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“In September, China will wake up. We will then have a window of opportunity until January, before the Chinese New Year festivities, which will slow down the economy again for a month or two,” said Sanjeev Gadhia on 30 June at the AviaDev Africa conference in Cape Town.
Like many players in international trade, the founder of Kenyan cargo aviation specialist Astral Aviation is impatient with the shutdown of the Asian giant and the slowing of its production apparatus, which is also hindering Astral’s activity in the direction of Hong Kong, Shanghai or Beijing.
However, this did not stop the 100% cargo company from transporting more than 70,000 tonnes of freight in 2021 and more than 30,000 in the first half of 2022. This puts it just ahead of its compatriot Kenya Airways, which is expected to carry almost 64,000 tonnes in 2021.
Not bad for a company launched in 1999 without a business plan. “We didn’t even have one during our first eight years of operation,” recalls the CEO, visibly amused by the bemused reaction of his audience, made up of airline specialists – manufacturers, companies, airport managers, etc.
Antonovs instead of Boeings
At the time, the cosmopolitan entrepreneur – born in Kenya, educated in Bangalore, India, with a degree in International Business from the London campus of American private Schiller International University – was a supplier to the United Nations. As such, he realised there was a lack of dedicated cargo aircraft on the continent. “Ethiopian was the only airline offering cargo flights at the time,” he says. Gadhia decided to start his own business.
“Due to a lack of funding, I did not have access to Boeing or Airbus freighters,” the CEO continues. So Astral Aviation started transporting UN food aid to Somalia, South Sudan and the DRC with three Antonovs. “After eight years, we decided to diversify both our fleet and our clientele.”
Today, the company still operates flights dedicated to humanitarian aid and to supplying the Blue Helmets. From Africa, Europe, Dubai, Hong Kong, Tel Aviv and Riyadh, it also transports equipment for the oil and gas industry, perishable foodstuffs and consumer goods, with DHL’s express deliveries to South Africa and exports of Tecno, Vivo, Xiaomi and Huawei Mobile Phones to the continent. But also protective equipment against Covid, vaccines…
The pandemic, a very busy period
It must be said that while the crisis grounded a large part of the global fleet, this was not the case for flights entirely dedicated to cargo. “For the first four months we were very, very busy – we didn’t stop flying, not even for one day. At first it was mostly perishables and pharmaceutical cargo. Then China started producing gloves and masks for the whole world,” the CEO tells us, recalling that special feeling at the empty O.R. Tambo (Johannesburg) airport, where only freighters were still allowed to land. At that time, under contract with the African Union, Astral Aviation was delivering protective equipment to 48 of 54 African countries.
In 2021, the first vaccines arrived. And in particular, a million doses of AstraZeneca, refused by the Kenyan government after a study showed its lesser efficacy against the variant that was then rampant in the country. Astral Aviation was also asked to redirect the vaccine to 16 other African countries.
Jet fuel and trade deficits
But after the Russian attack on Ukraine, the airlines were hit by a new crisis: the soaring price of jet fuel.
And this time, cargo companies have been affected just as much as passenger companies. And even more so, as their fleets are generally much older, with significantly higher operating costs than those of passenger carriers. Gadhia estimates that his operating costs have jumped by 30-35% in five months. “We pass on some of this to our customers, but there is a limit to what they can accept,” he says.
In addition, unlike passenger transport, which is generally balanced between outward and return journeys, cargo companies have to juggle with unequal trade balances, which are unfavourable to African countries. “For example, if you take a flight from a European hub to Nairobi, it will be almost full of high value-added products in that direction. But in the other direction, we end up with six hours of almost empty flight time, which represents thousands of dollars of lost revenue”.
“This is a huge concern,” Gadhia explained at the end of the conference in Cape Town. A gap that Kenyan flower production, Mozambique’s live crabs and lobsters and Madagascar’s fish are having a hard time filling.
These concerns have not prevented the company’s CEO, who did not wish to share his financial balance sheet with us, from counting on a “robust” second half of the year, without saying more.
Gadhia, who defines himself as “resolutely optimistic”, has even ordered two new Embraer E190Fs – the first in Africa – which will be added to an already long order list: two Boeing 767-300Fs expected in 2023, with a capacity of 52.7 tonnes; two Airbus A330-200Fs for 2023-24 (64 tonnes); four A330-300P2Fs for 2024-6 (61 tonnes); as well as four B777-300ERSFs for 2025-2026 (110 tonnes). The two Embraer aircraft, with a capacity of 10.7 tonnes, are intended for the regional market and are expected in 2024-2025.
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The aircraft on order will complement and rejuvenate the current fleet of 14 aircraft, ranging in capacity from 7 tonnes for the smallest (the four Fokker 50s) to 113 tonnes for the two largest, two B747-400Fs – all of which are leased.
The Covid pandemic highlighted the strategic value of cargo for passenger airlines, which have had to rely on this activity for the majority of their revenues. At Kenya Airways, for example, “cargo has traditionally accounted for 10% of our revenues, and this share rose to 60% at the height of the crisis. In 2022, it should represent 18% of our turnover,” Martin Gitonga, the airline’s director of network and alliance, told us when we met him in Cape Town.
Sindy Foster, senior partner at Avaero Capital Partners, a UK-based aviation consultancy dedicated to Africa, believes that the all-cargo airline model is not under threat. “In the US market, which is very mature, the presence of dynamic passenger airlines does not prevent the existence of a dedicated cargo sector. Amazon and DHL have their own cargo planes. Cargo airlines have their place in Africa, they just need to innovate a little more to impose themselves in the logistics chain,” she says.
Innovation. The word does not scare Gadhia, who is very interested in blockchain, “a key issue for access to data on the continent”, and has been involved in the drone adventure for the past three years – just like Kenya Airways – via its subsidiary Astral Aerial Solutions.
“Drones are the future of last-mile logistics in Africa. We are particularly interested in large drones: they can carry more than 100 kg and fly up to 200 km and will eventually form part of our fleet,” says the CEO, who says he is in discussions with five manufacturers. All that remains is the green light from the Kenyan regulator in order to launch a six-month pilot project with the World Food Programme and UNICEF.
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