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The landscape of Europe’s express market will change dramatically if the EC gives the green light to UPS’s takeover of TNT, not least in the express feeder segment, where significant consolidation is also poised to get underway.
Industry observers had assumed that TNT’s subsidiaries, TNT Airways and Spain’s Pan Air, which had to be sold to a European company under EU airline ownership rules, would take on the feeder services of the newly merged UPS. But, said ASL’s CEO Hugh Flynn, in an interview with The Loadstar, this may not be the case.
“In the short-term we have a contract with UPS, but ultimately there are no guarantees of future business with it,” he said. “We are contracted to do what TNT was doing, but as it becomes UPS the form and contract will change. And how it changes is the million dollar question.”
The deal will come in with immediate affect if the European Competition Commission approves the overall merger between UPS and TNT, a decision which must be made by 15 January.
A spokesman for UPS confirmed that ASL will continue TNT’s operations in the short term. “ASL will continue all TNT Express routes for the combined UPS and TNT Express organization. It is expected that the airlines’ ownership transfer will have no impact at the TNT Express hub in Liege for at least one year.”
After that period, added the spokesman, “ASL will become a key third-party provider of the combined UPS-TNT Express Group, and will be invited to bid for all of the combined group’s outsourced air business in Europe when this becomes open to tender.”
Mr Flynn added: “The network will take on a different shape, but a lot of what happens will depend on UPS and its long-term requirements.”
Sources say that UPS’s plans are wrapped in secrecy owing to corporate governance requirements that could see UPS and TNT competing if the merger is not approved. UPS chose not to comment on what conditions the EU could impose which would see it walk away from the deal. Since announcing the merger plan in March, the US express company has extended the regulatory review period twice and last week met with EU officials to press its case. But it remains confident that the deal will be approved.
According to Bloomberg, the markets believe the deal has a 50:50 chance of success. If UPS pulls out, it must pay a €200m break up fee to TNT.
No information has been made available on other bidders for TNT’s air operations, but Mr Flynn reveals that it has been a long process.
“It’s hard to know how we compared with other bids. In the first round, we were on the low side, but we put in a higher bid in the second. The rhetoric from UPS was that it wanted someone who had the capability to handle all aspects, and who could stay with it for the next few years.”
UPS would not be drawn on its criteria for the sale, saying only: “I cannot give you specific criteria, but ASL is an established group of European aviation companies. The sale ensures continuity to our customers and almost all airline employees will stay with the airlines under the new owner.”
ASL, which has been seeking new investment, is made up of a group of five companies, three of which are express airlines: Air Contractors in Ireland, Europe Airpost in France and South Africa’s Safair, with a combined fleet of more than 90 aircraft. But even with its latest additions, ASL, which “self-funded” the deal, is continuing to seek acquisitive growth. “We are looking at a couple of things in Europe. I think there will be some more consolidation. The dimensions will change for DHL and Fedex. We can provide lift to them all, as a neutral provider.”
Europe’s express supplier market is facing challenging times, with several operators seeking growth outside the continent. Iceland’s Bluebird Cargo is up for sale, while Swiss-based Farnair has invested in an operation in India, and moved aircraft to Papua New Guinea; and West Atlantic has found new business in Chile. The latter two companies told The Loadstar that they thought UPS’s merger plans would create more opportunities in Europe, and that it was a chance for a “shake-out”, but Mr Flynn thinks other express suppliers will find the new marketplace “challenging”.
“With some smaller feeders, the willingness is there, but the capability is not. I think we will see people moving out of the sector, and I think this deal and UPS’s takeover of TNT will make it harder for others, I’m sorry to say. I think there may be some casualties.
“The deal represents a paradigm shift. The feeder industry has tapered down over the past decade. Several have gone out of the business. We’ve hung in, largely because of strong contracts with large aircraft investors. It’s important to provide outstanding service, and you need to be solid enough to be dependable.”
Before the EU announces its decision, ASL will focus on its near-term future. “The next few weeks won’t be about TNT. The deal was really drawn out, so now we need to focus on our business from a planning point of view in anticipation of a TNT transitionary plan. We’ll ready ourselves for that,” Mr Flynn said.