An administrative law judge from the U.S. Department of Transportation this week ordered DHL Airways to turn over extensive financial information as part of a review of whether the cargo hauler is a U.S. company even as it moves toward new ownership and a new name, according to news reports.
DOT is investigating whether DHL Airways violates laws limiting how much a foreign entity can hold in a U.S.-based airline. Federal law prohibits foreign citizens or corporations from controlling more than 25 percent of the voting shares of a U.S. airline and requires U.S. carriers to be controlled by U.S. citizens.
Deutsche Post World Net, the German postal service, now holds a 25 percent voting stake in DHL Airways. The airline's biggest customer, DHL Worldwide Express, is a U.S. partner of Deutsche Post.
Congress had ordered the DOT to investigate complaints from FedEx Corp. and United Parcel Service that Deutsche Post effectively owns and controls DHL Airways, and therefore violates the U.S. law limiting foreign ownership of domestic airlines.
At a pre-hearing conference on May 27, judge Ronnie Yoder told DHL to produce detailed copies of contracts, aircraft lease agreements, management documents, and other paperwork going back 3 1/2 years in advance of a hearing scheduled for Aug. 19.
He also said he would proceed with the review despite DHL's announcement last week that a group of U.S. investors led by its chairman would buy the company's outstanding shares.
“This case has been referred to us for a hearing. That's what we're going to do,” said Yoder. “We will look at the facts based on totality of circumstances.” This, he said, would include the proposed purchase.
Meanwhile, DHL said it will change its name to AStar Air Cargo Inc. upon completion of its acquisition by chairman/CEO John Dasburg, Richard C. Blum of San Francisco's Blum Capital Partners and Michael R. Klein, a Washington business executive and lawyer.
The transaction is expected to be completed by June 30 and is subject to approval by the DOT.
Dasburg now owns 5 percent of the airline. The remaining shares of DHL Airways are being purchased from Idaho private investor William A. Robinson, who owns 75 percent of the company's voting shares and who was one of the earliest owners of the DHL Worldwide Express delivery network, and the U.S. arm of DHL International, a Brussels-based subsidiary of Deutsche Post, which controls the remaining voting shares. The cost of the transaction will be $57 million.
The acquisition was submitted to the DOT on May 21.
DHL Airways said that though AStar Air Cargo will continue to provide contract service for DHL Worldwide Express, the name change will reinforce the fact that AStar is not a corporate affiliate of DHL Worldwide Express.
“This news changes nothing with regards to what is going on at the Department of Transportation,” said David Bolger, a UPS spokesman based in Washington. “What is [DHL Airways] trying to do? Are you trying to become something you are not? Are you a US airline or not? Are you a European airline or not? This is just a diversionary tactic…What we are contending, and have been consistent in our statements of two-and-a-half years, is who really has ownership of this, and we think Deutsche Post does.”
The outcome of the DOT investigation also could affect plans by Deutsche Post unit DHL Worldwide to buy Airborne Inc.'s ground delivery business for $1 billion. Airborne's air operation would become an independent public company called ABX Air Inc.
FedEx and UPS also have filed proposals with the DOT charging that the Airborne acquisition may violate U.S. limits on foreign control of domestic airlines.
At the conference, DHL attorney Sandy Litvack said the purchase by an investment group led by DHL management could make the proceedings moot.
But according to reports, Yoder said he was not inclined to change course because of the sale, though DHL could apply for a delay in the proceedings based on the sale.
“This case has been referred to us for a hearing. That's what we're going to do,” Yoder said. “We will look at the facts based on totality of circumstances. It was unclear at the end of the hearing whether DHL would file a motion to defer further action.
Litvack also criticized wide-ranging document demands by UPS and Fedex as a giant fishing expedition. “These are two companies, for three years, that have been trying to beat our brains out and keep us out of the market,” he told Yoder.
The judge, whose ruling will take the form of a recommendation to DOT policy makers who will make the final decision, required UPS and Fedex to also be specific in their requests.
Direct marketers, in general, hope that the expansion of DHl into the U.S will open up the door to more competition.
Direct Marketing Association President/CEO H. Robert Wientzen, met with key executives of Deutshe Post in Bonn, Germany earlier this month to discuss its efforts to expand its parcel and expedited delivery services in the US.
Commenting on Deutsche Post's expansion plans in the U.S., Wientzen said, “U.S. direct marketers, who are major users of parcel and expedited delivery services, have a very significant, bottom-line stake in the outcome in the battle between Deutsche Post/DHL and its American competitors.”
“The fact of the matter is,” said Wientzen, “from the customer's perspective, which is what direct and online marketers are when it comes to postal and parcel delivery services, competition is always good for business. DMA members are looking for the best deal in terms of price and quality of service, and the more competition in the marketplace, the better our options are.”
