Cargojet Income Fund plans to solidify its position as Canada's dominant independent cargo carrier by creating a regional network to complement its existing routes covering 13 major Canadian cities.
Ajay Virmani, Cargojet's president and chief executive officer, said the income trust will seek to make deals over the next three years, scrutinizing regional air cargo firms that serve smaller centres.
Mr. Virmani's vision is to replicate, on the cargo side, what Air Canada has with its regional Jazz subsidiary for passengers.
"Right now, cargo is going off our planes and onto private carriers," the entrepreneur said in an interview. "A number of those carriers have approached us to make acquisitions, joint ventures or alliances, but we won't jump in at any cost."
Mr. Virmani has diverse investments (he's co-executive producer of Deepa Mehta's films Water and Bollywood/Hollywood), but declares: "My main love is cargo."
Cargojet has carved a niche in transporting larger-sized goods.
It caters to customers looking beyond brand-name couriers Purolator (Kelowna Flightcraft Ltd. planes) and Federal Express (Morningstar Air Express Inc. planes), which tend to deliver smaller packages than Cargojet does.
"We're looking at a plan for a feeder carrier -- one for the west and one for the east. There's an opportunity here for cargo," Mr. Virmani said. "There could be one type of aircraft or a maximum of two types of aircraft. Pilot training facilities and manuals could be shared, and storage and parts inventory shared, too."
The Mississauga-based trust has 10 customers that account for 85 per cent of its revenue, led by UPS Canada Ltd., DHL Express Canada and McCain Foods Ltd.'s Sameday Right-O-Way division.
Unlike Air Canada, which hasn't been able to raise passenger fares as quickly as rising fuel prices, Cargojet is recouping its higher costs because it immediately passes on fuel surcharges to its cargo customers, Mr. Virmani said. So far, he said, the extra charges haven't cut into overnight deliveries by Cargojet's 12 Boeing 727-200 freighters -- six leased and six owned.
Cargojet, which converted into a trust in June, is largely the brainchild of Mr. Virmani. Before the trust conversion, he owned 81 per cent of the cargo company, built up from the ashes of now-defunct Canada 3000 Cargo.
Underwriting-related fees of nearly $7-million took a chunk out of the $67-million initial public offering that sold off a 75-per-cent Cargojet stake. But Mr. Virmani still reaped a sizable cheque from the IPO's proceeds, cashing in on the long days of work since creating the cargo firm in 2002.
He takes pride in his ascent from humble beginnings as an immigrant. "I came to Canada from India in 1975 with $10 in my pocket," the 48-year-old said.
As part of the IPO, he awarded a total of 450,000 trust units to Cargojet's 400 employees, giving them a combined 5-per-cent stake. Placing units in the hands of workers is designed to help motivate them.
Mr. Virmani owns 20 per cent of the trust. Cargojet sales executive Jamie Porteous, a former Air Canada cargo manager, and chief financial officer Dan Mills own a combined 5-per-cent stake.
Internationally, Cargojet is studying whether it makes more sense to use Vancouver or Calgary as the cargo base to China. The flow of imported goods from China is strong, but the cross flow of Canadian exports is weak, Mr. Virmani said.
He is encouraged that Canada is proceeding cautiously in its talks with the United States on a so-called open skies policy to liberalize aviation rules between the two countries. Protectionist cargo rules could be eased, but Mr. Virmani said he has received assurances from Transport Canada that Canadian cargo carriers won't suffer from any changes.
Cargojet units rose 4 cents to close at $8.34 Friday on the Toronto Stock Exchange. That's down 15 per cent in the past month amid anxiety about the income trust sector, sparked by Ottawa's decision on Sept. 19 to halt advance tax rulings on new offerings, independent trust analyst Harry Levant said.
Mr. Virmani, an influential fundraiser for the federal Liberals, said he has urged Finance Minister Ralph Goodale to protect existing trusts and preserve tax laws governing them while writing new rules for new entrants. "The government should grandfather the existing trusts for at least five to 10 years," he said. "If you want to change the rules, don't change them in the middle of the sixth inning."
© The Globe and Mail
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