Will TNT’s 777Fs soon be painted purple?

It has been an interesting week for FedEx.

First, the company reached a tentative agreement on an amended collective bargaining agreement with the Air Line Pilots Association (ALPA, the union which represents FedEx’s pilots). This puts an end to four years of negotiations, the last ten months of which have been conducted under mediation by the National Mediation Board.

In a message to pilots, the Chairman of the FedEx ALPA Master Executive Council Chuck Dyer made clear that this was not a final contract: “A Tentative Agreement is just that, it’s tentative,” he said. “We have procedural and legal hoops to jump through over the next week or so, but until that process has been completed, the details of the agreement must be held in confidence by the leadership. Once your MEC reconvenes this coming week, they will be in possession of full contract language and will then decide if this Tentative Agreement will be sent to the membership for a ratification vote.”

FedEx also made its next big move in another area of uncertainty: the takeover of Netherlands-based TNT Express. Of course, there is no uncertainty about this takeover on the part of FedEx or TNT, but, just as the tentative pilot contract needs approval by union members before it can become final, the TNT takeover needs the approval of the European Commission. And while the Commission will probably grant approval early next year, “probably” is not “certainly” – as was clearly demonstrated two years ago when the EC torpedoed a similar takeover bid by UPS.

In the meantime, FedEx continued the acquisition process with formal publication of its cash offer for all TNT shares. You can read a fourteen-page description of the offer on the FedEx website, but here are a few of the more interesting bits.

• The Offer is a public cash offer for all the issued and outstanding ordinary shares,including ordinary shares represented by American depositary shares of TNT Express, at an offer price of € 8.00 (cum dividend) per ordinary share.

• As from the Settlement Date, David Binks, currently Regional President Europe, FedEx Express, will join the TNT Express Executive Board as Chief Executive Officer. Mark Allen, Senior Vice President – Legal International, FedEx Express, will then also join the Executive Board. Maarten de Vries will remain in office as Chief Financial Officer for a period of six months following the Settlement Date.

• Tex Gunning, FedEx and the Supervisory Board of TNT Express, have agreed that Mr. Gunning will resign as CEO and as member of the TNT Express Executive Board on the Settlement Date.

• After successful completion of the Offer, the Supervisory Board will be composed of three new members selected by FedEx (being David Cunningham, Christine Richards and David Bronczek, who will act as chairman) and two persons qualifying as independent within the Dutch Corporate Governance Code (the Independent Members) (being Margot Scheltema and Shemaya Levy Chocron, both members of the current Supervisory Board).

• The combined companies will cooperate to avoid any significant redundancies in the global or Dutch work forces.

• Amsterdam/Hoofddorp will become the European regional headquarters of the combined companies.
• Liege will be maintained as a significant operation for the group going forward.

• TNT Express’ operations as a European air carrier will be divested to address applicable airline ownership regulations. Where permitted by regulation, FedEx intends to transition TNT Express’ intercontinental air operations to FedEx.

• The brand name of TNT Express will be maintained for an appropriate period. FedEx and TNT Express will ensure that the TNT Express group will remain prudently financed, including with respect to the level of debt, to safeguard business continuity and to support the success of the business.

There is more, much more, and the full document is worth a read. But reading between the lines of the above points leads to a couple of interesting conclusions.

First, it is clear from the last bullet point above, that the TNT name will disappear. Not immediately, but before long.

Not quite as clear is the fate of the Liege air hub. FedEx says it will be maintained as “a significant operation of the group going forward.” But what does “a significant operation” mean? Who knows? It could mean just about anything. FedEx seems unlikely to move its main European hub from its current location at Charles de Gaulle Airport in Paris, and maintaining two significant express hubs just 275 km apart makes little sense.

And finally, regarding the fleet, the offer appears to confirm our earlier speculation that while TNT’s European air operations will be sold (to conform with EU law on airline ownership), the long-haul operations will be taken over by FedEx Express. It would make sense for FedEx to acquire TNT’s three 777Fs, as FedEx already has twenty-six of the type in its fleet and has seventeen more on order with Boeing. TNT Airways also has four 747-400ERFs, two of which it operates for Emirates on an ACMI basis. FedEx has no 747s of any variant, and it is hard to see the company incorporating the four TNT units into its fleet, so these will likely be returned to the lessors as soon as possible.