The private capital giant seeks to capitalize on air-freight demand with $3.2bn acquisition
The private capital giant seeks to capitalize on air-freight demand with $3.2bn acquisition
In August, Apollo Global Management purchased airfreight firm Atlas Air Worldwide Holdings in a $3.2bn public-to-private deal. As the demand for air delivery expands, the deal’s size signals the industry’s efforts to invest along the supply chain. At the time of the transaction, Atlas Air’s enterprise value was estimated at $5.2bn.
Apollo was joined by J.F Lehman & Company and Hill City Capital in the acquisition and will offer Atlas Air shareholders $102.5 per share in cash with a 57% premium. Following the purchase, Atlas Air will be taken off the stock exchanges and become a privately held company. The deal comes at a time when air delivery is uniquely positioned to fill voids created by constraints in the shipping and vehicular sector.
The logistics sector is continuing to feel the effects of the pandemic. Air delivery saw significant growth during various global lockdowns as surface transportation methods were bottlenecked and stymied. Favor toward air cargo has managed to persist even as those bottlenecks have begun to ease.
Airline deals in the US have been concentrated around air hubs. The location of airline deals largely shadows those of the wider logistics sector, further illustrating the demand for air cargo.
Alpine Air Express also targeted similar pursuits in its purchase of Suburban Air Freight in April of this year. Suburban Air focuses exclusively on air cargo and offers strategic exposure to the sector. Companies investing in air delivery are strategically targeting locations that usually use alternative transportation services like shipping or vehicles.
Airlines are not above scheduling errors and cancellations, but the pandemic has revealed multiple advantages to air cargo over surface delivery. For example, airlines can circumvent the navigation congestion that plagues shipping lines. Planes have proved more reliable as ports become overcrowded, warehouses scarcer, and truck drivers continue to see employment shortages. Air cargo has also proven to be the faster mode of delivery. As many manufacturers are learning, however, reliability and speed come at a price.
Air freight poses two main drawbacks: cost and carbon. While air cargo fees have declined slightly in the last year, they remain noticeably higher and exaggerated by their own employment constraints. Some fashion brands, who have come to rely on airlines, reported spending $12mn on-air delivery just in the last quarter. Planes also produce significantly more carbon than ships. According to the International Transport Forum, in 2019, ships carried 350 times more load than planes, with only five times the carbon emissions. The carbon-intensive nature of airfare may add to the cost as more companies adopt carbon offsetting and carbon disclosure.
The Atlas Air acquisition reflects the growing demand for airline cargo. As Apollo completes the latest of four airline-specific buyout deals, the purchase could indicate a larger preference for aviation. This trend is expected to continue, leading manufacturers to question what this shift could mean for their bottom line and ESG efforts.
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