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Polar freezes out rivals
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August 31, 2001: 3:11 p.m. ET
Small air cargo carrier beats out UPS, others for Hong Kong rights
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Polar Air Cargo, a small air freight carrier, beat out major airlines such as United Parcel Service, FedEx Corp. and Northwest Airlines for the rights to make three round-trip flights a week between the United States to Hong Kong with a stop in Seoul, South Korea, in between.
The rights of an airline to fly between two foreign nations without a stop in its own country first is restricted by a maze of bilateral air transport agreements. Previous restrictions had limited only overseas carriers to serving this lucrative route that links the two major U.S. trading partners.
UPS and FedEx had sought to have flights from Hong Kong stop in the Philippines, while Northwest (NWAC: up $0.05 to $21.05, Research, Estimates), Polar, and a privately-held carrier, Evergreen International Airlines, had proposed the stop in South Korea.
Polar Air is currently a unit of General Electric Co. (GE: up $0.44 to $40.64, Research, Estimates). But in July GE agreed to sell it to Atlas Air Worldwide Holdings (CGO: up $0.18 to $13.70, Research, Estimates), the world's third-largest air cargo carrier behind FedEx (FDX: up $0.05 to $42.10, Research, Estimates) and UPS (UPS: up $0.23 to $55.06, Research, Estimates).
Atlas, which is paying $84 million for Polar, has generally been in the business of flying 747 freighters for other major carriers, mostly passenger airlines, on a contract basis under which it provides the 747, crew, fuel, and other operating expenses.
"The deal isn't done yet, but this only makes it more attractive," said Atlas spokeswoman Rachel Berry. "Hong Kong-Seoul is a very attractive route in an area primed enormous growth." She said the awarding of the route does not change the purchase price for Polar.
UPS issued a statement saying it was disappointed in the decision and that it showed the importance of having more liberalized air agreements between the United States and Hong Kong.
A 1995 U.S.-Hong Kong air services agreement allows U.S. carriers to operate up to eight weekly round-trip all-cargo flights between Hong Kong and cities in third countries, an operation known as "fifth-freedom" rights.
Those rules have stayed in effect even though Hong Kong has since become part of China once again.
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The United States had previously awarded five of those weekly round-trip flights to FedEx so it could link Hong Kong and the United States through its hub in the Philippines, and awarded three to Air Micronesia for service between Hong Kong and Manila. But when Air Micronesia ceased service in the markets, the routes again became available.
This has been a soft time for air cargo carriers, and Atlas has been hit harder than most. It announced in June that it was grounding some of its 747 freighters and laying off pilots due to the weak demand for air freight.
The company has also been struggling since the death of its founder and CEO, Michael Chowdry, in a private plane crash in January.
Many analysts have questioned Atlas' prospects before this announcement, with some giving its stock the rare "sell" or "unattractive" rating. The plans to purchase money-losing Polar Air had not been seen as a salvation.
"Although Atlas has obtained valuable rights to fly into Japan and appears positioned to rationalize Polar's fleet, we believe the transaction adds risk because Atlas is adding planes in a tie of weakening demand and oversupply," said Ed Wolfe, analyst with Bear Stearns, shortly after the deal was announced. He said that the deal also pose the risk of having Polar compete with the passenger carriers which are its customers. 
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