Lufthansa and DHL Express plan joint venture carrier

Lufthansa and DHL Express plan to launch their new joint venture carrier in 2009

Eight years of growing co-operation between Lufthansa Cargo and DHL Express reached a climax in late January when the two announced a name - AeroLogic - and a start date - April 2009 - for their proposed joint venture cargo carrier.

While AeroLogic will be a completely new airline, with E50 million ($74 million) in start-up capital, it is in fact just a formalisation and expansion of an arrangement that has existed between Lufthansa and DHL since early 2004. At that time, Lufthansa started flying five intercontinental routes for DHL, using Boeing MD-11 freighters from its own fleet. Originally based in Cologne, these services were moved last October to Leipzig, which will take over from Brussels as the ­European hub of DHL Express in late March.

AeroLogic will launch with Boeing 777 freighter service to Hong Kong. The carrier's joint managing director, Thomas Pusch, says turnover will grow from less than E100 million in the first year to more than E550 million in 2011. "We expect break even in 2010," Pusch says.

The carrier's other joint managing director, Thomas Papke, says AeroLogic will have its own air operators' certificate and not draw on manpower resources from either Lufthansa or DHL. Using two 777 freighters initially, the carrier will take delivery of four more in 2009, two more in 2011 and a further one in 2012. The first eight will be leased from Deucalion, an investment fund owned by DVB Bank. DHL ­Express Aviation chief executive Charles Graham says Aerologic is "looking to finalise the sourcing of the remaining three around 12 months from now".

Lufthansa Cargo chief executive Carsten Spohr says that the introduction of the 777Fs will enable seven Lufthansa Cargo MD-11Fs, currently flying from Leipzig, to be progressively released. "We'll move these aircraft back to our Frankfurt hub to give us a fleet of 19 MD-11Fs. By 2010 all the MD-11Fs will be back at Frankfurt," Spohr says.

Lufthansa's interest in DHL dates back to 1990, when Lufthansa, alarmed by the rapid growth of express operators at the expense of traditional air cargo, purchased a 25% stake in the integrator. Ten years later, it entered into a strategic alliance - also dubbed AeroLogic - with Deutsche Post, the German post office, which had acquired a 25% share in DHL. Deutsche Post went on to take compete control of DHL in 2002, acquiring Lufthansa's share.

The idea of operating a joint cargo airline has attractions for both sides. For Lufthansa it provides a more direct way to participate in the high-yielding express business, while also growing its long-haul network for conventional air freight. Around a quarter of the current capacity of the joint venture flights is used for traditional cargo, a percentage that will be retained in the new airline.

DHL, meanwhile, was at a disadvantage to its main rivals UPS and FedEx in that it did not have a long-haul freighter network of its own. Co-operation with Lufthansa has repaired that deficiency, and also provides it with a ready source of conventional freight to mop up unused capacity on its long-haul flights, something all the big three express ­operators rely on to some extent.

Perhaps the most interesting aspect of the relationship, however, is that it has proved much more palatable to Lufthansa Cargo than alliances with other traditional cargo operators. At the time the original AeroLogic was created in 2000, the German carrier was also putting great stress on a tie-up with Star Alliance partners Singapore Airlines and SAS, a grouping that was later named WOW and expanded to include Japan Airlines.

But generating genuine co-operation between the WOW partners proved difficult, with each jealously guarding its own markets and capacity. As a result in recent years WOW has dropped off the radar screen. Lufthansa Cargo says WOW is now inactive but has not disbanded entirely. Lufthansa is instead focusing on its partnerships with AeroLogic and Jade Cargo, a Chinese joint venture carrier Lufthansa owns with Shenzhen Airlines.

Source: Airline Business