Amerijet, racing to reverse the cargo airline’s negative cash flow after the recent exodus of CEO Tim Strauss, is parking jets, deferring major maintenance and taking other steps to contain costs, according to public fleet databases and sources with intimate knowledge of the company.
The Miami-based freighter operator is paying the price for expanding too quickly during the pandemic freight bubble. Business is now shrinking because of 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 end of assignments with the U.S. Postal Service and DHL Express have created a large revenue hole that is weighing on company finances, they said.
Newly installed CEO Joe Mozzali bluntly outlined Amerijet’s new 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, according to the document. The fleet reduction is taking place during the busiest time of year 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 both 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 need to continue our focus on winning new business, improving our revenue mix, cost efficiencies, network structure and load factors.”
C-checks, which 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 type of regular inspection happens when there is a cash-flow problem, an airplane isn’t economical to fly or the airline doesn’t have the necessary crews, aviation industry experts said.
Mozzali suggested more fleet downsizing could follow.
Amerijet’s fleet had grown to 22 aircraft early this year, not including three freighters supplied by Maersk Air Cargo for dedicated transportation service.
Up to five aircraft are currently out of action. Internal company data shows two 757s are parked with notes attached saying they are not to be used, with a third 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 one of Amerijet’s six Boeing 757 converted freighters hasn’t flown since Oct. 14 and another one has been parked since Nov. 2. The 767-300 in Istanbul has been there for two weeks so far.
Although Amerijet is saving certain costs by not operating some aircraft it still must make monthly lease payments on them, which can exceed $300,000 per unit.
A big blow to the top line is the loss of two U.S. Postal Service contracts that expire at the end of the year, said current and former employees on condition of anonymity because of concerns about retribution or losing future business opportunities. The contracts aren’t being renewed because 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 — both flying six days a week. Amerijet will continue to fly mail on a San Juan, Puerto Rico-Newark, New Jersey-Orlando, Florida-San Juan rotation, as well as between San Juan and Ontario, California.
“They’re definitely trying to tighten the belts. Freight is down,” said one frontline worker.
Amerijet declined to make anyone available for an interview.
Another source with deep company experience said management is grappling with excess spending, including for pilots that are guaranteed 74 hours of flying pay per month under a new labor contract even though there isn’t enough work to keep them busy for that amount of time. Pilot scheduling is relatively inefficient, he said, relating that in one case, Amerijet paid a two-month hotel stay for a new first officer because he wasn’t based in Miami and management couldn’t figure out how to use him.
“To be honest with you, I don’t know how they’re surviving. They are trying to cut back costs in some places, but the cost overruns are still out the roof,” he said.
Leadership change
It’s already been a bumpy year for Amerijet, which is owned by private equity firm ZS Fund.
It closed a small freight forwarding division, laid off more than 15 back-office employees, offshored accounting functions to low-cost Trinidad and Tobago and reduced flight schedules to Aruba and Brussels since the spring.
Amerijet announced in early October that Strauss was retiring and suggested the CEO’s departure was voluntary, as his three-year contract came to an end. But the abrupt nature of his departure suggested the decision was not his, with several sources close to the company saying he was fired.
A few current and former employees blamed the company’s financial distress on Strauss’ management style and the addition of too much capacity just as the air cargo market turned sharply south.
Amerijet under Strauss tripled the size of its fleet. It faced lengthy delays getting Federal Aviation Administration approval to add the six B757 converted freighters to its operating certificate. Amerijet took possession of some 757s in the summer of 2021, but the first one didn’t enter revenue service until March 2022 and the entire fleet wasn’t operational until midyear. Reporting at 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 beginning 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 extremely low.”
The post-pandemic recovery of passenger airline traffic, which injected large amounts of lower-deck space for cargo into the market, captured a significant chunk of Amerijet’s common carriage business out of Miami to Central America, Mexico and the Caribbean. Traditional airlines were able to offer cheaper air transport because much of the operating cost was covered by the passenger side of the business. The extra regional capacity drove down yields and Amerijet’s load factor, which is down to 50% or less on many routes for general cargo, people familiar with the company said.
FreightWaves reached out to former management and frontline employees who said Strauss was disdainful toward the existing Amerijet team and sales agencies after joining the company in the fall of 2020 from Air Canada, which was underscored by hiring executives who had experience running passenger airlines to replace veteran managers.
“His team of friends … took no time to even try to understand the clientele or the many island economies that depended on the timely delivery of cargo,” said another current worker, adding that the amount of time it takes to execute a reservation in Amerijet’s system is often longer than shipping by ocean to Caribbean destinations.
Executives Strauss hired included Eric Wilson, a former Delta Air Lines cargo executive who is now chief commercial 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, vice president of global operations, who spent a decade in cargo at Delta and also worked at the former 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 apply that [revenue management] logic from passenger airlines selling cargo in an all-cargo environment and they lost their shirt,” said an industry source familiar with the company.
Strauss has many supporters in the industry who previously praised him for implementing new IT projects, expanding Amerijet from a regional to an international carrier, and driving more operational and planning discipline so it could operate as an efficient scheduled airline rather 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 change the culture and modernize.
Industry at low-water mark
Amerijet isn’t alone dealing with tighter budgets during a freight recession in which global air cargo volumes fell 8% year over year in 2022 and another 6% year to date in 2023. Amerijet is privately held, so getting a full financial picture isn’t possible. Cargo revenue at public passenger airlines and logistics companies, 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 year ago.
Many cargo airlines have hit the brakes on adding new or converted freighters and reduced flight activity to manage costs. Even FedEx and UPS have scaled back their air networks in response to slower parcel shipping, but large companies have the scale and balance sheets to better withstand a market dip. Western Global Airlines filed for bankruptcy due to a mix of mismanagement and weak market conditions.
Amerijet was also hurt when DHL canceled contracts to fly packages in its express network, according to two sources. Amerijet flies two 767 freighters for DHL, down from seven last year. DHL took back several aircraft it owned and Amerijet is using its own aircraft on the remaining service routes.
“Our contract with Amerijet remains active,” said DHL Express spokeswoman Pamela Duque, when asked about the status of the relationship.
Meanwhile, the future of Amerijet’s contract with Maersk Air Cargo is clouded by the inability to obtain Korean approval for permanent, 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 lack of a foreign carrier permit means Amerijet, which has accused Korean Air of interference, must apply each month for commercial access to Korea, resulting in increased legal and airport fees.
Korean Air says the arrangement with Maersk violates international aviation rules.
On the positive side, Mozzali’s employee letter said Amerijet provided charter flights with relief supplies following the Lahaina wildfire in Hawaii and picked up new business flying for one of the U.S. integrated parcel carriers in the Caribbean and Central America.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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