Boeing Co. (BA:US) posted its best year on record for jet-freighter orders in 2011, with 79 planes valued at $19.5 billion. A repeat performance looks out of the question.
The world’s largest maker of cargo aircraft hadn’t logged a new freighter deal in 2012 through May 29, a dry spell that matches the worst start to a year for such purchases since 2009. Boeing’s tally in the same period in 2011 was 13 cargo planes whose catalog prices totaled $3.75 billion.
Freighter demand is wilting along with global air shipments as China’s economy cools and Europe’s debt crisis deepens. Those pressures on cargo carriers are erasing any chance for Chicago- based Boeing to approach 2011’s freighter deals, said Ken Herbert, a Wedbush Securities analyst in San Francisco.
“I’m not expecting a very good year,” Herbert said in an interview. “Freight traffic is still bouncing along the bottom and slow to come back.”
International air-cargo shipments fell 2.5 percent worldwide through April, even as industrywide capacity grew 1.8 percent, the International Air Transport Association trade group said yesterday. Europe’s cargo traffic slid 4.6 percent, while the Asia-Pacific region declined 4.4 percent.
“It certainly hasn’t helped sales any of our freighter airplanes,” Tom Crabtree, regional director of cargo marketing for Boeing, said in an interview. “Most certainly it’s in the mind of a lot of our customers and how they map out their near- term expansion plans.”
Cargo-only aircraft handle about 60 percent of global air- freight shipments, while passenger planes fly the rest in their bellies, Crabtree said. Boeing has about 90 percent of the market for new freighters, dominating Airbus SAS, the world’s biggest commercial-plane maker.
While airlines typically get discounts, retail prices for the wide-body models that Boeing sells as freighters still can triple those of the single-aisle 737 passenger jets that made up the bulk of the planemaker’s 921 gross orders in 2011. Boeing has cargo variants for three models: twin-engine 767s and 777s, and the four-engine 747-8, whose $333.5 million list price makes it the company’s costliest offering.
After beating (BA:US) the Dow Jones Industrial Average and Standard & Poor’s 500 Index in 2011, Boeing has lagged behind both U.S. stock benchmarks this year. The shares dropped (BA:US) 5.4 percent in 2012 through yesterday, closing at $69.39. Wedbush’s Herbert rates the shares as outperform.
Air-freight traffic is projected to increase in the second half of the year, and the rebound may be enough to end 2012 with volumes little changed or up slightly from 2011, Boeing’s Crabtree said. IATA cited “some cargo improvement” in April in yesterday’s traffic report.
“It is possible to identify the start of a growth trend in cargo for some parts of the world,” IATA Chief Executive Officer Tony Tyler said in the report. “But economic uncertainty in Europe makes it very difficult to be optimistic in the near to medium-term.”
Deliveries of the 747-8 freighter, the largest variant of Boeing’s iconic, hump-backed jumbo jet, began in October. Orders for the plane totaled 70 dating to November 2005, and 16 had been delivered through May 29, according to Bob Saling, a company spokesman.
Two months after Cargolux Airlines International SA took the first 747-8, Boeing won an order for 27 freighters from FedEx Corp. (FDX:US), operator of the world’s biggest cargo airline. That deal, for 767-300F cargo jets, buoyed Boeing by helping keep that model’s production line busy as the company prepares to build a U.S. Air Force tanker based on the plane.
Cargo shipments were already softening. FedEx, which also ordered six 777 freighters last year, said daily package volume in its express unit dropped 4 percent in the U.S. and 1 percent for international priority packages for the quarter ended Feb. 29, partly because of technology companies reducing shipments as they pared inventory and a recession in the euro region.
Lease rates are falling as carriers pare growth plans, said George Dimitroff, an analyst with London-based consultant Ascend Worldwide Ltd. Monthly leases on factory-built 747-400 freighters, which predate the 747-8, have dropped as much as 15 percent in the past six months, to a range of $640,000 to $855,000, he said. Prices vary depending on a plane’s age.
Resale values for the older 747 freighter have declined as much as 9 percent in the same period, to a range of $44 million to $98 million. Earlier models are losing value faster as companies embrace newer, more-efficient planes, Dimitroff said.
Customers took 16 new Boeing freighters in the first four months of 2012, after receiving 85 during the previous three years, according to the company’s website.
“There’s a lot of brand-new freight aircraft being delivered into the market,” Dimitroff said in an interview. “There was a lot of 747-8 and 777 freighters that had been ordered a good four or five years ago when times were better that are being delivered into the market now.”
In a weak freight market, air-cargo operators also may opt to pay less upfront by acquiring a used passenger jet and then having it gutted and modified to fly freight, said Aengus Kelly, CEO of Schiphol, Netherlands-based lessor AerCap Holdings NV. (AER:US)
“It’s a lot cheaper to convert those older platforms into freighters than buying a $130 million or $160 million new airplane,” Kelly said in an interview. “At the moment, the economics probably favor conversion rather than ordering for the most part.”
And even those deals have been few and far between in 2012, Ascend’s Dimitroff said.
“You can literally count them on the fingers of one hand the ones that have happened so far this year,” he said.
Boeing does some of that refit work itself. It leads the industry in conversions of 747-400 passenger jets to cargo planes, with 49 since the program began in 2005, said Saling, the spokesman.
The planemaker’s backlog of new orders will cushion the blow from any falloff in 2012 freighter purchases, according to Howard Rubel, an analyst with Jefferies & Co. in New York who recommends buying the stock. Boeing has 166 unfilled orders for the cargo versions of the 777, 747 and 767, according to the company’s website.
Freight shipments closely track the global economy and will eventually recover, Rubel said in an interview. Orders can also come in clumps, he said, such as the FedEx purchase at the end of 2011.
“Over time, there will be more orders as the fleets grow or as planes wear out,” Rubel said. “We’re not in a perfect world, but there are no cliffs.”
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