Concurrent with the release of its 4Q17 earnings, Atlanta-based UPS announced two major deals with Boeing for new-build freighters. First, the company doubled-down on its commitment to large widebody freighters by converting existing options for fourteen 747-8Fs into firm orders. Separately, the global logistics giant placed an order for four 767-300Fs, adding that like the previous fourteen 747-8Fs UPS ordered from Boeing in 2016, “all of the new aircraft will be added to the existing fleet, and no existing aircraft are being replaced.”
Not only will the 32 freighters add 9 million pounds of new cargo capacity, they will do it with speed. UPS said that Boeing has already committed to an expedited delivery schedule and that all 32 aircraft will be delivered within five years, by the end of 2022.
Turning now to the 747-8F program, as of last month, the program’s order backlog stood at 24 units with three carriers: UPS, the Volga-Dnepr Group, and an unidentified carrier. Volga-Dnepr’s orders exist in the form of an MoU, and so far, the Group’s subsidiary carriers have taken delivery of about two units annually since the deal was first announced at the Paris Air Show in 2015. The firmed-up order from UPS is unlikely to require Boeing to boost production rates — rather, the now-healthier backlog should ensure that Boeing can continue producing 747-8Fs at a rate of about six per year through at least 2022.
Unlike the 747-8F, which seemed to be on the brink of extinction in recent years, Boeing’s 767-300F has been facing almost insatiable demand. In fact, for much of the foreseeable future, FedEx and the US Air Force have Boeing’s 767 production line tied up. This is one factor that Cargo Facts believes prompted UPS to place an order for at least three freighter-converted 767-300BCFs last year. Although it is possible, maybe even likely, that UPS would have preferred new-build 767-300Fs (all fifty-nine 767-300Fs already in its fleet were all built as freighters), near-term 767-300F deliveries were just not a possibility, and thus UPS moved to secure 767-300 feedstock, and pursue conversions instead.
Looking ahead, Cargo Facts would not be surprised if UPS takes delivery of additional 767-300BCFs during the interim before deliveries of the 767-300Fs commence. Regarding today’s order for four new-build aircraft, the question is: Will UPS stop at four? True, the company already operates fifty-nine 767-300Fs, so it is possible that today’s order was just a topping-up of its 767 fleet. On the other hand, UPS also has fifty-two A300-600Fs, and we would not be surprised if UPS were to replace some of the older units with new-build 767-300Fs.
Another question raised by the UPS 767 order is: Does this mean that Boeing will be willing to open the door to other potential 767 freighter customers? There has been considerable speculation and rumor in the last two years about demand for new-build 767-300Fs. Amazon, SF Express, and UPS have all been rumored to have been rebuffed when they tried to place large orders. Was the acceptance of the UPS order for four units just a sweetener for the deal to firm the 747-8F order (i.e. the door is still shut), or does it hint that other customers — whether Amazon, SF, or anyone else — now have a chance to buy 767-300Fs fresh off the production line?
With recent freighter orders from FedEx and UPS, it becomes clear that through 2022, most of the new-build freighter deliveries will end up in the global integrator fleets. As can be seen from our recent analysis of new-build freighter orders and deliveries, AirBridgeCargo Airlines (through parent Volga-Dnepr) is the only non-express all-cargo carrier with new-build freighters on order, and only a handful of combination carriers have outstanding orders.
Tune-in tomorrow for a full analysis of UPS’ 4Q17 results. Those interested in learning more about the global express market, or the future of the worldwide freighter fleet are invited to join us at Cargo Facts Asia 2018. The event will be held 23-25 April, at the Mandarin Oriental Pudong in Shanghai. For more information, or to register, visit www.cargofactsasia.com
