DANZAS AEI'S FIRST YEAR

A year after Switzerland-based Danzas took over Air Express International, Danzas AEI is still getting its bearings. The company says it's on schedule to complete its post-merger integration by April. But it's been a bumpy flight. Giorgio Laccona, chief executive for the Americas, was recruited away by EGL Inc., where he is international CEO.

Laccona was joined by Michael Tomasulo and Michael Marr, who led the air and ocean divisions for the Americas at Danzas AEI and now hold similar positions at EGL. Several other executives also have departed. "It always hurts when you lose good people, especially when you have invested so much," said Guenter Rohrmann, U.S.-based vice chairman of Danzas AEI Intercontinental. "But life goes on. No customer today is jumping because of one individual or a couple individuals if we continue to focus on the customer and we're competitive on price and service. You're always vulnerable if you can't provide first-class competitive service. You're not vulnerable if you provide first-class service and you pay attention to the customer." Shippers say the upheaval in the Danzas AEI executive offices hasn't affected them. Many shippers have longstanding relationships with forwarders and think twice before switching. And they say service hasn't been affected. "Service was good before with AEI and it has remained consistent," said Larry Byrd, senior manager for global logistics with Nortel Networks, the telecommunications giant. "I don't see any effect since they've gone through the merger," said Mike Powers, transportation manager at Caterpillar Inc., which uses Danzas AEI as its exclusive forwarder for international air and ocean service. "We haven't seen any deterioration in their operations. There's been no effect other than maybe more attention. They've been responsive." Danzas AEI, a unit of Deutsche Post World Net, says it is the world's largest air forwarder and that it's one of the five largest ocean forwarders. Before the merger, Danzas had worldwide gross revenue of more than $4.7 billion. AEI had gross revenue of $1.5 billion. EGL's raid of Danzas AEI executives follows the breakdown two years ago of an attempted merger between AEI and EGL. Rohrmann said AEI's board rejected the EGL deal because it would have been a stock swap, while the Danzas purchase was a cash transaction. Rohrmann said Danzas AEI has lost at least a dozen people to EGL. The toughest losses are probably Laccona and Tomasulo. "I really, really respected both those guys. They're very good managers," said Jim Hartigan, vice president of cargo at United Airlines. "When it comes to negotiating with airlines, Giorgio's one of the best." Rohrmann acknowledged that the loss of Laccona was a setback, but said, "All companies have defections. We're fortunate that we have other good people." Danzas AEI has been drawing on what the company calls its "bench strength" to fill the openings. Hans Toggweiler, who was the top Danzas executive in North America before the merger but who then reported to Laccona, was promoted to president and chief executive for North America, while Samuel Israel runs Latin America. Robert Kmiotek replaced Tomasulo and Philipp Rathgeb succeeded Marr. The latter appointments were announced by Brian Lindholm, the newly appointed executive vice president and chief operating officer for North America. While Danzas AEI has lost some of its key people, Rohrmann insists that it has not lost any major accounts since the merger — something that might have been expected from shippers that previously divided their business between Danzas and AEI and who wanted to avoid putting all their eggs in one basket. Michael Jacobs, vice president of worldwide transportation at Toys 'R' Us, said the company selected Danzas AEI as its second forwarder to handle air freight imports from Asia. "When you look at their ability to track product through the supply chain, flow product and how their management team views the importance of moving product, we thought they would be a good choice," Jacobs said. "The start-up went very smoothly. So far they have been performing to our standards, and we have very rigid standards at Toys 'R' Us." Jacobs wouldn't identify the other forwarder his company uses for airfreight shipments from Asia. Jacobs cited the Danzas AEI computer system, Logis, as an important factor in its decision. The system, developed by AEI, is being used for all international shipments. For U.S. domestic shipments, the company is using a system developed by Danzas, which had more U.S. domestic business than AEI, even though AEI was U.S.-based and Danzas was headquartered in Switzerland. Rohrmann said Danzas AEI has worked to stay close to its customers. "We are constantly either personally visiting them or on the phone with them to find out if there are any hiccups– to avoid complications that any integration brings with it," he said. Rohrmann, who joined AEI in 1961, became chief executive in 1985. When he took over, the company had $300 million in annual revenue but was losing $600,000 a month. By 1997, revenue had grown to $1.6 billion and the company earned just a shade under $50 million. "I felt we were untouchable," he said. But the Asian financial crisis and a subsequent drop in AEI's stock price convinced the board to explore other options. The most enticing was a proposed merger with EGL, which would have brought together the nation's largest international and domestic air forwarders. That fell through, but early last year, AEI accepted an offer from Danzas, the Swiss-based forwarder owned by Deutsche Post. While rival forwarders such as Panalpina have established regular charter flights with carriers like Cargolux and Swisscargo, Rohrmann says Danzas AEI does not intend to go the charter route. "Our plan is to go commercial whenever possible," he said. Danzas AEI did, however, run about 100 charter flights from Asia last fall, primarily in cooperation with Malaysian Airlines. It also runs a weekly charter with an Airbus freighter between Hahn, Germany, and Charlotte, N.C., but Rohrmann said the forwarder is trying to replace that flight with a commercial commitment. One of the biggest problems facing Danzas AEI and other forwarders is how to pass on to their customers fuel surcharges imposed by airlines due to rising oil prices. "More and more large customers want indexed agreements" that would rise or fall in line with fuel prices, Rohrmann said. Sounds simple enough, given that most carriers now charge an extra 15 cents a kilo on most routes. But Rohrmann says it's not so easy. South American airlines, for example, has a totally different system, he said. "We as an industry need to do a better job of passing on fuel charges. This industry can't afford to absorb these extra charges." Airlines are unwilling to negotiate any reduction on routes with freight backlogs, such as the inbound lanes from Asia and Europe, he said.