Listen: FedEx retirements and narrowbody milestones

In this week’s episode of the “Cargo Facts Connect” podcast, Cargo Facts Editor Jeff Lee and Associate Editors Andrew Crider and Robert Luke discuss FedEx’s fleet restructure after the express carrier painted a grim picture for the future of airfreight during its latest earnings call. The team also breaks down news of Aerolineas Argentinas receiving its first two 737-800Fs and the first A321PCF completing conversion at the HAECO facility in Xiamen (XMN). Tune in for a discussion of these topics and more for the week ended Jan. 6, 2023. A transcript is available below. This transcript has been generated by software and is being presented as is. Some transcription errors may remain. Andrew Crider Hello, and welcome to this episode of cargo facts connect the podcast of cargo facts, the newsletter of record for the air cargo and freighter aircraft industries for over 40 years. I'm your host Andrew Crider, associate editor of cargo facts. Robert Luke And I'm Robert Luke, associate editor of cargo facts. Jeff Lee And I'm Jeff Lee, editor of cargo facts. Andrew Crider I want to begin today's show with you, Jeff. There was a number of updates that happened over the last two weeks just as we went through the holiday season. I'd like to know more. I think you have important updates from our friends at precision don't we? Jeff Lee We do and this is a pretty significant moment for precision. Because they know they've now completed their first A321 PCF conversion at the Haeco facility in Xiamen, China. Of course, the haeco xiamen facility is already doing a lot of work for and has been doing a lot of work for precision with that 757 conversions. But as we know, they last year, they started working on their first A321. And now you know this aircraft is finally complete and it left Xiamen earlier this week and made its way to Montpellier in France. This one belongs to cross ocean partners, and we'll see where it ends up with which operator it ends up with. But another interesting thing is that in Montpellier as far as we know there are now three A321 freighters two EFW conversions. And this the first Haeco xiamen PCF conversion. So I mean, there's, there's there's a maintenance facility there, but I would love to be in Montpellier. So I can spot these three a321s together at that facility. You know, where they get painted in? post conversion, maintenance and all that. Ahead of them being placed with the operators. But yeah, wouldn't it be cool to see three freshly converted A321s? Together? Robert Luke That'll be awesome. Absolutely. Andrew Crider Well, we all know how you like to spend your weekends, Jeff. Um, I would all say the 321 wasn't the only narrow body freighter airframe that saw news this week. Didn't we also see regional developments with the 737 800F? Jeff Lee Yeah, we did. And I mean, I wish that they hadn't announced this. While we were all off on the second to last day of the year, but aerolineas argentinas is now going to get to 737 800 freighters in the coming months. But we did some digging. And we now have confirmation actually from the airline that these two units are going to be two leased from macquarie air finance. And interestingly one of these was previously actually in passenger service with the airline itself. So returning to Aerolineas Argentinas. And actually, at some point last year, I think they had issued an RFP for freighters 737 800 freighters. So yeah, there's this is another airline. And specifically in Latin America, another one that is now going to enter or re enter the freighter space with the help of 737 8 hundreds. So Well, I mean, it kind of this deal. reminds us of the gol and Mercado Libre deal in some ways because they aerolineas argentinas is doing this with the help of an Argentinian company called megor. And it's we don't know the exact details of that deal. But this kind of conglomerate is both a manufacturer of various parts and components, agricultural shipments, but it also set up its to own the logistics business, presumably to ship its own products out to customers, at least partly so you know, and they're going to do that better, I would think, with the help of Aerolineas Argentinas, and its two freighters. But yeah, pretty interesting. And so that's one of the few Latin American carriers that we know of right now, or at least, that will have 737 800 freighters. Andrew Crider That's very exciting news. And I'm always happy to see such activity for the entire Latam region. Really quickly, I wanted to bring up another quick item of news that happened earlier this week, and that was mountain air cargo beginning revenue flights using the Cessna 408. Now that will be the first for that brand new type, the PT six powered regional cargo aircraft, which has been taken by mountain and Empire Empire was expected to be in their revenue flights in March as soon as they complete work with the FAA to get the aircraft onto their air carrier certificate. But speaking of fedex, I want to go to Robert Luke. Now, Robert, you sat in on their financial earnings call just before the end of the year. And from what I heard is rather dramatic, wasn't it? Robert Luke Yeah, dramatic is a courteous way of describing what's going on based on the actual call that took place, you know, as every other company, so you can't really blame FedEx for taking the measures that they've taken and have released it in its quarterly call, as most are already bracing for the impact in applying cost saving technique techniques for the on unidentified or I should say, unwritten global recession that we are all currently experiencing right now. So, you know, part of that discussion entailed some positive means of saving up to almost 1.2 billion of the projected budget, they had laid out for the 2020 to 2023, excuse me, fiscal year. And as I, you know, continue to focus on this particular story. You know, one of the things that was very interesting was how, you know, they're retiring the older aircraft, and initially right off the bat, you tend to think, okay, yeah, that's cost cutting measures. That makes sense, because the older aircraft usually require more work and maintenance, and definitely burn a lot more fuel than some of the newer models that they currently have in their fleet. But the interesting part that this definitely kind of making me think from an alternative perspective here is, you know, ecommerce, and express shipping hasn't really trailed off. I mean, we could safely say that, right? So was this decision based on a forecast or projection? One? Was it partly because Amazon who may have probably put in more supply than demand is now entering the space that was only available to the existing three greatest Express carriers that are known to the world and DHL, FedEx and UPS? And, you know, are they starting to, you know, rub elbows in a space that made FedEx have to make some drastic decisions, or three, is this basically, by FedEx taking the proactive approach of safeguarding their assets, their growth, their capital, and just kind of weathering the storm, which we hope will be a very small storm that only lasts for a short time until things start to kind of stabilize and the growth continues to proceed in a positive trajectory. Gentlemen, I brought those three points up to get some feedback, because I think I want to kind of dive deeper into this to give our perspective is not to say our perspective is correct, but it's just an opinion, that of what we feel is the situation that may be going on right here. As you know, FedEx continues to make some more cost cutting measures and tactics to save their revenue. Andrew Crider You know, I'm looking at your reporting. Robert, I think what's what's what's really interesting is the aircraft that aren't being retired. Now you have the retirement of the MD 10, which was the latest addition from the venerable DC 10. Now that's an old airframe there, they're not retiring their MD elevens, which would be the the updates, they're still flying them. They instead are choosing to retire to 757 Along with one a 300 and the remainder of their MD 10s. And I think that it's it's, it's interesting to see the 757s being removed from service before the MD 11s, because that would, as you said, it makes sense to retire older aircraft less efficient. I would imagine from an efficiency standpoint, the 757 would out class the, the MD 11. But that's not the case there. That seems like it's a decision being made on on volume. Now there's a lot of there's a lot that goes into fleet management, I don't know the state, maybe these aircraft are particularly high time airframes, and would be cost a lot more money to keep them operating. That's entirely possible. But I, it makes me wonder how there are, what the role of volume plays into FedEx fleet management, Robert Luke And you know, as much as I love the MD 10. Andrew, and you made a great point. You know, one thing that sticks out to me, is, I don't even think maybe a couple of days after we published this story. confirmation came to those remaining in details that weren't supposed to actually be retired until next. Next, I think second quarter of next year are already on the ground in park. So is that FedEx being proactive to weather the storm? Or is that FedEx feeling the crunch? Potentially, from Amazon that said, Hey, we've got too many planes, our seven sixes are way younger, more fuel efficient, can carry the same volume, we're gonna start invading FedEx space, this is just me putting something out there that I'm not saying it's true, but just kind to, you know, create a different thought, a different thought or analysis on a subject, you know, because we have to, we have to remember FedEx and Amazon. Well, once partners for a very long time, until, you know, that unfortunate partnership. Unfortunately, that partnership came to an end, for reasons that I'm not going to disclose. But would you say the marriage didn't end? Well? So are we seeing what could possibly become another competitor entering into that express company? Express integrator space? Jeff Lee Well, no, I mean, the MD 10 was always going to go by the end of this year, but they kind of accelerated that timeline a bit. And in terms of the I think we have to be careful, because with the MD elevens, A three, hundreds and 757s, we, we do see them sending these aircraft types to the desert, for storage. And some of those may not actually be permanent retirements just yet. They do monitor obviously, the market and depending on what the conditions are like they, you know, send the park planes but they also reactivate planes. So some of those that are in Victorville may still come out and back into service. But I mean, actually, speaking of MD elevens. Actually, they did actually send another one to Victorville earlier this week. So yeah, I mean, that's it, we will continue to see more of these kinds of movements, whether that's with the md sevens, or the seven five sevens or the or the A three hundreds. But so do and, of course, they've got they continue to have new 767 deliveries. So those, as you said in your story, Rob, the routes that they flew with the MD 10s. We're now seeing those operated by a combination of MD elevens or 767. And so yeah, I mean, it's a constantly fluid dynamic, isn't it? And, yeah, it's such a complicated and tough job to be managing the feet and deciding what capacity goes where and all that. Robert Luke Well, yes, it is very, you know, difficult task. But is it really that complex? I mean, if we look at it, and if we probably ran the MSNs on the two seven fives that I wrote about, they got put away. One, how old are they? That's which Andrew made a great point of two. Let's look at the aircraft that they're retiring. They're the older aircraft models that are in their fleet as they continue to ramp up replacements with the seven six sevens that they're getting freshly delivered from Boeing. So is that you know, is it is it a smokescreen? I mean, you know, would fit They've always been very good about keeping things under the belt without revealing too much and being very, very key in their decisions, because everything's always based on their strategy, their model of success. So with that being said, you know, is it them in panic mode? Or is it them in presentation mode? Or is it them preparing to attack that Jeff Lee Another factor is also the engines on these airplanes, because FedEx is Md elevens. They have a mixture of the CF six and p w 4000. Powered MD 11. And I, I, if I remember correctly, seems like they were they were removing the, I think they were removing the Pratt ones in favor of the CF sixes. And in fact, they acquired a couple of Lufthansa, MD elevens. A couple of years ago, or mostly for parts. And so um, yeah, that that is a factor as well. And, of course, the history of each individual frame and the cycles. But yeah, it's also I wonder whether we'll see similar moves from UPS, which also has a large MD 11 feet, and which also acquired and put into service, a couple of Lufthansa, MD elevens. Robert Luke And that's a different philosophy there, you know, they obviously are two of the biggest Express companies in the world and for obvious reasons. But, you know, from my perspective, I see UPS is more of the conservative, you know, and I guess it's made because of the color of their, of their marketing and their and their livery, being in the white and brown brown is kind of like a relaxing color. But I see them as the laid back express company, where FedEx is kind of like, you know, we're measured what we strike. And when we strike, we strike hard. And DHL is just like lift, anyplace, anywhere. Anytime we're going there, as long as we can have the capacity to meet the demand. And when it doesn't meet the demand, we don't lose anything, our first scan, because we have CMI partnerships, we could just park the aircraft and wait to business picks back up, you know, so, you know, looking at all three of those. I think, you know, this to me, I just think it's a chess move. i That's my honest opinion, as far as what FedEx is doing is definitely a chess move. I don't think they're really, I think they're preparing to flag the six of wherever their competitors are, and sneak attack. Jeff Lee But that's the other thing, actually they kind of hinted at using more third party lift. And, I mean, they didn't go into detail. But I wonder what that means, and how that will affect the third party providers that have been supporting FedEx, and, you know, does that mean more opportunities for those carriers? Potentially, and that so that, yeah, it will be interesting to see the effects of that. Robert Luke It's not like they don't have the inventory where they can do it. If you look at some of the aircraft that are that they have parked, they probably still have good life. And if they can, you know, establish partnerships like some of these, like a lot of these logistic companies like Mercado libre, where they get owned controlled assets being operated by somebody else, they could easily just partner with those companies, if the business is not coming directly to them and still indirectly get paid. Okay, I can get I'll give you my assets, you fly it for them, and then I'm still getting paid off and putting my airplanes to work. I mean, that's that's one way of looking at it. You know, Andrew Crider I think what's what's striking to me, as far as when you're looking at the change up for FedEx, if you want to look at it, as FedEx versus Amazon and Amazon's cutting into FedEx space, and this is a reaction to that, which I'm not sure if that's that's how I see it. But under the on that narrow gaze, we know during cargo facts in San Diego, Amazon announced that they were turning to the A 330 F platform to replace its 767s. And I would I would say I would love competition, but I'll be very interested to see fleet performance years from now when you have FedEx fleet with their 767 is competing against Amazon a 330s. To see which which aircraft serves up its respective operators. But I think that's going to be interesting contest to see Robert Luke It's all about the fuel burn and cost savings, Andrew Crider Not even. I think that there's a, there's a there's a dramatic space for volume. I know, Jeff, I hope this will become an award winning story reporting on the enlargement of the cargo door of the A 350 competing against the triple seven freighter. And both of which are just trying to meet a volume capacity that's left open with the retirement of the older 740 sevens. I think volume as a a is a huge role play for the next generation fleet. It's not to say, it's not easy, you're certainly not wrong. Efficiency is a huge factor. But it's not the only one. Robert Luke It isn't but as volume, like payload once was it just trendy because now everyone's jumping to that. And it's going to just basically be a trend that eventually fades out because at the end of the day, you know, fuel efficiency and operational costs will always trump anything else or is it actually the long term new formula to successful air cargo delivery? Andrew Crider And on that question, that is going to be all the time we have for today. For more multimedia coverage like this, please search cargo facts connect on iTunes and Spotify and search cargo facts.com. Thank you very much for tuning in. Subscribe to Cargo Facts Connect on iTunes or Spotify , or download the episode on Transistor . Cargo Facts EMEA, the essential event for stakeholders in Europe, the Middle East and Africa, will take place live Feb. 6-8 in Dubai. Register today.

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