In an economy where air cargo volumes are dropping like flies, it’s highly unusual for a new cargo carrier to take flight. Even the International Air Transport Association, which tracks the industry, reports that air freight remains at very low levels.

But Lufthansa Cargo and DHL Express remain committed to their new joint venture cargo airline AeroLogic GmbH, founded in September 2007 when the air cargo market was strong.

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“We are doing this because we have to plan long term,” says Deutsche Post DHL CEO Frank Appel. “It’s important to invest in opportunities, even in difficult times. In light of an inevitably recovering market, the strengthening of vital trade lanes through cost-efficient shared use of modern freighters must be viewed as a smart investment.”

AeroLogic’s first Boeing 777 freighter towards Asia took flight from its hub at Leipzig-Halle Airport in the German state of Saxony-Anhalt in June this year.

AeroLogic has abandoned its original target of $700m in annual revenue by 2011, although it expects the company to make a profit in 2010. The carrier’s ultimate goal is to rank among the top five European cargo airlines, with direct connections to Asia by 2010.

But how it will fair is hard to predict. Air cargo can be an early indicator of improving conditions. “But we have no backlog,” Mr Appel admits. “Until April, we saw neither improvement nor deterioration, so it looks as though the floor of the crisis has been reached.”

Wolfgang Mayrhuber, chairman of the executive board and CEO of Deutsche Lufthansa, says that the joint venture is setting the stage for future economic growth.

“The new airline shows a strong commitment by both partners to extend their services to their customers and to establish a new strong global player in the industry,” he says. “It will improve Germany’s core economic structure and need to be a leader in logistics services.”

 

Airport juggling

AeroLogic’s headquarters are in Schkeuditz/Leipzig, mainly because of DHL’s decision to move its main European hub from Brussels International Airport to Leipzig-Halle.

To many that move, in May 2008, reflected the shift of Europe’s centre of economic and manufacturing gravity steadily east.

But another factor in the decision was that Belgian politicians imposed night flight restrictions at the airport.

Lufthansa Cargo may face similar problems in Frankfurt as its legal staff gear up for a fight with local officials and politicians trying to ban night flights.

DHL’s relocation did not come without issues. While Saxony-Anhalt initially suggested state aid guarantees for DHL at Leipzig-Halle Airport worth about $796m, the European Commission (EC) rejected the plan. About $557m of public investment for a new southern runway was authorised instead.

“A second runway was one of three pre-­requisites DHL wanted to move its hub from Brussels,” says Dirk Naether, managing director of Leipzig-Halle Airport.

The EC also refused to let the region grant DHL $9.7m in training aid, as this sum would have also paid the company’s running costs. Instead, DHL received a $2.55m public payout to help train workers.

“Leipzig-Halle Airport is the perfect location because of its strategic position for European growth,” Mr Appel emphasises.

 

Local investment

DHL Express has already spent about $474m on the new hub. This includes an aircraft hangar, apron, fuelling station and administrative offices.

Today it processes about 1500 tonnes of freight from 60 aircraft a day there, and plans to increase freight volumes to 2000 tonnes by 2012, depending on economic conditions.

In addition, DHL plans to increase its total number of employees at Leipzig-Halle from about 2000 to 3500 over the next four years.

AeroLogic has about 80 employees, including pilots. Estimates project that some 200 jobs will be created by the new air carrier in the near future, with about 80% of them being in the cockpit.

“We expect the Leipzig-Halle Airport to be the epicentre for DHL, and, at the same time, for the development of logistics around the region,” says lord mayor of Halle, Dagmar Szabados. “The establishment of DHL was a pre-requisite for attracting industry in need of speedy logistics. As a result of the DHL establishment in this region, a total of 7000 jobs will be created.”

Already the Saxony-Anhalt region has been successful at attracting major corp­orations. Porsche runs a production plant in Leipzig adjoining the airport. “An airport nearby that was open 24/7 was on top of its site selection list,” says Mr Naether.

Volkswagen, Mercedes-Benz and BMW rely on Saxony-Anhalt suppliers for auto parts. Dow Chemical has sites in Schkopau, Böhlen, Leuna and Bitterfeld. Q-Cells, the largest European producer of solar cells, employs 1700 workers in the city of Thalheim, Saxony-Anhalt. Recently, Dell located a new sales and service centre in Halle. It based its selection on two criteria: labour and logistics.

“Our automotive industry and new technologies such as nanotechnology and solar technologies depend on logistics,” says Ms Szabados.

“If they do not have a good logistics platform, it is more difficult for them.”

With four major highways (the A2, A9, A14 and A38), two waterways covering 600 kilometres, and Magdeburg’s new Hanseatic Port, connectivity in the region is excellent.

The area features five inland ports, a major freight village (Hansehafen Magdeburg) and rail-freight hub (Magdeburg Sudenburg). Halle (Saale) has the largest railway freight depot in Saxony-Anhalt.

While large areas of land for the establishment of logistics platforms are not available in Halle, Ms Szabados points out that together with Leipzig, there is 125,000 hectares of well-located commercial space.

“What is remarkable is we have established a co-operative network between Leipzig and Halle for establishing and locating logistics. We can create optimal conditions,” she says.

Mr Naether also reveals that the airport is actively recruiting other cargo carriers. “We have a lot of land,” he says.

“If you think about strategic positions you have to come to Leipzig-Halle because of the capacity and room for growth.”