Vol. 8 No. 22                                            WE COVER THE WORLD                                                   Monday February 23, 2009

Benvenuti Lufthansa Cargo

Exclusive Malpensa Airport—“Reliability”, “continuity”, “stability” and “punctuality” those were repeatedly heard adjectives at Milan’s Malpensa Airport last week on Wednesday evening.
     Echoed forwarding agents like Ezio Biffi of DHL Global Forwarding:
     “These new flights Lufthansa Cargo offers are nearly perfect for our Italian demand,” stated the export manager. Words on words topped by Domenico Tafuro (right), Agility’s Italy CEO, who spoke of a “new era” LH Cargo brings to the market initiating Italy flights.
     “This forward leading step could only be taken by an innovative and highly reliable capacity provider such as Lufthansa”, added Signore Tafuro.
     The “step” he spoke of consisted of basing an MD-11F at Malpensa for offering twice weekly, line-haul flights to New York (JFK) and Chicago.
     The launch flight February 18, departed with 50.7 tons on board.
     “This kind of main deck payload to me doesn’t sound so bad for an inaugural flight,” commented Captain Armin Klemm who, together with First Officer Torsten Selleny, maneuvered the craft across the Atlantic.
     But first it was ribbon cutting, exercised by (from left to right) Thilo Schaefer, Country Manager LH Cargo Italy & Malta, Giuseppe Bonomi, President of Milan’s airport authority SEA S.p.A. (Malpensa and Linate), Carsten Spohr, CEO LH Cargo and Dario Galli, President of Varese Province.
     In his address to the roughly 200 invited guests Spohr emphasized the importance of the Italian air freight market “the second biggest in Europe after Germany,” he said.
     When asked by the audience about future plans of possibly bringing in more aircraft and offering additional frequencies the manager put the ball right back into the agent’s field by stating that “the more cargo you hand over to us, the more capacity and freighters we’ll base here at Milan.”
     The heavily industrialized Northern Italian region is the country’s economic powerhouse.
     Main produced and exported commodities are automotive components, machinery parts, fashion and foodstuff.
     “Exactly 48 percent of the entire Italian air freight is flown in and out Malpensa,” revealed SEA President Giuseppe Bonomi.
     In 2008 this amounted to a total turnover of 404,000 tons at his airport.
     Meanwhile with privatized, but still strike-troubled Alitalia pulling out of Malpensa by relocating most long-haul flights back to Rome there is a capacity shortage on some routes at Milan.
     The continued AZ missteps offer other carriers like Lufthansa Cargo additional market opportunities.
     Said Herr Spohr:
     “Lufthansa from the very first days of existence always sought new business chances.
     “So we did now by offering our capacity at Milan.”
     Scheduled road feeder services on behalf of LH compliment the flights and will secure the flow of shipments to Malpensa, be it from Rome, Venice or Florence.
     “I bet they’ll also conduct reliable and punctual service with these surface transports,” stated a local forwarder.
     Nice interlude from a world at financial conflict.
     Here an almost euphoric expectation after Alitalia’s Milan retreat.
     Air cargo, like love, is where you find it.
Heiner Siegmund

Second In A Series
     Here we continue our exclusive wider view of the world we operate in and what that means to air cargo.
    In case you missed the first installment of the series—just click here.
    Gordon Feller, who’s been watching and worrying about Asian cargo in particular and industry developments in general for more than 25 years, has created this MegaTrends series exclusively for Air Cargo News FlyingTypers.
    Gordon did his formal academic training at Columbia University in New York City, where he was a Wallach Fellow and a Lehman Fellow, and completed graduate work in international affairs.
    But as he likes to say—his real-world training has come from the "school of hard knocks. "
    Gordon Feller has written analysis and commentary for the FT of London, Reuters, Thomson, Informa, Journal of Commerce, McGraw Hill—and many others.
    We welcome your comments and suggestions.
Geoffrey

  
     The global picture of financial power and centricity has fundamentally changed. Capital markets have become increasingly globalized and interdependent, with the world’s foreign direct investment (FDI) flows running at over US$1.8 trillion in 2007 (over three times the level in 2003) and foreign investors owning over 25% of global equities.
     As a result of their spectacular economic growth, emerging markets are now net providers of capital flows, financing the large current account deficits of the developed countries, and in particular that of the US. However, high levels of interdependency bring higher levels of risk; as the global reach of the U.S. sub-prime crisis demonstrated, challenges in one market no longer stop at the national boundaries.
     As well as being more interconnected, the financial landscape has been redrawn by the emergence of four new power brokers. Asian sovereign investors and petro-dollar investors (often using sovereign wealth funds (SWFs) as investment vehicles) have moved the power base further to the East, while private equity (PE) and hedge funds have re-defined financing and leverage. The scale of these power brokers cannot be underestimated; their combined assets quadrupled between 2000 and 2007 to reach US$11.5 trillion. They have transformed the financial landscape.
     Hedge funds and PE firms will be under pressure in the short term. While hedge funds have not proven so far to be the systemic threat that many feared, they have not been able to deliver good returns during the crisis. Institutional investors, hit by the fall of the equity and credit markets, are being forced to withdraw their funds from hedge funds in significant ways to maintain asset allocation ratios; other investors are dissatisfied with recent weak returns and high fees charged by the funds. They may also be worried about perceived poor risk controls. Hedge fund industry executives predict assets under management could fall by 30-40%.
     PE firms also face a number of significant challenges: with credit markets likely to remain tight well into 2009, there will be limited debt to finance large acquisitions (only 10 PE deals above US$2 billion were announced between April and October 2008, against 41 deals in the same period in 2007), forcing PE firms to consider new types of deals (such as minority equity investments and all-equity investments). The appetite for a short-term approach to business will continue to be vastly reduced and PE firms will have to focus more on creating value and risk management in portfolio companies.
     Many of the smaller hedge funds and PE firms will operate with a much lower profile and may disappear (through acquisition as well as failure) and both industries are likely to be more consolidated, institutionalized and regulated. In the case of PE, we may see a few very large, publicly listed, global players with much more diverse offerings (e.g., Blackstone); perhaps filling the void being left by investment banks. As regulation increases around these previously under-regulated areas, we may also see new types of players emerge — creating niche offerings in the (much smaller) high-risk, high-reward, low-regulation space.
     SWFs have become more yield-seeking, with equity, PE and hedge fund investments making up a larger proportion of their investment dollars, and are more actively partnering with corporates. While they may have been disappointed with loss-making investments done early in the crisis (e.g., in U.S. banks and PE firms), this is unlikely to put them off for long. With large reserves (they currently manage funds of US$3 trillion and are expected to grow to US$10 trillion by 2015), these funds are well positioned to continue to make some very sizeable and strategic investments, capitalizing on depressed share prices in the West, and stimulating growth in the East. The financial crisis may lead some nations to retreat to protectionism, potentially hampering the growth of these players. However, with liquidity at a premium, their ready cash is likely to persuade most governments of the benefits of foreign investment.
     As the repercussions against financial innovation and complex derivatives continue, for the moment the mood in the financial world is one of simplification and caution. The lines between different types of financial player were blurring as we headed into the crisis; when we begin to emerge, the lines should look very different. Traditional investment banks have suffered heavily. Some household names have collapsed (e.g., Lehman Brothers, Bear Stearns), and others have changed their capitalization models (linking up with commercial banks or establishing themselves as bank holding companies) as their previous business models — and taste for leverage and risk — failed them. Retail banking has also suffered, with the industry seeing numerous failures and consolidations; as the worst seems yet to come for the man on Main Street, this trend is likely to continue.
     Governments too are moving back into the spotlight as financial power moves towards the state; state capitalism is no longer only found in emerging countries (where around one-fifth of the largest companies are state-owned), but also in the previously more hands-off West.      The unprecedented step to effectively nationalize banks across Europe and the U.S. has placed government at the heart of finance, and torn up decades worth of free-market thinking. Iceland’s pleas for Russian assistance, and International Monetary Fund (IMF) interventions in Hungary and the Ukraine have taken this even further. As governments take center stage and nations take on responsibility for commercial failings, one certainty is that greater regulation of the financial sector will not be far behind.
Gordon Feller
Next: Overhaul and Globalization of the Regulatory Environment