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Published: Sunday, 7/24/2011 - Updated: 3 years ago

Air cargo was seen as Toledo Express' bedrock business

Finding new carrier may be hard

BY DAVID PATCH
BLADE STAFF WRITER
Toledo Express Airport experienced another loss when Delta Airlines made its last departure on March 13. Toledo Express Airport experienced another loss when Delta Airlines made its last departure on March 13.
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During most of the precipitous seven-year decline that afflicted passenger travel at Toledo Express Airport starting in 2005, the air cargo side of the airport's business was portrayed as its bedrock -- that even if remaining passenger flights disappeared, there would always be a cargo niche.

That vision of stability crashed with a thud during the wee hours Friday, when DB Schenker notified employees at its BAX Global Inc. subsidiary and the Toledo-Lucas County Port Authority that it planned to shut down the Toledo Express cargo hub, eliminating about 700 part-time and full-time jobs and shutting off a stream of about $2 million in annual revenue to the agency operating the airport.

Addressing the port authority board of directors' airports committee later Friday morning, port President Paul Toth described the BAX shutdown as a business decision completely beyond the agency's control and one that Schenker made despite a vigorous lobbying effort by port staff and Mayor Mike Bell to try to save the operation.

Mr. Toth promised to seek whatever opportunities there might be to land a new tenant or tenants at the port-owned hub facilities, for which the authority will still owe $9.8 million in bonded debt when BAX's lease expires in two years.

The BAX shutdown, which will include lease cancellations for the company's air freighter fleet, will take 1.2 million pounds of air-cargo capacity out of the market, Mr. Toth said, "and we will try to position Toledo Express to fill that void in some way, shape, or form."

"Our No. 1 choice would be something that would use airplanes, would use the airport," the port president said.

But if a trucking company were interested in the facility, as recently occurred with a vacant former Emery Air Freight hub in Dayton, that would be welcome in Toledo too, he said.

In the meantime, the port authority has to cope with the near-immediate loss of about $1.25 million in landing fees and $66,000 in fuel-flowage fees BAX has paid annually from its Toledo operations. Lease payments that have serviced the agency's cargo-hub construction debt since 1991 expire in 2013.

Port authority effects

Carla Firestone Nowak, the port authority's spokesman, said it was too soon to know how losing 20 percent of its roughly $10 million budget will affect agency operations or employment.

Mr. Toth said that he believed that the blow would be softened because the port authority has been diversifying its operations -- most recently by taking over the city of Toledo's parking management operations -- and business at the Port of Toledo has grown.

He also said it was too soon to know how the BAX hub shutdown would affect international cargo flights that have flown there, especially in recent years. Although overseas cargo had been a centerpiece of port authority efforts to retain the BAX operation, it accounted for only about 10 percent of current activity, Mr. Toth said.

The port president said he did not believe BAX's closing would significantly affect other on-airport businesses, and the Ohio Air National Guard's 180th Fighter Wing base would be enough to maintain Toledo Express's services.

"Nobody has to worry about the airport closing down," Mr. Toth said. "We have a very vibrant Air National Guard out there with 400 to 500 employees."

A major catch

Port authority member Jerry Chabler Port authority member Jerry Chabler
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The 1991 arrival of what was then Burlington Air Express at Toledo Express consummated what was considered at the time to have been a major economic development coup.

Air cargo was an annual $10 billion industry, concentrated in the Midwest, and Toledo had vied with 17 other cities to bring the Burlington hub, previously operated in makeshift facilities in Fort Wayne, Ind., to its airport.

Local officials rolled out the red carpet for Burlington after its choice. The port authority took out a full-page ad in The Blade welcoming the company and touting the 850 jobs it was expected to bring.

The port authority issued $30.8 million in bonds, adding to federal and state loans and contributions from Lucas County and the city of Toledo, to finance the cargo-hub building, a runway extension, and other improvements intended to accommodate its big new tenant. The company signed a 23-year lease with the port authority, revenue from which was dedicated to paying off the bonds.

The project met opposition from a group of well-funded activists, homeowners near the airport who feared noise from jets roaring overhead in the middle of the night.

Swanton Township filed a lawsuit to halt the project. There were also delays resulting from environmental concerns and hang-ups with the Federal Aviation Administration.

Still, a majority of Toledo residents and public officials supported the project. A University of Toledo study found it would boost the local economy by $17 million to $25 million a year.

Burlington began operations on Sept. 4, 1991, two days after Labor Day, with 800 employees, capability to sort 1.4 millions of cargo a shift, and service to customers in 130 cities throughout the United States.

Flights came in throughout the late-evening and earlymorning hours, then took off with outbound cargo before and during daybreak.

As recently as September, 2009, the hub employed a reported 849 people, 276 of them full time.

The neighboring homeowners' noise-related lawsuits were settled primarily with federally funded property buyouts or, in some cases, the installation of noise-reducing insulation, doors, and windows in their houses, also at public expense.

But after its late-1990s aviation peak, when as many as 44 aircraft visited the hub on Monday through Friday nights, Burlington/BAX Global began drifting away from the strict hub model. It would fly some cargo direct from one outlying city to another if there was enough volume to support such service.

Signs of trouble

A consultant says it ‘is not going to be easy’ for the Toledo-Lucas County Port Authority to find another company that could replace BAX Global at Toledo Express Airport. A consultant says it ‘is not going to be easy’ for the Toledo-Lucas County Port Authority to find another company that could replace BAX Global at Toledo Express Airport.
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After the Sept. 11 terrorist attacks in 2001 and then as fuel prices shot skyward later, the company increasingly turned to trucking for cargo delivery, particularly in traffic lanes for which truck service was time-competitive with flying freight to Toledo, sorting it, and sending it back out.

Domestic air cargo in general nosedived when the U.S. economy entered a sharp recession in 2008 for several reasons. They included the tailspin's particularly severe impact on the auto industry -- until then a major air-cargo customer sector -- and other customers' cost-cutting reliance on less costly modes such as trucking and, for overseas transport, ships.

Early in 2009, DHL, owned by Deutsche Post, shut down its massive cargo hub and distribution center in Wilmington, Ohio, eliminating 7,000 jobs. DHL had previously closed cargo facilities at the Cincinnati airport after merging its operations with those of Airborne Express, which it bought in 2003. The 2007 bankruptcy of Kitty Hawk, another air-cargo carrier, left vacant a hub facility in Fort Wayne.

Chris Ferrell, the co-author of a report issued last month on transportation trends, said many freight shippers simply haven't come back to air cargo since then even though their business is improving.

Since 2009, the Tompkins Supply Chain Consortium report showed, air cargo's share of the logistics industry has plunged to 5 percent from 14 percent, while trucking, rail, parcel shipment, and intermodal transport -- typically truck-rail, ship-rail, or ship-rail-truck -- all have grown.

Toledo officials had hoped to support a transition of the BAX Global hub from a domestic sorting facility to a center for international air-freight shipments and trucking.

The port authority in 2009 arranged for $6.2 million in federal and state grants and loans to pay for a customs-inspection building, truck transfer center, and maintenance facility at the Toledo hub. BAX Global, by then owned by the German logistics giant Schenker, agreed to kick in $1 million for the project.

But when designs were finished and it was time to bid out construction contracts six months ago, the company put everything on hold, Mr. Toth recalled Friday.

Dealing with the loss

Port Authority board member James Tuschman Port Authority board member James Tuschman
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"We thought we were moving in the right direction by gathering up 6.2 million in state and federal dollars," he said. "But the economy never caught up."

"I know this board and the community leaders are going to do everything they can to replace the business," said Jerry Chabler, chairman of the port authority's airports committee.

"It's a setback, no question about it," committee member James Tuschman said. "It is not fatal, and we're going to deal with it."

Michael Boyd, a Denver-based air industry consultant and analyst, said that in the current air-freight market, it "is not going to be easy" for the port authority to find candidates to replace BAX Global at the Toledo hub.

"There is no shortage of air freight facilities in America," he said. "There is a lot of competition for air capacity."

Toledo is at least in better shape, Mr. Boyd said, than cities such as St. Louis, whose leaders believe they can develop air-freight business when they don't even have hub facilities.

"Toledo is built and ready. Toledo is not a pipe dream. But neither is Wilmington. Neither is Fort Wayne," Mr. Boyd said, referring to the shuttered hubs in those cities.

At the very least, Mr. Toth is confident that the port authority can absorb the debt service after 2013 if the cargo hub remains empty.

The agency restructured the bonds so that the balance can be paid off until 2032, instead of the original 2016, and $3 million is in reserve as protection, he said.

Blade staff writers Larry Vellequette and Tony Cook contributed to this report.

Contact David Patch at: dpatch@theblade.com or 419-724-6094.



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