Amerijet, racing to reverse the cargo airline’s negative money flow after the recent firing of CEO Tim Strauss, is parking jets, deferring major maintenance and taking other steps to contain costs, in keeping with public fleet databases and sources with intimate knowledge of the corporate.
The Miami-based freighter operator is paying the worth for expanding too quickly through the pandemic freight bubble. Business is now shrinking due to the downturn in global trade that has plagued the air cargo industry for 18 months and questionable management decisions, multiple sources said.
Beyond reductions in demand for general cargo, the top of assignments with the U.S. Postal Service and DHL Express have created a big revenue hole that’s weighing on company funds, they said.
Newly installed CEO Joe Mozzali bluntly outlined Amerijet’s recent cost measures and foreshadowed tough times ahead in a memo to employees dated Oct. 23 that FreightWaves has seen.
Soft market conditions have forced management to idle one freighter that exceeds current needs and contemplate deferring heavy scheduled maintenance, called a C-check, on two other aircraft, in keeping with the document. The fleet reduction is going down through the busiest time of yr for airfreight, when businesses typically seek airlift to fill shelves for holiday shopping and meet end-of-year sales targets.
“The cargo sector has been faced with headwinds in each cost and demand. And it isn’t a secret that these challenges have had an impact on our business performance. We’re addressing these challenges head on in our continued work to make Amerijet a more amazing organization — enhancing our operational efficiency, adapting to changing market dynamics and ensuring our long-term sustainability and competitiveness,” Mozzali wrote. “We’d like to proceed our deal with winning recent business, improving our revenue mix, cost efficiencies, network structure and cargo aspects.”
C-checks, that are conducted every 20 to 24 months and put an aircraft out of service for several weeks, can cost $1 million or more. Postponing that kind of regular inspection happens when there may be a cash-flow problem, an airplane isn’t economical to fly or the airline doesn’t have the mandatory crews, aviation industry experts said.
Mozzali suggested more fleet downsizing could follow.
Amerijet’s fleet had grown to 22 aircraft early this yr, not including three freighters supplied by Maersk Air Cargo for dedicated transportation service.
As much as five aircraft are currently out of motion. Internal company data shows two 757s are parked with notes attached saying they are usually not for use, with a 3rd aircraft in San Antonio for a lengthy tear-down inspection. Two midsize 767s are undergoing extensive component checks in Istanbul and Mexico City.
Aircraft tracking site Flightradar24 shows certainly one of Amerijet’s six Boeing 757 converted freighters hasn’t flown since Oct. 14 and one other one has been parked since Nov. 2. The 767-300 in Istanbul has been there for 2 weeks to date.
Although Amerijet is saving certain costs by not operating some aircraft it still must make monthly lease payments on them, which might exceed $300,000 per unit.
A giant blow to the highest line is the lack of two U.S. Postal Service contracts that expire at the top of the yr, said current and former employees on condition of anonymity due to concerns about retribution or losing future business opportunities. The contracts aren’t being renewed since the Postal Service two years ago began shifting 95% of mail and package volume to its redesigned ground transportation network, reducing reliance on expensive airlift.
Routes ending next month cover Philadelphia to Sacramento and Ontario, California — each flying six days every week. Amerijet will proceed to fly mail on a San Juan, Puerto Rico-Newark, Recent Jersey-Orlando, Florida-San Juan rotation, in addition to between San Juan and Ontario, California.
“They’re definitely attempting to tighten the belts. Freight is down,” said one frontline employee.
Amerijet declined to make anyone available for an interview.
One other source with deep company experience said management is grappling with excess spending, including for pilots which are guaranteed 74 hours of flying pay per 30 days under a brand new labor contract although there isn’t enough work to maintain them busy for that period of time. Pilot scheduling is comparatively inefficient, he said, relating that in a single case, Amerijet paid a two-month hotel stay for a brand new first officer because he wasn’t based in Miami and management couldn’t determine find out how to use him.
“To be honest with you, I don’t know the way they’re surviving. They are attempting to reduce costs in some places, but the price overruns are still out the roof,” he said.
Leadership change
It’s already been a bumpy yr for Amerijet, which is owned by private equity firm ZS Fund.
It closed a small freight forwarding division, laid off greater than 15 back-office employees, offshored accounting functions to low-cost Trinidad and Tobago and reduced flight schedules to Aruba and Brussels because the spring.
Amerijet announced in early October that Strauss was retiring and suggested the CEO’s departure was voluntary, as his three-year contract got here to an end. However the abrupt nature of his departure suggested the choice was not his, with several sources near the corporate saying he was fired.
Just a few current and former employees blamed the corporate’s financial distress on Strauss’ management style and the addition of an excessive amount of capability just because the air cargo market turned sharply south.
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Amerijet under Strauss tripled the scale of its fleet. It faced lengthy delays getting Federal Aviation Administration approval so as to add the six B757 converted freighters to its operating certificate. Amerijet took possession of some 757s in the summertime of 2021, but the primary one didn’t enter revenue service until March 2022 and the whole fleet wasn’t operational until midyear. Reporting on the time indicated the delays stemmed from the FAA’s rejection of Amerijet’s updated flight manuals, changing FAA requirements and lease negotiations that dragged out longer than expected.
By the third quarter of 2022, the air cargo market was starting to rapidly cool down from the pandemic peak by the third quarter of 2022.
A source with close ties to Amerijet said current 757 utilization “is amazingly low.”
The post-pandemic recovery of passenger airline traffic, which injected large amounts of lower-deck space for cargo into the market, captured a big chunk of Amerijet’s common carriage business out of Miami to Central America, Mexico and the Caribbean. Traditional airlines were in a position to offer cheaper air transport because much of the operating cost was covered by the passenger side of the business. The additional regional capability drove down yields and Amerijet’s load factor, which is all the way down to 50% or less on many routes for general cargo, people conversant in the corporate said.
FreightWaves reached out to former management and frontline employees who said Strauss was disdainful toward the prevailing Amerijet team and sales agencies after joining the corporate in the autumn of 2020 from Air Canada, which was underscored by hiring executives who had experience running passenger airlines to interchange veteran managers.
“His team of friends … took no time to even try to grasp the clientele or the numerous island economies that trusted the timely delivery of cargo,” said one other current employee, adding that the period of time it takes to execute a reservation in Amerijet’s system is commonly longer than shipping by ocean to Caribbean destinations.
Executives Strauss hired included Eric Wilson, a former Delta Air Lines cargo executive who’s now chief industrial officer; Chief Operating Officer Craig Bentley, who previously headed operations at Cape Air/Nantucket Airlines, a small passenger carrier with turboprop aircraft that also provides feeder service for an express delivery company; Chris Mazzeo, vp of world operations, who spent a decade in cargo at Delta and likewise worked at the previous Emery Worldwide Airlines; and Eric Anderson director of revenue management and pricing, who spent 13 years at Delta before a stint with Amazon.
“They tried to use that [revenue management] logic from passenger airlines selling cargo in an all-cargo environment and so they lost their shirt,” said an industry source conversant in the corporate.
Industry at low-water mark
Amerijet isn’t alone coping with tighter budgets during a freight recession by which global air cargo volumes fell 8% yr over yr in 2022 and one other 6% yr up to now in 2023. Amerijet is privately held, so getting a full financial picture isn’t possible. Cargo revenue at public passenger airlines and logistics firms, which serves as a proxy for financial conditions at Amerijet, was down 30% to 50% through the third quarter versus the nine-month period a yr ago.
Many cargo airlines have hit the brakes on adding recent or converted freighters and reduced flight activity to administer costs. Even FedEx and UPS have scaled back their air networks in response to slower parcel shipping, but large firms have the dimensions and balance sheets to higher withstand a market dip. Western Global Airlines filed for bankruptcy as a consequence of a mixture of mismanagement and weak market conditions.
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Amerijet was also hurt when DHL canceled contracts with Amerijet to fly packages in its express network, in keeping with two sources. Amerijet is flying two 767 freighters for DHL, down from seven last yr. DHL took back several aircraft it owned and Amerijet is using its own aircraft on the remaining service routes.
“Our contract with Amerijet stays lively,” said DHL Express spokeswoman Pamela Duque, when asked concerning the status of the connection.
Strauss has many supporters within the industry who previously praised him for implementing recent IT projects, expanding Amerijet from a regional to a global carrier, and driving more operational and planning discipline so it could operate as an efficient scheduled airline slightly than departing based on whether an aircraft was sufficiently full. Many legacy employees at Amerijet, including former CEO and Executive Chairman Vic Karjian, resisted efforts to vary the culture and modernize.
Meanwhile, the longer term of Amerijet’s contract with Maersk Air Cargo is clouded by the lack to acquire Korean approval for everlasting, scheduled service at Seoul’s Incheon Airport. Amerijet currently operates two routes multiple times per week between China and the U.S. via Incheon. The dearth of a foreign carrier permit means Amerijet, which has accused Korean Air of interference, must apply every month for industrial access to Korea, leading to increased legal and airport fees.
Korean Air says the arrangement with Maersk violates international aviation rules.
On the positive side, Mozzali’s worker letter said Amerijet provided charter flights with relief supplies following the Lahaina wildfire in Hawaii and picked up recent business flying for certainly one of the U.S. integrated parcel carriers within the Caribbean and Central America.
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