In a short notice on its website, Frankfurt-based all-cargo carrier Air Cargo Germany (ACG) formally declared insolvency. The full text of the notice is:
ACG Air Cargo Germany GmbH declares insolvency
After the temporary suspension of the Operating Licence for Air Cargo Germany, the management and shareholders of ACG unanimously decided to declare insolvency. Through the insolvency proceeding both management and shareholders envision to create an opportunity to restructure the company and restore operational activities. All options will be taken into account to restore customer confidence.
In late April the LBA (Germany’s civil aviation authority) suspended ACG’s operating certificate on the grounds that it believed the carrier did not have the financial ability to sustain operations for the next 12 months, as required by European law. ACG’s biggest shareholder is Moscow-based Volga-Dnepr Group (parent of AirBridge Cargo), but because Volga-Dnepr’s stake was already at the legal limit of 49% it could not provide an equity infusion unless all other shareholders did so as well. Something which they were apparently unwilling or unable to do. (To say nothing of the fact that Volga-Dnepr is experiencing its own financial strain.)
The other obvious alternative was a loan, and the state of Rhineland-Pfalz publicly said it would back such a loan if the carrier submitted its balance sheet to a bank. But since Air Cargo Germany’s debt burden was reportedly the main reason the LBA suspended its AOC, it was not clear that a loan — which would increase that debt — would help even if a bank willing to provide one could be found.
In the US, a company in ACG’s position would apply for protection from creditors under Chapter 11 of the Bankruptcy act, and use that protection to restructure. But neither Germany nor the EU has anything directly equivalent to Chapter 11. It appears likely that under German law, ACG will be able to enjoy temporary protection from some small creditors, but that is all.
So what next? The three obvious solutions all seem unavailble
- State aid is out of the question — if the European Commission’s competition authority did not immediately act on its own, other carriers, and particularly Lufthansa, would demand an investigation.
- A commercial loan, as mentioned above, would only increase ACG’s debt burden, which is what got the AOC suspended in the first place.
- Volga-Dnepr cannot provide any additional equity because it is already at the legal limit of foreign ownership.
So unless ACG can work out some kind of deal with the LBA, under which it can regain its certificate despite increased debt, all that seems left is an equity infusion from an EU-based source. Given the extremely tough state of the air freight business, particularly for all-cargo carriers, this is going to be difficult, and the longer it takes, the more difficult it will be to lure back ACG’s customers from whatever other provider they have turned to while ACG is on the ground. There is certainly a sentiment in the German forwarding and shipping communities that an alternative to Lufthansa is a good thing, but can this sentiment be translated into a significant equity boost for Air Cargo Germany? That is the question.
And a brief note about ACG’s fleet. For the past three years, ACG’s fleet has been made up of four freighter-converted 747-400Fs. When Volga-Dnepr bought in, plans were laid to transfer some of AirBridge Cargo’s more modern and efficient 747-400ERFs into the ACG fleet, but this did not happen. And now, it appears that one of the four ACG aircraft (24975, a 747-400BCF owned by Aircastle, but sub-leased by ACG from Martinair) has been returned to the lessor.