Tag: ABX Air

DHL’s losses in the United States appear to be deepening and the express carrier is looking closely at the entire operation even as it struggles with its major North American air service provider, ABX Air.

DHL and ABX Air agreed to binding arbitration last month to settle a financial dispute between the two operators, a dispute that bared the enmity between the businesses and the direction of their operations.

But DHL is concerned with larger issues, including a sharp decline in its air express business in North America over the last year that helped drag down overall profits at parent Deutsche Post World Net in the third quarter. DPWN Chairman Klaus Zumwinkle told analysts in Germany last month the company must look at how to “restart the whole thing” next year, but he rejected any idea that DHL would scale back in the face of problems in the United States.

The company last month reported a 4.6 percent drop in express revenue in the Americas in the first nine months of 2007, including a 6.6 percent decline in the third quarter. The U.S. air express market generally has been in decline in recent years, and volume for key competitors FedEx and UPS in that area has been flat.

In the meantime, DHL is trying to work out its problems with ABX. Their rift deepened in recent months when ABX added new aircraft for its charter and leasing business outside the DHL contract, and ABX then rejected a takeover overture from DHL’s other sub-service air operator, ASTAR Air Cargo.

ABX this fall bought another freighter airline, Cargo Holdings International, boosting its non-DHL business and along the way making ABX a tougher takeover target.

The express subsidiary of Deutsche Post World Net stopped making full reimbursements for leasing services, ABX said in an SEC filing. ABX provides aircraft, crew, maintenance and insurance for DHL in the United States.

According to the form 8-K filing, DHL asserts that certain ABX Air expenses are no longer eligible for reimbursement in full by DHL under their agreements because ABX Air’s revenue from other customers has exceeded a 10 percent threshold of total ABX revenue. ABX said that DHL’s calculation does not include certain fuel expenses. Recent costs incurred while fending off an unsolicited tender offer from ASTAR are also in dispute.

The announcement comes just one week after ABX disclosed an agreement to purchase for about USD 350 million charter and leasing specialist Cargo Holdings International, whose customer list includes DHL competitors UPS and BAX, as well as business from the U.S. government and the U.S. Postal Service.

ABX Air said it is reviewing its options while continuing to maintain full service to DHL and its customers.

“As the events described in our 8-K filing indicate, our decision to declare DHL in default of our ACMI and Hub Services commercial agreements was taken only after intensive efforts on our part to resolve this issue directly with DHL, or to continue normal operations under explicit language in the agreements for working together while disputed matters are resolved through arbitration,” said Joe Hete, president and CEO of ABX Air.