FedEx to park or retire 35 freighters on express headwinds, severed Amazon ties

[caption id="attachment_412555" align="alignright" width="377"] A FedEx MD-10F.[/caption] Concurrent with the release of its 1QFY20 earnings, FedEx announced plans to park or retire the equivalent of up to thirty-five MD-10-10F, A310-300F and MD11F aircraft by the end of its next fiscal year. The company blamed weaker than expected express demand on trade friction and other macroeconomic influences battering the industrial sector. FedEx also took a hit from its decision to severe air and ground ties with Amazon during the quarter. For now, the near-term capacity reductions have no impact on FedEx’s orders and commitments for seventy-one 767-300F and 777Fs with Boeing . Although FedEx has long been planning to retire its 18-unit MD-10-10F fleet by the end of its 2021 fiscal year, no prior guidance for the retirement of its 10 remaining A310-300Fs had been provided. During a call with investors to discuss FedEx’s 1QFY20 results, Fred Smith, chairman and founder, said the remainder of FedEx’s A310-300Fs would “likely” be retired by year end, “eliminating the fleet type.” In addition to the retirements, Smith also said the company was parking the equivalent of seven MD-11Fs this fiscal year, of which the company currently operates 57. In the event that a recession hits, further fleet cuts are possible. In parallel with the retirements, FedEx will continue to add production freighters to its fleet with thirteen 767-300Fs and a single 777F expected to be delivered by the end of fiscal 2020. Despite the capital expenditure required to acquire the aircraft, FedEx says the twin-engine freighters are immediately accretive due to lower maintenance and operating costs and greater reliability compared to the three-engine aircraft they are replacing. According to the company’s latest Stat Book , as of August 2019, FedEx is committed to purchase fifty-five 767-300Fs and sixteen 777Fs. We note that this figure varies slightly from Boeing’s published order book, which shows total commitments numbering 50 and 10 units respectively for the 767-300F and 777F. Such discrepancy has, in the past, resulted from conditional terms related to the orders not tallied in Boeing’s order book, but which are likely to be firmed up. Returning to FedEx’s earnings, the company reported net income down 10.8% to $745 million for the first quarter of its 2020 fiscal year, which ended on Aug. 31, on revenue that was flat at $17 billion. In addition to feeling the impact of slowing global trade and the ongoing growing pains related to the integration of TNT Express, FedEx also took a hit from its decision to severe air and ground ties with Amazon during the quarter. Smith said that, while Amazon represented only a “small proportion” of the company’s revenues, near-term profits would be negatively affected. In a change from past years, FedEx now includes Amazon in its competitive sphere, along with UPS, DHL and USPS, according to Smith. Long term, however, FedEx maintains that new customers will more than make up for Amazon’s volumes as the average number of daily e-commerce shipments in the United States doubles from 50 million today to 100 million per day by 2026. Indeed, the bulk of the company’s non-aircraft capital expenditures target the e-commerce segment through automation and facility upgrades. FedEx forecasts capital spending of $5.9 billion in FY2020 and expects similar outlays in FY2021. High-value express shipments aren’t the only targets for FedEx – the company is working to become more competitive in the short-haul ground segment to better target retail-to-home and other local deliveries. Apart from expanding six- and seven-day service, FedEx also announced it would in-source SmartPost volumes by 2020. Currently, SmartPost volumes are dumped into the USPS’ network for final-mile delivery. FedEx now forecasts earnings of $11.00 to $13.00 per diluted share before retirement plan adjustments and excluding TNT Express integration expenses. Join us for the 25th Annual Cargo Facts Symposium, Oct. 16-18 at the InterContinental San Diego. With unparalleled networking and continuing education opportunities, Cargo Facts Symposium consistently attracts the best in the industry. To register and for more information visit www.cargofactssymposium.com today!

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