Brazil's Modern Logistics to raise capital for new aircraft

27.04.2021 - 15:04 UTC

Modern Logistics (WD, Sao Paulo Guarulhos) is planning to launch a fresh round of capital raising later this year to finance its future fleet growth, Chief Executive and Founder Gerald Lee told ch-aviation in a phone interview.

"We are able to grow without necessarily growing the fleet, just by optimizing. But we are getting to the point when we will grow our fleet. Our idea is to bring some regional aircraft, Avions de Transport Régional, to create more capillary feed, and continue to grow with the B737 fleet," he said.

He underlined that Modern Logistics has a conservative approach to growth and still has untapped opportunities without adding more aircraft. The carrier grew by over 80% in terms of revenue in 2020 and is already up around 200% on top of that this year. Lee stressed the growth was not related to COVID-specific demand, even though the airline was engaged in some medical cargo operations. The core of the gains, however, have come from growing demand for integrated multi-modal logistic services including air transportation.

Lee added that Modern Logistics' fleet plan was closely related to its business model, which is built around long-term value-creating logistics chains rather than spot cargo transportation. As such, the Brazilian company has prioritized sustainability and long-term profitability over short-term ramp-up, even though there is ample demand in the market.

"I don't want to burn hours on aircraft and trade my investors' money for a 4% margin that is not creating any value. We turn down business all the time, we don't have a demand problem," Lee said.

In light of its business model, Modern Logistics has a flexible fleet plan which it will adapt to long-term market opportunities, rather than momentary spikes in demand. Lee said that some of the scenarios would double or more the airline's fleet in the near term, but he underlined that there were also other options. He did not provide any specific numbers.

"We will go out and get more aircraft - be prepared for growth - but in parallel, we will raise more capital. We will do a capital raise this year to fund the growth, to better serve existing customers and integrate new ones into our platform, and to expand our [online logistics marketplace] Mojo platform," Lee said.

The Brazilian carrier currently operates two B737-300(F)s (dry leased one each from Automatic Leasing and KV Aviation) and two B737-400(F)s (dry leased one each from AerSale and Vx Capital Partners), the ch-aviation fleets advanced module shows.

Lee underlined that Modern Logistics was trying to work with its various customers to create value-addition across the entire logistics chain. As such, it does not think of itself as a cargo carrier but rather as an integrated logistics firm, working with, among others, 14,000 verified road transportation companies. Lee stressed that such a business model is much more resilient to market volatility, and consequently, allows the airline to plan more reliably for the future.

"What we are really doing is building up network efficiency which the country was lacking... We are infrastructure. We are in a country where still only 15% of the roads are paved. So things take a tremendous amount of time to transport [by road], there is no efficient distribution. The institutional inefficiencies are a good part of why things are so expensive here," Lee said.

The economic crunch related to COVID provided an extra boost as companies need to reduce their costs.

"If things go well, these institutional inefficiencies are fine. People are used to high cost and may be not willing to invest in doing things differently, but eventually, efficiency wins. [For long-term profitability] we don't need high-value good, we need high-value solutions," Lee said.

Modern Logistics plans to expand its existing Mojo marketplace and open it to new customers and suppliers from outside the industry. Lee underlined that the company was prepared to work together not just with road and inland transport companies, but also with other airlines.

"We are not competitors. If Azul Linhas Aéreas Brasileiras Cargo wants to fly it cheaper, I will fly it with them. I want to create the most efficient solutions," Lee stressed.

Going forward, Modern Logistics will also look at international expansion. Lee said the same inefficiencies that plagued the Brazilian domestic market were even more pronounced in the international market. However, he stressed that this expansion would not necessarily imply Modern Logistics' own flights but rather improved integration with existing services operated by other airlines.

"There is so much international lift coming into Brazil, it's just poorly integrated. I probably don't need to acquire a widebody and fly to Europe or the United States, it would be inefficient because someone is probably already doing this," Lee explained.