FedEx, the United States courier and logistics company, will sign an agreement early next month to make Guangzhou's Baiyun Airport its second Asia-Pacific hub, according to a source close to the negotiations.

Under the agreement, the Guangzhou Baiyun Airport Authority would spend up to 1.5 billion yuan (HK$1.4 billion) to build a warehouse and a cargo runway for FedEx's use.

Provided the deal is approved by the State Council and the General Administration of Civil Aviation, construction of the FedEx hub would start in August next year.

The target date for completion is October 2008.

FedEx would only say it is considering how best to expand its hub operations in Asia and exploring a number of ways to ensure flexibility in future.

Last year, FedEx signed a framework agreement with Guangzhou's new airport with the intention of making it its sole Asia-Pacific hub.

But the company decided to adopt a dual-hub policy after the Philippines made concessions to keep FedEx in the country. Among the privileges granted FedEx were ''seventh freedom'' rights, allowing it to serve foreign destinations out of the Philippines without first passing through the United States. FedEx's agreement to operate a hub at the Subic Bay Freeport Zone was extended until 2010.

The company also signed an option, good until 2008, on land for possible expansion at the former Clark air force base nearby, but the agreement with Baiyun is believed to make the exercise of the option unlikely.

A FedEx hub in Guangzhou is seen increasing the airport's cargo throughput by 600,000 tonnes per year. Baiyun Airport's freight throughput increased 16.2 per cent to 632,000 tonnes last year. In the first quarter of this year, it totaled 118,000 tonnes, up 1.5 percent from a year earlier.

FedEx says Guangzhou would make an ideal hub since it is within 4½ hours' flying time of most major Asian destinations. What is more, it is in the Pearl River Delta, China's fast-growing manufacturing powerhouse.

FedEx and the Guangzhou Baiyun Airport Authority have been in negotiations for more than a year and costs have always been the main bone of contention.

The American company was seeking concessions to offset what it says are the highest jet fuel prices in the region, and the second-highest takeoff and landing charges after Japan's.

Last year's Sino-US air services agreement allows for express couriers to establish hubs in the mainland.

FedEx's biggest rival, United Parcel Service, is said to be keen to acquire hub status in Shanghai, using it as a base to connect several cities in China with North Asia. UPS became the first express operator last year to link Guangzhou directly with the US when it launched a six-times-a-week service.

The first foreign freight operator to establish scheduled service to Guangzhou was Germany's Lufthansa.

UPS and Fedex have placed orders for the freighter version of the Airbus A380, which will have roughly double the capacity of the MD-11s that UPS now employs in Guangzhou.

DHL, meanwhile, said it plans to conserve its Asian hub at Hong Kong International Airport.

``We see Guangzhou as a gateway to China, but Hong Kong would still be our Asian hub,'' said Kelvin Leung, DHL's managing director for Hong Kong, South China and Macau.

He said DHL plans further capacity expansion of its SAR express center.

alman.loong@singtaonewscorp.com