Wednesday, March 26, 2003

DHL buys Airborne for $1.05B

May make Tristate a hub

By James Pilcher
The Cincinnati Enquirer

DHL Worldwide Express' purchase of Airborne Express' ground assets Tuesday for an estimated $1.05 billion immediately makes DHL a serious player in the U.S. freight market, and it could make the Tristate a major hub for both ground and air shipments.

The leader of the new company created by the merger said in an interview that nothing has been decided on what to do with the two companies' hubs in this region - DHL's at the local airport and Airborne's in Wilmington just north of Cincinnati. But he said the deal was part of a growth strategy.

"And if we're going to grow, we're going to need more capacity," said Carl Donaway, chairman and CEO of Airborne, who will become the chief executive officer of the new combined company in the United States.

DHL "just spent $1 billion on all the assets of Airborne, including everything in Wilmington, and they're not not going to use them," Donaway said.

The deal gives Brussels-based DHL control of everything owned by Seattle-based Airborne except that company's subsidiary airline ABX Air Inc. DHL will pay Airborne shareholders $21.25 a share, and those shareholders will also get one share in the new separate airline ABX Air. The two companies combined for 2002 revenues of almost $4.4 billion in the U.S. alone.

The agreement immediately would create a major competitor to Federal Express and United Parcel Service for the American overnight express market. Those two companies combine to control about 79 percent of the market; FedEx has 46 percent of U.S. overnight business, and UPS has 33 percent.

Airborne held about a 19 percent market share, according to most experts. And Airborne also has grown its ground delivery business to about 2 percent of the market.

"This is the final jigsaw piece in a market where we had not found the answer," said Uwe Doerken, chief executive officer of DHL, a subsidiary of the German company Deutsche Post.

The purchase includes Airborne's assets in Wilmington, which include a sort facility as well as the largest privately held airport in the U.S. The company processes as many as 1 million packages a night there. It handled 356 million packages in 2002.

DHL already operates its lone domestic hub at the Cincinnati/Northern Kentucky International airport. It plans to open a new $214 million sort building there in July, which will triple its capacity of about 150,000 packages nightly. It handled 30 million in 2002.

The two companies employ more than 8,300 workers at the two sites: Airborne has 6,500 employees in Wilmington, and DHL has more than 1,800 locally.

Donaway said the firm hopes to have the deal approved by shareholders and federal regulators by the end of the summer, meaning that the new DHL building will open on schedule. Until then, the two companies will continue to operate separately, and after the deal is complete, he plans to conduct an extensive integration study.

"There has been no decision made as to what to do with the hubs, but I can tell you this, this is part of an aggressive growth strategy, and we can't grow by shutting down capacity," Donaway said.

Several industry analysts say the two hubs probably wouldn't serve the same functions as they do now under the new company. But they said it would make sense to keep both open.

"They got a major asset with that airport in Wilmington, where they have two runways, and they can run flights 24 hours a day with no neighbors complaining," said Peter Jacobs, freight analyst with Seattle stock brokerage Ragan MacKenzie. "And they just bought 8 percent of the entire U.S. small freight market. They'll need some more capacity to grow that, so maybe the new building at the Cincinnati airport could become a mega-hub for the region. The real key here is the ground network, which is what DHL has been missing."

John Fellows, DHL chief operating officer for the Americas, said the new building in Cincinnati would open on time. After the deal closes, there would be a review.

"At that point, we will sit down and evaluate the two airports and establish the appropriate relationships," Fellows said.


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