In an unusual move, Air Belgium said Monday it will cease to exist as a passenger airline because of difficult market conditions and switch to become a contract carrier for airlines that need cargo or passenger airlift.

The board of directors moved to discontinue the company’s own passenger business, effective Oct. 3, to focus on the business-to-business market offering packaged leases that bundle an aircraft with transport service. 

Air Belgium said its financial position has been severely weakened since 2020 by the near shutdown of air travel due to the COVID pandemic, high inflation that has curbed consumer purchasing power, the Russian invasion of Ukraine, soaring fuel prices, disadvantageous exchange rates and geopolitical uncertainty.

The move contrasts with the strong recovery of the passenger airline sector during the past year while the air cargo sector has fallen into a deep recession for a variety of economic and supply chain reasons. As a smaller carrier, however, Air Belgium has a limited route structure and ability to spread overhead costs across a wide organization with more revenue opportunities.

In March, Air Belgium canceled flights to unprofitable, highly price-sensitive destinations such as the Caribbean and French West Indies because it couldn’t increase passenger fares to cover rising costs. Instead it has concentrated on flying to South Africa and Mauritius, with unused planes offered for hire to other airlines. During the summer, Air Belgium flew on behalf of airlines such as British Airways, Royal Air Maroc and Condor.

Company officials determined that returning the passenger business to profitability would require substantial investments beyond those already made in recent years and that pivoting to an aircraft, crew, maintenance and insurance (ACMI) model aimed at outsourced flying from other carriers offered the best option to survive.

Since 2021, the leisure carrier has moved to diversify business by focusing more on cargo. Air Belgium operated four A330-200 cargo jets on behalf of startup airline CMA CGM Air Cargo for more than a year before the France-based carrier with roots in ocean shipping began flying the aircraft with its own crews. The last aircraft left Belgium in February and was placed on CMA CGM’s French operating certificate.

In addition to four long-haul passenger jets, it operates three Airbus A330-200 converted freighters and two Boeing 747-8 factory freighters under contract with Hongyuan Group, a cross-border logistics service provider based in Beijing that began chartering flights with multiple airlines three years ago and owns a 49% stake in Air Belgium. It opened a warehouse at Brussels Airport in October 2021 to serve as the European gateway for e-commerce imports delivered by its controlled freighters.

Air Belgium leases the three A330 converted freighters, including one from CMA CGM, which has struggled to find business for its fledgling fleet and has rented out planes to other operators in the past year.

In late 2021, Hongyuan Group leased two 747-8 freighters from Aircraft Finance Germany GmbH that previously were operated by Saudi Arabian Airlines and placed the aircraft with Air Belgium to operate its in-house airline. A third 747-8 was scheduled to enter service by the end of August, according to an Air Belgium news release in June. The plane was previously operated by AirBridgeCargo, an all-cargo airline based in the United Kingdom that was owned by a Russian businessman and forced out of business by Western sanctions after the start of the Russia-Ukraine War. Lessor BOC Aviation was able to recover the plane and find a new customer.

Meanwhile, Hongyuan Group in November ordered 11 converted Boeing 777-300 cargo aircraft from GE Capital Aviation Services, which is marketing planes being modified by Israel Aerospace Industries. The 777 conversion is still under final development and has not yet received regulatory approval for commercial production. Hongyuan Group said the planes would be placed with Air Belgium, a partner airline in China or some combination of the two.

Air Belgium, which has 500 people on its payroll, has filed for court protection from creditors while it reorganizes. If the protection is granted, the company will be able to renegotiate terms with lenders, including the deferral of interest,  to reduce its debt.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

Twitter: @ericreports / LinkedIn: Eric Kulisch / [email protected]

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