it has on order. However, in VDG’s 2011 annual report (made public only in the last few days), the company said that while AirBridge’s 2011 revenue rose 14.1%, it nonetheless reported an operating loss. The reasons for the loss included – as might be expected – declining revenues on ex-China flights and increased fuel prices. But, according to the report: “Another factor that significantly influenced the company’s profitability was the late delivery of its new Boeing 747-8F aircraft”

So, in 2011, AirBridge Cargo reported a loss because it didn’t have any 747-8Fs, and in 2012 it will report a loss because it did have 747-8Fs?

While this appears to be a classic case of wanting to have it both ways, there may be at least a small grain of truth in it. In 2011, AirBridge’s fleet included three 747 Classic freighters (along with eight 747-400Fs/ERFs). As fuel prices rose, these old, fuel-inefficient -200Fs and -300Fs became a liability, and the carrier was looking forward to parking them as the 747-8Fs, presumably the most fuel-efficient freighter ever built, entered the fleet. In 2012 AirBridge took delivery of three 747-8Fs (in January, March, and November) and parked the three Classics (in August and September).

In the RBC Daily interview, Mr. Isaikin plays up the part  the 747-8Fs had in producing the 2012 loss, saying they have fallen short of their promised payload/range capability. Whether or not the 747-8Fs offered the payload/range capability VDG expected (and early-build units of any aircraft are usually slightly below spec) it seems a long stretch to blame AirBridge’s 2012 problems on them. The root causes of the 2011 loss did not disappear in 2012. Fuel was still expensive, and demand for freight on the China-to-Europe trade lane – AirBridge’s bread and butter – was still depressed. It is hard to imagine that the performance of the 747-8Fs had much more than a minor influence on the 2012 results.

Looking ahead, Mr. Isaikin said VDG was budgeting for a nominal profit of US$15 million to $20 million in 2013, but that this would require that the company dramatically cut costs, and implement a program of survival. He pointed to the company’s entry into the express business with 737-400Fs operated by recently-acquired regional carrier ATRAN as one key to reversing the losses, but Cargo Facts believes the real key is an economic turnaround in Europe. We also point out that VDG acquired a 49% stake in Frankfurt-based Air Cargo Germany (ACG) last year, and plans to transfer some of the AirBridge 747-400ERFs into ACG’s fleet, replacing up to four 747-400BCFs/BDSFs when the leases on those freighters expire. Using the stake in Air Cargo Germany as de facto fifth-freedom rights from Europe should help reduce ABC’s dependence on the China-Europe lane, but Air Cargo Germany was losing money when VDG bought in, so it will hardly be a magic bullet.

Regarding the two remaining 747-8Fs the Volga-Dnepr Group has on order, one (37669) has been completed and painted in ABC livery, and has been awaiting delivery at Boeing’s Everett facility for almost two months. The other (believed to be 37670) has not yet entered final assembly.

Breaking news: Boeing today flew the freighter that has been waiting at Everett (37669) to storage at Marana in the Arizona desert — it appears that Volga-Dnepr has successfully negotiated a deferral of delivery.