An Aviation Miracle

Federal Express, headquartered in Memphis (very roughly in the centre of the US but slightly east of the centreline}, currently serves all east and west coast cities with a guaranteed overnight cargo service using three DC-10s, 22 Boeing 727- 100Cs, and 32 Dassault Falcon 20s, backed up by a fleet of more than 2,500 vans of the fuel-efficient type.

Federal Express’s network is further served by a base Cosmos 1 computer system plus a DADS (digitally-assisted despatch system} using computer terminals and separate phone-answering centres.

The Fred Smith success story really began seeing the light of day when, after service as a US Marine Corps pilot and operating experience in the aircraft maintenance business, he took a gamble with his hard-earned personal savings totalling $US 4 million and formed Federal Express.

His infant company flew its first night flight in April 1973, carrying 18 packages. He’d got around US cargo industry regulations by having his firm licensed as an air taxi operator and choosing Falcon 20s to fly the cargo routes.

To boost his own $US 4 million Fred managed to coax an estimated 50-70 million dollars from some of America’s biggest risk venture speculators; the roll call included the First National City Bank of New York and the Bank of America in California.

His first operating base in Memphis was in some old US Air Force hangars some distance from the main terminal block. Fred chose Memphis for more than its midpoint situation – Memphis is below Cat 1 operational minima for less than half a day each year.

Through sheer guts and business acumen, the baby Federal Express was serving more than 50 US cities with 25 Falcons by the end of the year. Then came the crunch – from the Middle East . . .

The Arab oil embargo hit with crippling fuel prices; the arithmetic for Federal Express was all wrong, with revenue falling short of operating costs.

Fred went back to his backers and justified his request for $US 30 million more to help tide him over the rough air.

Two years of redline operation followed Meanwhile Fred’s marketing staff had been doing their homework; a series of nationwide TV ads hit the marketing mark with a resounding smash, and the red situation suddenly reversed itself to find Federal Express falling short of demand.

The 1938 Air Cargo Bill proved the blocker to Federal Express getting bigger aircraft – and so Fred, with his usual belief that if one really wants something one gets out there and makes it happen, began a crusade for US air cargo deregulation.

He lobbied, chaired Government visits to his headquarters to prove his point, testified at Senate hearings – and won out in 1977 when deregulation was legalised.

Fred Smith wasn’t slow off the mark. He immediately bought seven Boeing 727-22Cs from United and cancelled an earlier order he had placed with Canadair for 25 Challengers.

The 727 deal (they had cargo doors big enough to take containers) brought another upsurge in traffic volume and routes.

A brief encounter with four acquired 737s didn’t produce the results needed by Fred and so three were disposed of. The fourth is due to phase out this year.

The year 1979 proved to be a dramatic one in terms of new acquisitions; in that year Federal Express bought four second-hand DC-10-10s from Continental for a reported $US 95 million, the aircraft going into service last year.

The 10s’ arrival presented a double headache and some pretty severe growing pains for Federal Express.

One was ground handling and sorting. As one would imagine, scheduling and turnround at Memphis is worthy of Bomber Command timing, with nigh on 60 aircraft arriving between 11 p. m. and midnight.

Between landing and the three hours between midnight and 3 a. m. , the aircraft have to be unloaded and loaded, serviced and made ready for the air routes.

Federal Express got around the loading problem by developing systems able to handle two containers at one time, halving the DC-10 loading/unloading time by half to 20 minutes.

The second problem was the sheer space for sorting. And remember, there are plenty of packages – if it weighs more than 70 lb it’s outside Federal Express’s carriage.

Fred masterminded a move from the old USAF hangars to a new complex he calls the Super Hub. So far it’s cost $US 60 million and has a potential capacity for handling up to half a million packages a night, featuring nose-in docks for the 10s.

Part of Fred’s secret is in maintenance; he has made provision for a full reserve of backup aircraft each night, just in case. To that end, Federal Express aircraft each fly an average of 4. 7 hours weekly, getting off the ground at night and being serviced during daylight.

With low usage, low fuel costs follow. In fact, fuel makes up only 12 to 13 per cent of the Federal’s operating costs.

With his joust with disaster during the Arab oil embargo still in his agile mind, Fred Smith has done the obvious thing; he has formed a joint venture company with Sandefer Oil and Gas in a bid to tap new gas and oil fields within the North American continent.

Not only that; Federal Express has evolved an Advanced Projects Group to explore ways and means of using airships in an all-cargo role.

Negotiations were reported recently as still underway with a British company, Airship Industries, for maybe buying cargo dirigibles capable of carrying a 75-tonne payload.

Fred’s still fighting bureaucracy; with more than a quarter of a million regular clients, increasing by an estimated 8,000 every month, he believes he can increase his intake to cater for 500,000 nightly packages to and from all major US airports. Today, Federal Express operates services to Canada, Alaska, Hawaii and Puerto Rico. It’s beginning to fly out to Montreal and Toronto in its Falcons.

And what, you may ask at this stage of our Fred Smith saga, has this enviable situation to do with Fred’s paper at Yale?

His basic argument in the paper was that time means money in an age of technology.

The only blocker to servicing a hungry consumer market which used much electronic circuitry in its daily life, was communications; and these communications were hidebound by ponderous and out-of-date Government legislation and regulation.

An added observation was that the US cargo industry creaked with cooperation between the companies, lacking the sharp spearpoint necessary for fast communication and cargo transport.

His panacea? Have one carrier, responsible for the lot – picking up the cargo, sorting, despatching and delivering with its own network of ground and airborne transport networks. Looks as though Fred’s got his way . . .

Once again there is a lesson for young men of vision in Australia to learn – if they have courage, foresight, contacts in political fields that really matter, and $4 million to spare in the beginning.

P. S: At the last report, Federal Express is looking at more ways in which to expand its service; it is getting specs together for a turboprop with up to 20,000 lb payload.

It has already expressed interest in the Boeing 757, has virtually discounted the Airbus and Boeing 767 and could go for more 10s.