Malaysia Airlines Cargo Sdn Bhd (MASkargo) is in talks with Uzbekistan Airways to create a formal silk route, which will enable MASkargo to leverage on Uzbekistan Airways to fly its cargo to CIS countries and it in turn will fly Uzbekistan Airways’s cargo to Europe, The Edge Daily of Malaysia reported.

Its newly appointed managing director Shahari Sulaiman said the two parties were finalising a formal partnership, which was expected to be completed by year-end.

He said such agreements would help boost its cargo throughput after its parent Malaysian Airline System Bhd’s move to drop certain international routes under a route rationalisation exercise.

Shahari said MASkargo’s main operations at KL International Airport (KLIA) had suffered a 4% drop this year and a 10% drop in its Penang operations due to the routes cut. Nonetheless, he expects MASkargo’s bottom line growth to be flat for the financial year ending Dec 31, 2007 on the back of stronger demand for air cargo in the second half of the year.

"About 60% of our business is through belly and the remaining 40% in freight last year. We see this ratio to be more even this year, about 50:50," he told reporters at the Air Freight Asia 2007 Showcase here yesterday.

"For the first six months (of 2007), IATA (International Air Transport Association) had forecast a growth of 5% worldwide but the market only grew 2.5%, but we see the market picking up in the second half and expect to see a flat profit this year," Shahari said.

He said another factor which had caused the poor performance of the air cargo industry was the imbalanced shipment, given that as most of the shipments were one way, operators had to absorb the cost of the return flight.

"There are a lot of air cargo companies which are losing money; for us, fortunately, we are not big; so we do not have the cost structure that they have, so we are still profitable," he added.

Shahari expects the volume to increase in the second half as exports traditionally pick up in the latter half of the year as demand rises from Western countries for the Christmas holidays.

He said MASkargo had a fleet of six Boeing planes, of which two 747-400s were on lease from MAS’ ultimate parent company, Penerbangan Malaysia Bhd, and the remaining four 747-200s were on lease from Air Atlanta.

Asked if MASkargo would acquire new aircraft, Shahari said it was looking at its cost structure before making a decision to buy or lease additional planes. "As far as we are concerned, we have developed a number which works for us and we would look at how to get the capacity," he said.

"In terms of network, we will be concentrating on the markets that we have been operating; we have been profitable in the last five years, so there is no need to change things. We also have a good presence in the Chinese market, the European market and also the Australia market. So we will concentrate on these routes," Shahari said.

He said MASkargo would also take advantage of the liberalisation of Asean aviation industry as it was a good opportunity to strengthen its foothold in the region.

"We are taking time to do a study on what is the best way to provide capacity to these markets. So we are looking for narrow bodied freighters or mid-range freighters."

"The study is very preliminary and we are trying to tie up the study with the aspirations of the government to develop Penang as a Northern Corridor logistic hub," Shahari said.

For the medium term, he said there would be serious challenges in the cargo industry in the next two to five years as global carriers increased their capacity to meet growing global demand, the imbalance of cargo delivery and the liberalisation of the Asean market next year.

"In the next two to five years, there will be an influx of capacity into the market in terms of space capacity available and freighter services due. There is also the issue of the market, which is not growing in a balanced pace in filling up the aircraft in both directions," he said.