Is DHL here to stay at CVG?

Posted at 7:33 AM, Dec 03, 2015

HEBRON, Ky. – DHL Express is here to stay – or, at least it seems, for another 30 years. The international cargo carrier has agreed in terms to a new long-term lease extension at the Cincinnati/Northern Kentucky International Airport, a measure considered key in keeping the heavyweight here for years to come.

The agreement is pending – both CVG and DHL's respective boards need to give it a formal OK – but airport officials said Wednesday it would amend DHL's current lease through 2045 – a 14-year extension to the original agreement the parties signed back in 2002.

Since that time, DHL says, it's invested more than $280 million at CVG – its North American hub – including a $108 million project currently underway that will increase ramp capacity, among other improvements. While the lease extends the term, it will also include modifications to DHL's rental rate schedule, a nod to those expenditures, officials said.

The agreement is expected to be formally approved later this month by the Kenton County Airport Board. DHL's board in Germany also has yet to consider it. But officials say it's a big step in keeping the company invested here. DHL anticipates major future growth in international e-commerce, for example, including in fashion, consumer electronics and media products. U.S. online sales are expected to grow nearly 38 percent by 2017 from 2014.

Negotiations between the parties, CVG CEO Candace McGraw said, have been ongoing for a number of months.

"Our partnership with DHL is one of our most key and important partnerships," McGraw has said. "Their success is our success."

DHL officials could not be reached for comment, but in August, when the company celebrated its latest expansion – its eighth since returning to Cincinnati from Wilmington in 2009 – Joanie Arias, general manager at the CVG hub, said there was a possibility DHL could add another facility given that growth, possibly elsewhere in the country. CVG officials said this new lease is "an inviting way to keep them investing here."

"Even with all the enhancements we've made here, we have probably three or four more years at this rate, and then we're going to have to come up with something else," Arias told at the time. "Whether that's at CVG? We've debated that…I know it's being reviewed."

McGraw said this week there is room for future DHL growth at CVG. In the airport's master plan, which outlines its long-term prospects, "hundreds" of acres located south of DHL's current site have been designated for that purpose, including one parcel equal in size to what DHL occupies now.

DHL's board will take up the issue next week.

In the new lease, CVG will modify DHL's rental rate – only one increase is factored in over the life of the term. CVG stands to make more money from the fees it collects based on a plane's landed weight anyway. Overall, DHL pays about $800,000 a year in ground rent, McGraw said. Landing fees account for roughly $14 million a year. That latter number is expected to increase; DHL's ongoing ramp expansion will allow it to accommodate up to 16 additional cargo aircraft. That project is expected to be complete in fall of 2016.

"As they look to expand in the U.S., if we can keep the operating cost low for them, in terms of their ground rent, when they have the option of staying here versus going to another location, I think that factors into it," McGraw said. "We stand to make greater revenue over the course of (the lease) by keeping it cost effective for them to operate."

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