Southern Air Transport's March announcement that it is to move its headquarters from Miami International Airport, Florida - its home to since its founding in 1947 - to Rickenbacker International Airport, Ohio, is part of a strategy to reshape the company for the next century. A critical part of that strategy, and key to the move north, is the acquisition of Boeing 747 freighters to meet increasing demand for air cargo.
Judging by the rapid growth of all-747 cargo carriers Atlas Air and Polar Air Cargo and Southern Air's own fast growing 747 fleet, the strategy appears sound. The company is not abandoning its traditional markets, however, and Southern Air is looking to find additional uses for its fleet of Lockheed Martin L-100 Hercules transports, including using them as feeder aircraft for its 747 freighter operations.
Behind the growth of Atlas and Polar, and Southern Air's move to 747s, is the increasing demand for air-cargo capacity as the world economy rebounds from recession. Airlines, which were willing to carry cargo under-floor when times were lean, are now filling their aircraft bellies with baggage, as traffic growth resumes.
Southern Air president Bill Langton says that air cargo always leads the economy by six months "...both ways - we were six months earlier into recession and six months earlier into recovery". This time the recovery is unique, he says, in that it is worldwide, rather than regional. "South America is growing; Asia is growing; Europe is growing," he says.
In addition, Langton argues, new markets are opening which are likely to sustain the growth in air cargo this time around. He cites China, Russia, the CIS and the North American Free Trade Agreement partners (the USA, Canada and Mexico). Langton sees a new intra-Asian air-cargo market emerging, and Southern Air is investigating how to tap this, "possibly the biggest", market.
The carrier's growing 747 operations will be focused on Rickenbacker. Langton says 80% of the North American population lives within an 800km radius of the airport, which is being developed by its local-authority owners into a major distribution centre. $300 million has already been spent on improved road and rail connections and warehousing.
While several freighter flights stop at Rickenbacker, no cargo airline is based there. Southern Air has been attracted by the airport's two 3,700m runways, its apron space for a new headquarters building, and maintenance hangar and state financing guarantees will fix the carrier's costs for 30 years, Langton says.
There is no problem with Miami, he emphasises, but Southern Air's 1947-vintage maintenance hangar is to be demolished, and its ramp "wiped out", in Miami's multi-billion-dollar redevelopment programme. "If we have to move, let's be strategic," says Langton, explaining the company's reasoning. Relocating to Rickenbacker is a "strategic move into the heartland of the USA which sets the stage for the next 30 years."
The strategy was formulated in 1992, when the US Air Force discontinued its Air Log domestic air-logistics programme, which accounted for 30% of Southern Air's business and required half its Hercules fleet. "We had to do something to re-establish Southern Air. There was a real need to alter the business base," admits Langton.
The company felt that the 747 was the most economical cargo aircraft available and the vehicle for its introduction was Polar Air Cargo. California-based Polar was a joint venture between shipping specialist Nedmark and Polaris Aircraft Leasing (new GECAS), with Southern Air providing the operating certificate, crews and expertise.
After Polar received its own operating certificate in 1994, Southern Air backed out of the venture. Polar, which started with two 747 freighters and now operates ten (all 747-100s) with two more -100s to arrive over the next two months. Its first 747-200 is expected to arrive in September.
Langton says that Southern Air left the Polar venture with the training to take the next step - to acquire its own 747s - and the knowledge that the right aircraft for the job was the -200. The carrier took delivery of its first aircraft in June 1994. It now has three, with two more to be delivered over the next two months. Southern Air plans to acquire two more 747-200s in 1996 and two more in 1997, he says.
Unlike Polar, which operates its own scheduled cargo services, Southern Air flies primarily for other airlines. Colorado-based Atlas Air also wet-leases aircraft and crews to other carriers and operates cargo services for China Airlines, Emirates, KLM, Lufthansa and Varig. Atlas operates seven 747-200 freighters and plans to operate 12 by the end of March 1996.
Southern Air's customers include Colombia-based Aerofloral, for which it operates two 747s ferrying flowers from Bogota to Miami and general cargo from Miami to Brazil and Chile, and Japan Airlines (JAL). Two of its 747s are ex-JAL aircraft, leased from engine-manufacturer Pratt & Whitney. From July they will be wet-leased back to JAL on long-term contracts, Langton says.
So far Southern Air has been able to find 747-200 freighters, but Langton admits that availability is an issue and the company may have to "get into [passenger to freight] conversions" in 1996-7 if it continues to expand as planned. Atlas, purchased four ex-Lufthansa 747-200 passenger aircraft in 1994, for conversion to freighters by Boeing Wichita at a cost of $20 million each. The first converted aircraft, its seventh 747, was delivered in March.
The -200 is favored by Southern Air and Atlas because it carries 13,600kg (30,000lb) more cargo and flies further, than the -100 freighters operated by most airlines. For Southern Air, the 113,400kg-payload 747-200 completes a fleet, which includes the 45,400kg-payload McDonnell Douglas DC-70 Series and the 22,700kg-payload L-100.
Its mix of aircraft types allows the carrier to be "innovative" to benefit the shipper, says senior vice-president, sales, Asa Hemperley. Southern Air's four DC-8s (three -73s and one -71) are used on services operated on behalf of Air India, Australian Air Express, British Airways and Burlington Air Express.
"We have not abandoned the Hercules," emphasises Hemperley. "It is still the backbone of our fleet, but it is a cyclical market." Southern Air is the largest operator of the commercial Hercules, with 15 L-100s, two of which are presently parked in the desert while the rest are dispersed around the world. Use is presently low, at around 5h/day across the fleet, because relief work is slow, but the aircraft can be in high demand "overnight", he notes.
To increase the use of the Hercules fleet, Southern Air has developed an aerial spraying capability for oil-spill dispersal and agricultural pest-control, plus the ability to air drop supplies. The latest initiative to increase the flexibility of the Hercules fleet is the development of a passenger/cargo-combined conversion.
The modification, allowing a 19-seat module, complete with galley and lavatory, to be installed then removed within 2-3h, is being developed and certificated by Hondo, Texas-based Knight Aerospace. Southern Air plans to modify six of its aircraft.
The combined Hercules will be suited to missions requiring the transport of cargo and people, Hemperley says. These include relief operations as well as construction and oil-exploration missions when both equipment and crews must be moved.
"There is plenty of life left [on the Hercules]," says Langton, who notes nevertheless that two of the company's aircraft have passed 80,000h, making them the highest-time Hercules anywhere. Cut-price competition from operators of ex-military C-130s and from Russian-surplus Antonov An-12s, is no longer a serious problem, he says.
Langton believes the market for the Hercules as a feeder freighter will emerge, although previous attempts by Lockheed to interest airlines have failed. The L-100 is the only other aircraft able to transport the large M1/M2 containers carried by the 747, but "...there needs to be a barrier, such as an ocean, to make the Hercules attractive," he says. Southern Air is looking at the pacific market, envisaging the L-100 operating 1,200-1,500km feeder services to 747-freighter hubs. Langton notes that the carrier has operated feeder services in the Caribbean.
Southern Air does not have a heavy-lift/outsize-cargo capability, as provided by the Antonov An-124, but it does have a relationship with Air Foyle, which provides An-124 services in a joint venture with Antonov. The company has talked to Lockheed about using the C-5, but no surplus USAF aircraft are available. Langton says, cryptically, that Southern Air continues to look at possible Russian ventures.
While Atlas Air, a wholly owned subsidiary of privately held Atlas Holdings, plans a $45 million initial public offering, Southern Air intends to remain privately held, says Langton. The carrier is owned by James Bastian, who was chairman of the investment partnership which acquired Southern Air from the US Central Intelligence Agency in 1973 and who went on to acquire the company's outstanding stock in 1979.
Langton believes the present boom in air cargo is likely to last at least to the end of the century. "We are in for a five-year run." He is "cautiously optimistic" about the company's future and does not see "a lot of real negatives" ahead, except for the possible repercussions of any US reduction in foreign aid. "Trade barriers are coming down," he says, and that can only mean good news for air cargo.
Source: Flight International