Riding a surge in e-commerce, Cargojet reported its best quarterly financial results ever for the three months ended June 30, and its share price soared to new records

Markian Lozowchuk/The Globe and Mail
On March 25, as government shutdowns to combat the spread of COVID-19 took hold, Ajay Virmani, the 64-year-old founder of Canadas dominant cargo airline, Cargojet, hosted what is now a ubiquitous event in many companiesa nationwide virtual town hall. About 1,000 of Cargojets workforce of 1,200 tuned in.
We basically took questions, Virmani says, wearing a grey track suit in the large, sunny living room of his house on the Lake Ontario waterfront west of Toronto. The only thing I heard from every employee was they were ready. This was the time to step up.
Virmani had already rolled out several measures to keep flights going across Canada and the United States, and he wanted to remind employees about how crucially important they are to him. Those initiatives included flying in personal protective equipment from China, sanitizing offices and adding $75 a day in hero pay for everyone (it lasted until Augustand then each employee received a $1,000 bonus). He knew he also had a rock-solid foundation: 20 years of respect for and paying attention to staff and customers.
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Virmani is a rare combination of expertise and instincts on many levels. He has an economics degree from his native India and an MBA from New York University (NYU). He learned the nuts and bolts of the logistics business in the 1980s and 1990s.
Most importantly, he looked at the fragmented and often poorly performing Canadian air cargo sector in the early 2000s and saw a huge opportunity for a consolidator who could actually deliver consistent service. Cargojet is kind of unique to the Canadian market, says veteran aviation analyst Chris Murray, managing director at AltaCorp. Capital Inc. Essentially, theyve taken every competitor and made them a customer.
Rare is any news release or investor presentation from Cargojet that doesnt quickly point to its 98%-plus on-time performance (OTP). Maintaining that even during economic upheavals requires dedication from employees. Loading and unloading cargo in the middle of the night for next-day deliveryin sub-zero temperatures for much of the year across Canadais not a glamorous business.
Virmani keeps ground crews and pilots motivated through genuine rapportand a bit of glitz. His pals include Drake (a friend of 10 years) and many Toronto Blue Jays and Raptors. Virmani often hires them to appear at company pizza parties and other events.
But theres a business rationale behind the hoopla. Wherever I go, I need to think of one thing: What am I going to do differently than the rest of the crowd? says Virmani. No one is going to remember yet another corporate wine and cheese party. Everyone will remember getting a signed bat from José Bautista or a basketball from Kawhi Leonard.
Virmanis initiatives as the pandemic hit paid off almost right away. Riding a surge in e-commerce, Cargojet reported its best quarterly financial results ever for the three months ended June 30, and its share price soared to new records.
To anyone whos familiar with Virmani and his company, that should have come as no surprise. Hes not afraid to double down during a crisis, squeeze troubled sellers to dispose of planes cheaply, and forge ahead even when others say hes taking on too much risk. The key is to develop a solid game planand stick to it.
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The drive west from Toronto to the grandly named John C. Munro International Airport on rural land outside Hamilton takes only about 45 minutes after evening rush hour. Cargojet operates 60 flights daily to and from 16 cities across Canada. Hamilton is Cargojets national hub, and on a chilly night in early October, a visit reveals the stark differences in the fortunes of cargo and passenger airlines in a pandemic.
At 8:30 p.m., there is literally no one in the brightly lit passenger terminal, just about a dozen dark check-in kiosks in the departures area, an idle luggage conveyor belt in arrivals, empty car rental booths and a closed Tim Hortons.
Over at three large hangars to the east with bright Cargojet signs, the parking lots are full, and more than 500 employees are starting the night shift. The company has a fleet of more than two dozen Boeing jetsnow all 757s and larger 767sand operates 24-7.
Other courier companies, including DHL and Purolator, have facilities at the airport, but Cargojet does the flying. About 10 of its jets are out on the tarmac, each next to roughly 30 so-called cans: tool-shed-size metal containers that are loaded inside hangars, weighed and towed out to planes. Seeing a can full of hundreds of cardboard boxes with the now immediately familiar Amazon smile logo on their sides gives you an idea of how big the surge in e-commerce has been during the pandemic.
Overnight shifts are long. For much of the year, theres snow to be cleared and planes to be de-iced. And many cities have way grimmer winters than Hamilton.
Cargojets pilots are unionized, but its ground crews are not. Dave Sibbald, the 40-ish manager of facility maintenance and aircraft servicing, says they all appreciate the attention: the new warm clothing every year, the events with athletes, Virmanis reactions on Facebook and Instagram when they post photos from work, and more.
Employees also have immediate access to the CEO. Virmani gives them all his email address and cell number. Ajay is really good that way, says Sibbald with a grin under his face mask.
Theres a coolness factor, too. Drake caused a sensation in May 2019, after tweets and other online posts showed the unveiling of his Air Drake jet. Cargojet named him brand ambassador and refurbished a used 767 cargo plane for him, with carpets, a video lounge and more. Drake later described the arrangement as a time share, and Virmani now downplays the plane, saying he got it from a motivated seller and its part of a win-win promotional partnership deal with the rapper. Drake has been a deliverer of value, he says.
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Always grateful for employee support, Virmani has been even more so during the pandemic. So, in some ways, he isnt surprised Cargojet posted record second-quarter financial results. No one could have predicted the COVID-19 crisis, but the company was well-prepared to seize opportunities. He uses a Raptors analogyKawhi Leonards last-second basket that won game seven of the NBA semifinal against Philadelphia in 2019.
Virmani and his 35-year-old son, Vinay, an actor and moviemaker, have front-row seats at Raptors games. They watched Leonards jumper bounce four times off the rim before dropping through the net. Kawhi will tell you it was a lucky shot, Virmani says. But if the team hadnt worked hard all that season to get there, he says, they wouldnt have had that luck, right?
Virmani likes to joke that he started at the topliterally. Arriving as an immigrant in 1975, he got a job through Canada Manpower washing windows at the Toronto-Dominion Centre in downtown Toronto. He lasted two days, but memories of the cold and freezing rain endured. I want to make sure that the 800 of my people who work outside at airports in -20, -30 degrees have the best clothing and equipment money can buy, he says.
Various odd jobs followed. Virmanis entry into logistics came when he joined Cottrell Transport in 1977. He started in collections and was soon running the credit department nationwide. Virmani also expanded his skills, earning his two-year MBA from NYU in 1985. There were three days of classes a week. He drove to Buffalo, took a $19 People Express flight and stayed with his sister in Queens.
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Cottrell promoted Virmani, putting him in charge of its small money-losing air freight division. In three years, it turned a $3-million profit. In 1990, management wanted to take over Cottrell through a $30-million leveraged buyout, and they offered Virmani a sliceif he invested and stayed on. But his studies of mergers and acquisitions told him the deal was all wrong.
So Virmani quit and launched his own company, Commercial Transport International. It was basically him, two employees and a Ford van at the start, but by 1995, it had 200 employees and $20 million a year in sales. Managers at still-struggling Cottrell approached him, and he bought the company for just $1.8 million.
By 1999, the CTI/Fastair group, as it had been renamed, had about $100 million a year in revenue and more than 600 employees. And Virmani then made the most important connection of his life.
That year, Houston-based Jim Crane, the founder and head of Eagle Global Logistics, came calling. At first, Crane proposed an agency agreementeach would be the others agent in their respective countries. But after two hours, he said, basically, Screw the agency agreement. I want to buy your company, Virmani says. And I said, This is my baby. Its not for sale. And he said to me one line that kind of fully registered with me: Businesses are never your babies. Theyre always for sale. Its a matter of price.
A week later, Crane flew Virmani down to Houston, his first time on a private jet. Crane asked him to name a sale price, and Virmani wrote down $60 million. Jim crossed off the $60 million, put another $20 million on top of it and signed it, Virmani says. He agreed to stay on as CEO for a salary of $500,000 plus performance incentives.
The two formed a lasting friendship, and Crane eventually became chair of Cargojet in 2018. Ajay is a doer; hes an entrepreneur, Crane says. We have the same business perspective.
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Even so, Virmani soon got restless after Crane bought CTI/Fastair, and in 2001, his mentor amicably agreed to let him go. In addition to an entrepreneurial streak, Virmani had developed a vision. There were some big brand names in the Canadian air freight market, but none had more than three or four of their own planes. And their OTP was often terribleas low as 70%.
What if all those companies, and their big air cargo customers, shifted their business to one carrier, thereby bringing economies of scale, better service and better price? Virmani asked. And everybody laughed at me: Youll never get this done in your lifetime.
They were wrong. Cargojet was about to be born.
Virmanis timing could hardly have been worse. In 2001, he negotiated a deal with Canada 3000, an upstart airline that had prospered in the 1990s and had 42 passenger planes. Virmani invested $10 million in the company to own the so-called belly space intended for cargo in those planes, and that August a joint venture, Canada 3000 Cargo Inc., was launched.
A month later, 9/11 hit and air traffic evaporated worldwide. In November, Canada 3000 went bankrupt. Yet, as Jamie Porteous, a former Air Canada executive who was one of Virmanis original partnersand Cargojets longtime chief operating officerrecalls, We were both still confident.
So Virmani doubled down and spent $2 million to buy the cargo operation out of bankruptcy and put in another $10 million in working capital. But it still wasnt enough. I had $3 million worth of gas bills on my Amex, he says.
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As he often has, Crane stepped in with much-appreciated guidanceand a cheque for the $3 million. I believed in Ajay and his vision, Crane says. Once other couriers realized Virmani was offering them a lower price, better service, and the ability to upsize and downsize their air freight shipments easily, there was no way any customer would refuse, Crane says.
He also gave Virmani a valuable tip. Crane had been a partner in Miami Air, which was drowning in a post-9/11 slump in which airlines had parked hundreds of planes. Miami Air had four new cargo planes with a book value of $8 million apiece. Offer them $700,000 each, Crane said.
Virmani couldnt believe that, but the company accepted $800,000 per plane. I paid 10 cents on the dollar, he says.
As Virmani plunged ahead after 9/11, he had the elements in place that have served his airline ever since: the relentless focus on OTP and a committed team of managers and employees. We had about 100 employees, Virmani says. They said, Look, you dont have to pay us for three months, six months. Well work our butts off and get this company going.
So, in 2002, Virmani rebranded it as Cargojet, and the long, steady expansion began. By 2005, revenue had roughly quadrupled to almost $120 million, and the company went public as an income trust on the TSX. I sent Jim Crane a cheque for US$15 millionafter four years. He was very happy with that, says Virmani.
But as Cargojet built its customer base, there was more economic trouble. The share price got slammed when Ottawa abruptly cancelled tax advantages for income trusts in 2006. The market crash of 200809 and the Great Recession, unlike the COVID-19 crisis, hammered cargo airlines as well as passenger carriers. It took five years for Cargojets sales to recover. But the company managed to regain momentum and revenues have roughly doubled over the past five years to $487 million in 2019.
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Two huge wins helped propel Cargo-jet from major player to dominant force. One was the seven-year $1.5-billion contract for overnight air parcel delivery that Canada Post and its courier, Purolator, awarded to Cargojet, starting in 2015. The other was the blockbuster alliance with Amazon, announced in August 2019, that gave the global e-commerce giant warrants with the right to buy up to 9.9% of Cargojets shares if Amazon, in turn, provided Cargojet with up to $400 million in business within seven years.
But Virmani begs off discussing details of specific big deals and wont provide contacts names. You know, were getting a lot of growth not only from Amazon, but also from companies like Walmart, Costco, Target and Shoppers Drug Mart, and pharmaceutical companies, he says. Talking about one customer would be unfair to the others.
As much as the pandemic has boosted Cargojets fortunes, the outbreak will likely ease and end soon. So what will the company do to keep growing?
For one, Virmani and his team are counting on the lasting growth of e-commerce revenue. For years, Canada lagged behind other countries. Before COVID-19 hit, e-commerce accounted for about 7% of Canadian retail sales, well behind the U.S. at 11% and the U.K. at 20%. In the second quarter of 2020, those numbers spiked to almost 13% in Canada, 16% in the U.S. and more than 30% in the U.K. Even if Canada drops back to 7% after the pandemic but keeps growing, the numbers get pretty huge pretty fast, says AltaCorp.s Chris Murray.
The financial turmoil and fallout from the pandemic could also benefit Cargojet for years to come. Before COVID-19, some analysts were concerned about its long-term debt load, which had more than doubled since 2015 to pass $500 million in late 2019. But Cargojet has since reduced it by more than $100 million, and the pandemic has eased the burden in many ways.
With the collapse in passenger traffic and hundreds of jets now idled around the world, demand for used and new jets has dried up. Its a buyers market. Cargojet had already been modernizing its fleet for years: phasing out 727s by 2019, and continuing to shift to 757s and 767s. That shift may accelerate.
Of course, Virmani could be bought out at some point. He and his family own about 10% of Cargojets stock, and hes sold companies before. I wouldnt have grown this big if Id not gone public, and had access to the markets and exposure, he says. Its one of those things, you knowyou need to grow the business.
But its very hard to see anyone else as CEO. Virmani is still having fun running Cargojeta lot of fun.
Markian Lozowchuk/The Globe and Mail