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Russell Barling

There is more than meets the eye to FedEx's very public search for Asian facilities

The apparent cozying up this week of American integrator Federal Express (FedEx) to suitor airports in the Philippines  will not have gone unnoticed in Beijing as officials prepare for another three-day round of bilateral aviation talks, from June 9.

FedEx has not been shy about telling the world it is looking for a new Asia-Pacific hub,  cramped as it is  in Subic Bay, in the Philippines.

It says the front runners are Guangdong's new 18 billion yuan Guangzhou Baiyun International Airport and the Philippines' Diosdado Macapagal International Airport (DMIA), formerly known as Clark Airforce Base.

But in addition to this week signing a right of first refusal on a 42-hectare parcel of land at DMIA, FedEx also extended its lease at Subic, its present hub, to 2010.

One of the problems with Subic is, at 2,746 metres, it has the shortest runway of any 'international' airport in Asia. Another is that its natural environment rules out expansion.

FedEx pilots have overshot the runway trying to land 90-tonne capacity MD-11 freighters at least twice in the past five years. This means payload restrictions, especially for larger aircraft, such as the 110-tonne B747Fs the firm uses to serve Shenzhen Baoan International Airport.

With as many as 20 150-tonne A380s set to wear FedEx's orange and purple colours starting in 2008, it is hard to see how Subic can remain in the picture, other than as a secondary facility with greatly reduced services. DMIA was built by the United States military to service the Space Shuttle, so it has ample runway length.

But with FedEx's two great rivals - DHL International Express and United Parcel Service - having committed tens of millions of US dollars to hubs in Hong Kong and an alternate site at DMIA, respectively, it is also hard to see why FedEx needed to pay 'a nominal amount' for first refusal at DMIA.

Who might swoop in and catch FedEx mid-decision?

For the record, FedEx says this week's agreements give it additional 'flexibility', which will aid in making the right  choice. It said the timing of the announcement was driven by a perceived need to counter scurrilous rumours disseminated by an irresponsible Philippine media, one of which had it signing a US$450-million deal with DMIA today.

But one could be forgiven for thinking the announcement was timed to send  this message to Beijing on the eve of the US-China Air Service Agreement (ASA) talks: 'We will stay in the Philippines if we don't get what we want.'

What FedEx and other US freight carriers want is the regulatory flexibility to operate hubs in China, outside Hong Kong. They need the rights to fly  B747Fs in to, say, Guangzhou, and regionally distribute the cargo on two or three smaller outbound aircraft.

In industry parlance, it is known as a 'change of gauge'; under the current ASA, it is not allowed.

The Philippine media is not alone in having stories of a deal at DMIA roundly dismissed by FedEx. Yours truly, after a tip-off in trade magazine Freight Transport Buyer,  wrote a similar story in March  referring to a pending DMIA deal officially spurned by FedEx.

But I stand by my story, not least because it probably came from the same high-level DMIA official who set the Philippine media  buzzing.

American  couriers would need a quantum leap in regulatory liberalisation to receive half of the operational flexibility in China that they leveraged from Philippine negotiators at the last talks.

Mainland negotiators, well aware they hold most of the aces in this week's high-stakes talks, will be considerably less pliable.

China is neither ready nor willing to expose China Post or its domestic airlines to an intense level of foreign competition yet, as slow to learn as they may be.

So while some  ground may be won by the US in this round of talks, it will not be enough for FedEx to set up in Guangzhou.

The posturing, however, will be fun to watch.



Intriguing sub-plot sustains hubbub