if you can't beat 'em, buy 'em

DHL, a small package express carrier with a large international presence, plans to strengthen its operations in the United States. The carrier, a subsidiary of Deutsche Post World Net, announced last month that it had agreed to acquire Airborne Inc., parent company of the third-largest parcel express carrier in the United States, Airborne Express. The combined company will operate under the DHL brand name.

In an apparent effort to avoid regulations that restrict the foreign ownership of U.S. airlines, the $1.05 billion transaction applies only to Airborne's ground operations. The company's airline will be spun off as ABX Air. The spinoff will take place prior to DHL's acquiring Airborne's remaining assets. Once the transaction is completed, DHL expects to enter a commercial agreement for ABX to provide air transport services.

In announcing the agreement, DHL said the transaction would increase the market share and profitability of both companies. The combined companies create a more powerful competitor to market leaders Federal Express and United Parcel Service. At present, Airborne has about a 19-percent share of the U.S. express market, according to the company. DHL, which has a dominant presence in international express markets, controls about 2 percent of U.S. market share.

The announcement has big implications for the U.S. air and ground delivery business, says Ted Scherck, president of the Colography Group Inc., a market research firm that follows express transportation. "It's likely to fundamentally transform the competitive landscape both here and abroad," he says. "Currently, UPS and FedEx control almost three-quarters of the U.S. domestic expedited delivery market. The proposed DHL-Airborne combination represents the first meaningful new challenge to this duopoly in well over a decade."