Less than a month after its buyout by a local financier, Southern Air Inc. is sharing a $127 million U.S. Air Force transport contract won by United Parcel Service Co.
Based in Norwalk, Southern Air operates as a low-cost cargo freight company with the U.S. military among its customers. It has 10 Boeing 747-200 jets in its fleet and plans to add three more aircraft by next year.
The company traces its history back 60 years to the establishment of Southern Air Transport (SAT), a Miami company that became a front for covert transport missions of the Central Intelligence Agency, which also operated the better known Air America.
In 1986, Nicaragua shot down an SAT cargo plane and captured an employee who parachuted free. The incident exposed the Iran-Contra weapons-trafficking scandal that plagued the Reagan administration”™s second term.
In 2002, five years after entrepreneur James Neff bought the company out of bankruptcy, Southern Air filed again to reorganize under protection from creditors, owing $10.4 million to Fairfield-based General Electric Co.”™s commercial finance division and $5 million more to other organizations. At the time, Southern Air listed $17 million in assets.
Last month, the company was acquired by Stamford-based Oak Hill Capital Partners, which did not disclose what it paid. The Stamford private equity firm plans to combine Southern Air with Washington-based Cargo 360 Inc., which Oak Hill also owns.
In Southern Air, Oak Hill acquires the 39th-largest air freight company in the world, according to trade publication Air Cargo World. Last year, Southern Air transported 1.1 billion freight-ton kilometers, the industry measurement that describes 1 metric ton of cargo flown 1 kilometer.
FedEx Express was the world”™s largest air cargo company in 2006. The third-largest freight carrier in the United States, and sixth largest in the world, is Atlas Air Worldwide Holdings Inc. of Purchase, N.Y. Atlas Air generated a $60 million profit last year on $1.5 billion in revenue from a fleet of nearly 40 Boeing freighters, with the U.S. Military Airlift Mobility Command accounting for more than a quarter of the company”™s business so far this year.
Like Southern Air, Atlas Air underwent a bankruptcy reorganization in 2003, and this summer divested a 49 percent stake in its Polar Air Worldwide Cargo Inc. subsidiary to DHL Express for $150 million.
Holding the No. 2 position worldwide is UPS, which brought on Southern Air as a subcontractor for its new Air Force deal, as well as ABX Air Inc. of Wilmington, Ohio; Kalitta Air L.L.C. of Ypsilanti, Mich.; National Air Cargo Group Inc. of Ypsilanti; and Ryan International Airlines Inc., of Rockford, Ill.
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While 35 of the top 50 freight companies reported traffic increases in 2006, cargo tonnage at New York”™s Kennedy International Airport was down 1.6 percent in the first half of 2007, while Asia gateway Los Angeles International Airport was down 2.7 percent over the same period.
The industry is not without its challenges, with volatility in fuel costs, insurance premiums and interest and foreign currency rates.
What”™s more, some Asian countries make air cargo shippers beholden to limited-entry rights that can expire if a company does not carry sufficient traffic. And Congress may impose additional costs on the industry, having recently passed a security bill that requires inspection of cargo on passenger airlines within three years, though the ultimate impact on dedicated cargo freighters is uncertain.
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