One Step Forward – Two Steps Back !!

The air cargo market has been gradually adjusting itself towards a positive 2014 based on the results of the last quarter 2013 and the relatively good start in January and February of this year.
And now the real threat of a new cold war between Russia and the West has raised its ugly head!

Will the traffic rights of Russian and European carriers be endangered by sanctions following the tug-of-war over the Crimea status? Not only ABC and BA would suffer as a result  /  sources:  ABC -  hs

As of today the events in the Ukraine and the Crimea regions give good reason to be very worried about the fast deteriorating relationship between Russia and its western neighbors and the eventual setbacks for our industry as a whole.

This year has got off to a good start with January figures showing an almost 5% rise in volumes and an overall growth of 1.4% on 2013. It’s European carriers who have also benefited from this with then showing an upswing of 6% on FTK’s flown.
Interestingly enough, the FTK growth is now outpacing capacity expansion which goes some way to maintaining the recovery of load factors.
The air cargo industry is still walking on a “tightrope” due to the fact that despite these good figures, the growth of the world’s economy still has not moved upwards and that the “on shoring” trend continues to dominate.

Western European countries and their carriers are very dependent on trade flows between themselves and Russia.
It seems that neither Russia nor the West are willing to stand down on their positions regarding the events in the above mentioned regions. This can quickly lead us into a situation whereby air cargo traffic flows can be slowed down or even disrupted altogether.

Will aviation be threatened by a new Cold War between East and West?
Russia and the West have recently (as exclusively reported in CFG) made a breakthrough in the mutual granting of overfly and fifth freedom rights for their carriers. These agreements run a real risk of being frozen by either side or in a worst case scenario to be cancelled altogether.
Russian carriers such as AirBridge Cargo rely heavily on operations through cities such as Frankfurt, Amsterdam and planned operations into the U.S.A.
Lufthansa Cargo and AeroLogic need the agreement reached on overflies to take place in order that their operations can be streamlined better operationally and financially.
But, the above is just the tip of the iceberg.
If the relationship between the West and Russia does go back to the old cold war days status, then the entire industry ends up as loser.

The international community is putting its faith in a diplomatic resolution. However, the sabre rattling has got to a stage where even the EU is threatening Russia with actual sanctions.
These, if implemented will push world trade down to a level whereby many businesses and carriers will be pushed into dire straits.

It‘s not just the air cargo business which can suffer
Airframe manufacturers who rely heavily on orders from Russia for the coming years could be in for some very big headaches as well.
Boeing’s business with Russia since the end of the cold war in the early 90’s has increased dramatically. The U.S.-based company has spent almost $7bn in Russia since 1991 and has plans to increase that to $27bn by 2022. This figure includes buying titanium to the value of $18bn.
On top of this, Boeing has a flourishing manufacturing joint venture with Russia’s SSMPO-Avisma corporation, which is the world’s largest titanium producer. Interesting is the fact that they (Boeing) also run a design centre in Moscow with 1,200 engineers who do design work for aircraft such as the 787 Dreamliner and the planned 777X.
Boeing’s order books show plus 100 aircraft from Russian carriers.
The Russians need these aircraft in order to modernize their fleets as the Russian industry cannot even dream of supplying aircraft fast enough.
Is all of this going to be endangered?

U.S. officials are determined to target economic sanctions against the Putin government if the present situation does not change for the better.
The EU has stated that they will follow suit and we can bet our last euro or dollar that Russia, which is pursuing an increasingly aggressive and nationalistic policy as have seen in the Crimea, will retaliate in the same way.
Where all of this might end - who knows!

Boeing, Airbus, the shipping industry, freezing of accounts and a rapid fall in demand for western goods - all of this would be harmful for Europe’s and the U.S. trade balance.

We can only pray and cross our fingers that all sides will see reason and find a way to step down without losing face.
If not, then the air cargo industry and aviation as a whole, is in for yet again another rough ride.

John Mc Donagh