Air cargo shipping: ABX Air agrees to acquire Cargo Holdings International

Jeff Berman, Senior Editor -- Logistics Management, 11/2/2007

WILMINGTON, Ohio—ABX Air Inc. announced earlier today that it has agreed to acquire Cargo Holdings International (CHI) for approximately $350 million.

The deal is expected to be completed by the end of the year, according to ABX officials.

CHI is an Orlando, Florida-based provider of outsourced air cargo services and air cargo transportation and related services to domestic and foreign air carriers and other companies that outsource their air cargo lift requirements to reliable, cost-effective independent operators. It also provides aircraft leasing, fuel management, specialized transportation management, and air charter brokerage services.

CHI has more than 30 customers, including BAX/Schenker, the U.S. Government, DHL, the U.S. Post Office, and UPS. And it operates 32 aircraft, including: five Boeing 767-200s and one 757-200 currently undergoing freighter conversion. According to an ABX statement, CHI expects to report $300 million in revenue for 2007.

In a conference call with media and Wall Street analysts this morning, ABX President and CEO Joe Hete said that this acquisition is a “transforming event” for ABX that will create value for both customers and shareholders.

“By acquiring CHI, we will broaden and strengthen our service platform by diversifying our customer base and expanding our service offerings,” said Hete. “Both companies have a core relationship with one large global client. In CHI’s case, it is BAX/Schenker, and ours it is DHL. Both have also cultivated strong relationships with other airlines, forwarders, and shippers. These customers—and others—provide us with a broad platform for growth, as it enables us to offer the diverse services of both companies with a larger combined customer base.”

The ABX statement added that ABX and CHI cumulatively have a fleet comprised of more than 135 aircraft and will operate the largest fleet of 767 freighter aircraft in the world.

And Hete added that gaining access to a large, complimentary fleet in a time of a limited supply of cargo aircraft is a major strategic benefit of this transaction. He added that ABX’ acquisition and purchase of Boeing 767-200 freighters over the past two years— coupled with the models it had previously purchased from the DHL network—make ABX the leading provider of medium-wide cargo body lift. When the five 767s CHI has purchased are converted, he said he expects the companies to have a combined total of 48 767s, including 19 available outside of its DHL and CHI agreements.

“Those 19 aircraft alone represent 900 tons of 767 payload capacity available to the market…as we deploy them for the margin opportunities that look most attractive,” said Hete. “Over the last few months, many other cargo airlines have announced fleet replacement programs based on the 767, most of which are newly-manufactured 767-300s. We believe that by being aggressive early on that we have been able to build our 767 fleet faster and at a much lower average cost than those buying new 767 freighters.”

A matter of synergies: Hete also noted that the companies are different in ways, which, he said, will ultimately make them stronger. He commented that CHIs four operating units have capabilities in dry leasing, specialized logistics services, fleet management, and other areas like U.S. to Europe service and other regions where ABX has less exposure. Conversely, he explained that ABX has unique strengths in things like sort management, airfreight maintenance services, and solid presence in Latin America and Asia, among others.

“While ABX is larger than CHI, the scope of services is very balanced,” said Hete.

Under the terms of the acquisition agreement, the companies will be forming a holding company structure, under which ABX and CHI will be wholly-owned subsidiaries. Hete said this structure will ABX to achieve cost savings while allowing each business unit to operate independently and surmise its own strategic opportunities. He added that in the future each company will continue to operate largely as they do today.

“Our combined companies will be a much stronger and a more innovative competitor in the air cargo industry,” said CHI Founder and President Peter Fox. “We share an exceptional record of serving our customers extremely well…and have very complimentary operations.”

Fox added that ABX and CHI have “very similar” views about where the air cargo industry is headed and how they can be successful working together to pursue a number of opportunities in the U.S. and abroad and reduce customers costs.