Is this the end of the line for TNT?

  • David Harris
  • February 21, 2012
  • Archive

What was perhaps TNT’s last chance at continued independence ended today with the publication of the company’s fourth-quarter and full-year 2011 results.

On Friday, after European stock markets closed, TNT Express announced that it had rejected an offer by UPS to buy the Netherlands-based integrated express company for EUR9 per share – 42% above Friday’s close of EUR6.34 – for a total of EUR4.9 billion. UPS confirmed both the offer and the rejection, and both companies said that discussions were continuing. When markets reopened this week, TNT’s share price rose more than 60%, in the expectation of a bidding war between UPS and FedEx that could see a winning offer as high as EUR15 per share.

There has been considerable dissatisfaction among TNT’s shareholders over the company’s performance since it was spun out as a standalone last year, and pressure for a sale has been steadily mounting. But as pressure to sell increased, TNT’s performance continued to suffer. This, in combination with a fall of the euro against the dollar, has weakened TNT’s negotiating position in any potential sale.

Had there been signs of a turnaround in the fourth-quarter results, it is possible that shareholders could have been persuaded it was in their best interest to preserve TNT, or at least hold off on selling until it was clear whether performance improvements would continue. But a fourth-quarter operating loss of EUR104 million and a net loss of EUR173 million have likely sealed the company’s fate.

In her summary of the quarter and the year, and the outlook for 2012, CEO Marie Christine Lombard painted an optimistic picture. She pointed to TNT’s solid position in Europe, and said that the company had “ample opportunity to grow” in that region. Looking ahead, she acknowledged that outside of Europe TNT was not doing well, but said that a new strategy of outsourcing long-haul lift and “exploring partnership opportunities” for domestic operations in China and Brazil – operations that are bleeding money – would allow the company to thrive.

This rosy view is unlikely to be shared by investors, and the big question in most observers’ minds now is not whether TNT will be sold, but when. And to whom.

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2 thoughts on “Is this the end of the line for TNT?

  1. How many ACMI providers will be displaced when their services are no longer required if a FedEx or UPS is successful in their attempt to acquire TNT?

  2. Interesting question. TNT mostly uses its own aircraft, but right now I think there are five or six carriers operating freighters on its behalf. What happens to these a/c (as well as the a/c in TNT’s own fleet) if FedEx or UPS takes over depends on several things.

    First, the long-haul freighters, TNTs two 747-400s and three 777Fs, are probably gone no matter what happens. The fate of the freighters operating within Europe is less clear. TNT’s intra-Europe traffic is going to have to continue to move whether there is a takeover or not. If there is a takeover, then some of that traffic could be shifted to purple or brown tails, but since neither FedEx nor TNT has a vast fleet of freighters buzzing around around Europe, it seems almost more likely that some of the existing FedEx or TNT traffic would move to TNT a/c.

    Looking at the ACMI operators:

    Pan Air (Spain) operates eight BAe146s. Those a/c, like the BAe146s in TNT’s own fleet are going to be gradually phased out no matter who owns TNT, so leave them out of the equation.

    The other ACMI operators include: Air Atlanta (two A300-600Fs), Cargo Air (two 737-300Fs), Gestair (one 757-200F) and Icelandair (one 757-200F). Whether any of these would still have the job if TNT was acquired would depend on what other options there were for handling that traffic. Some might get the axe, but it is not clear that they all would.

    And finally, I think TNT leases two 767-200Fs from ATSG. If these are used for trans-Atlantic service, they’d likely be dropped, but if they are used on routes not currently covered by whoever buys TNT they might stay — at least for a while.