Japanese maritime shipping and transportation company Nippon Yusen Kabushiki Kaisha, also known as NYK Line, announced on Tuesday that it will sell Nippon Cargo Airlines to All Nippon Airways. The decision reverses a new trend of ship operators starting their own cargo airlines.
Publicly listed NYK Line said it is exiting the air cargo business because it has become too expensive to operate a profitable airline and grow to meet new demand. NCA owns and controls 15 Boeing 747 Jumbo Freighters: eight 747-8s that it flies itself, plus five older 747-400s operated on its behalf by US-based Atlas Air (NASDAQ: AAWW) and two 747s -400 crewed by ASL Airlines Belgium.
“The continuous introduction of new aircraft to expand the operations and maintenance system and the continuous training of personnel involved in operations and maintenance required significant expenditure,” the company said in a press release. “In the highly volatile air cargo transportation business environment, NCA has faced challenges in expanding its business scale at a level commensurate with these costs.”
The acquisition will help All Nippon Airways, which operates nine mid-size Boeing 767 widebody cargo planes and two large 777 cargo planes in addition to 225 passenger aircraft, to meet its goal of expanding its international air cargo network and related products to better support shippers. ANA is a large airline with a much broader scope of operations that is better positioned for expansion than NCA.
“For ANA, the deal dramatically strengthens its cargo arm. The different aircraft types complement the network requirements, [allowing the 767s to focus on intra-Asia routes]said Michael White, a veteran air freight operator who now heads his firm, Trade Network Consultants. “There are synergies in planning, capacity and maintenance that should have value in reducing costs.”
ANA’s passenger network provides connections for shippers that freighters alone cannot achieve, while providing the freighters with the ability to create a more precise service for heavy-duty routes.
Last month’s updated corporate strategy helps explain ANA’s renewed interest in cargo opportunities. The document sets out expectations that medium-term demand for all-cargo aircraft will increase as airlines downsize passenger aircraft, leaving less space for cargo. Yields will be twice what they were before COVID, she predicts.
ANA recently reported estimated freight revenue of 269 billion yen ($2 billion) for fiscal 2022, down 25% from last year’s exceptional peak. The 2025 plan calls for $1.9 billion in freight revenue, down 14% from this year’s budget as the market normalizes after the COVID crisis.
By comparison, NYK Line on Feb. 3 estimated NCA’s revenue will top $1.6 billion in fiscal 2022, down 2% year over year, but operating income will fall 15% to $462 million , as cargo volumes have not reached normal seasonal levels, peaking in late 22.
NYK Line said how Nippon Cargo Airlines’ shares will be transferred to ANA, as well as the terms and conditions that have yet to be determined. The parties expect to close the transaction by October 1, subject to regulatory review, unless they agree on a different date.
The two companies have a long relationship. NCA was founded in 1978 by a group of shareholders. NYK Line took control of the entire company in 2010 by buying ANA’s 27.6% stake with the aim of becoming an integrated logistics company offering sea, land and air transportation. In 2018, ANA launched a business alliance with NCA that included a codeshare.
“They can integrate well with the different aircraft types to plan their network capacity and revenue,” said Christos Spyrou, CEO and founder of the central purchasing organization Neutral Air Partner. “The combination of different aircraft and services is an advantage.”
Shipping companies start flying
NYK Line technically no longer operates container ships after contributing its assets to shipping company ONE in 2018, but operates a large fleet of car carriers and bulk carriers. It also owns port terminals and a large logistics company.
The notable aspect of NYK’s decision to outsource NCA is that other shipping companies have invested heavily in air freight and cargo logistics over the past two years. NYK is going in the opposite direction to focus on its core business.
Maersk, the second largest container line in the world, has invested billions of dollars to become a full-service cargo airline that can offer its largest customers a full range of logistics options. Maersk has long operated cargo aircraft to provide outsourced air transportation for express service providers such as UPS in the European market, but decided in late 2021 to offer the air cargo service directly to its own customers.
It has since acquired freight forwarder Senator International, ordered two 777 freighters from Boeing, bought three 767 production airplanes, leased four converted 767 freighters, and started a biweekly flight from Seoul, South Korea, to South Carolina.
CMA CGM, another major container line, launched an air cargo business in early 2022 and now operates four Airbus A330s and two 777 Freighters from Paris to the United States and Hong Kong.
Mediterranean Shipping Co. recently launched a new intercontinental cargo airline crewed and maintained by Atlas Air.
All three carriers have also acquired multiple logistics service providers capable of supporting e-commerce fulfillment, last mile delivery, warehousing and freight management.
Since 1995, China’s state-owned company Cosco Shipping has had an air logistics branch that books shipments with airlines. Cosco Shipping Air also owns a stake in China Cargo Airline. Last month, the company opened a logistics facility in Guangzhou Airport’s economic zone that offers warehousing, e-commerce and temperature-controlled cargo handling, according to reports from The Loadstar and another trade publication.
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