Security pressure seen on passenger jet cargo

By Tim Hepher and Lynn Adler

PARIS/NEW YORK (BestGrowthStock) – Airlines could face pressure to put less cargo on passenger planes or improve blast protection after one of the parcels in the Yemen bomb plot was found to have flown in a passenger jet, analysts said Monday.

Market reaction to Friday’s discovery of bombs hidden in two U.S.-bound parcels showed some signs of “scare fatigue” compared with the jitters caused by a failed plot to blow up a passenger plane over Detroit in 2009 or April’s volcanic ash crisis.

But concerns over a possible weak link in air security grew after Qatar Airways confirmed on Saturday that it had carried an explosive package that was later seized in Dubai. The parcel had been flown from Yemen with a stopover in the Qatari capital Doha.

“This certainly reinforces the desire to get cargo, including packages, off passenger airplanes,” said George Hamlin, president of Hamlin Transportation Consulting in Fairfax, Virginia.

“That’s not a piece of economic good news for the passenger carriers, particularly the international ones whose making of a profit very often depends on carrying cargo in the belly on long-haul international flights.

“Cargo on domestic flights in the U.S. is a fraction of what it used to be because FedEx and UPS have taken that market over, but it’s still very important in the economics of the international passenger business.”

According to airlines association IATA, about 35 percent of the value of world trade is carried by air.

Airbus says approximately 60 percent of global freight tonne kilometers (the amount of freight times the distance flown) is carried in dedicated freighter aircraft.

Many airlines said on Monday they were already implementing tough security standards or stepping them up.

“We’re certainly going to look at the trouble spots even more closely, we’re certainly going to be more vigilant, although we’re going to continue to use the policies that have worked in the past,” said FedEx spokesman Maury Lane.

‘SECURITY WORKING’

Companies like United Parcel Service, FedEx Corp and European competitors like TNT use a combination of their own planes and other airline networks or road-trucking to deliver parcels door-to-door.

Businesses and consumers are unlikely to cut back much on shipments unless costs rise substantially, said Matt Collins, industrial analyst at Edward Jones in St. Louis.

“It is a real risk to the global transportation system and there probably will be new security measures,” he said. “But the reality is that that would be shared by shippers, customers and governments around the globe.”

UPS moves 15 million packages a day, and screening each one is not feasible, said Collins.

“We doubt that this is leading to 100 percent screening of cargo everywhere,” William Flynn, chief executive of cargo carrier Atlas Air Worldwide Holdings Inc, said on a Monday conference call.

“But as you would imagine, well certainly there’s going to be a lot more screening on cargo and packages originating from Yemen, just by way of example, and other areas where TSA and DHS assess the risks to be high.”

Airline stocks were mixed with narrow changes on Monday. Fedex shares were down 1.3 percent and UPS stock was little changed.

“We think the interception of these packages shows that security is working, and think new heightened security measures will ease public fear and improve chances at further detection,” said Jim Corridore at Standard & Poor’s Equity Research.

During the global economic crisis companies bought fewer goods for air delivery, hurting airline profits.

However, in recent months companies had to restock inventory in a rush when goods and service demand picked up after the economic crisis. British Airways’ midyear cargo sales, which are 8 percent of its total, rose 39 percent.

Cargo carried in passenger planes must be scanned but governments have for years debated whether to expand this to all-cargo planes. A 2007 Congressional report said the technology did not exist to do this affordably for all freight.

Officials have focused on a mixture of x-ray scanning and risk assessments based on evaluating shippers.

Officials have also considered using tougher materials like kevlar to replace the aluminum containers used to load cargo. But the Congressional report found increased costs may prevent passenger airlines from competing with all-cargo carriers.

“It’s not clear at this stage whether (governments) will require cargo and freight operators to acquire and use a lot of new equipment,” said Rob Stallard of RBC Capital Markets.

“With that in mind, I don’t expect that there will be a major impact on specific U.S. stock prices at this stage, and certainly not something that will buck the underlying trends.”

Still, expectations of demand for new security equipment lifted shares in Britain’s Smiths Industries and France’s Safran, which make advanced explosives scanners.

Dutch logistics group TNT played down the costs. “I don’t expect much for the short term but we will have to see what measures get imposed longer term,” Finance Director Bernard Bot told Reuters Insider.

(Additional reporting by Greg Roumeliotis, Rhys Jones, Maria Sheahan, Donny Kwok, Park Ju-min, Karen Jacobs; Editing by David Cowell and Matthew Lewis)

Security pressure seen on passenger jet cargo