The following post is excerpted from the February issue of Cargo Facts. If you are not already a reader of the monthly Cargo Facts and the weekly Cargo Facts Update, click here for subscription information.
Deferrals of freighter deliveries reflect the decline in demand for Main-deck lift
On 4 February Boeing ferried a 747-8 Freighter to Marana Airpark (MZJ) in Arizona for storage. The freighter (37669) is the fourth of five ordered by Moscow-based Volga-Dnepr Group for its scheduled-service subsidiary AirBridge Cargo, and its move to the desert appears to have been the result of negotiation by Volga-Dnepr to defer delivery of both the fourth and fifth units of its order (see article on p. 15 for details), but it may also be just the first of several such moves by carriers facing diminishing demand for main-deck lift.
The reasons for the decline are many. Slow or no global economic growth in recent years, high fuel prices, and modal shift to surface transportation have combined to cut into overall demand for air freight. And further, significant growth in passenger demand has allowed carriers to shift cargo from freighters into the bellies of their rapidly-growing fleets of cargo-friendly passenger aircraft such as A330s and 777-300ERs. However, at the same time as these trends combine to reduce demand for space on freighter aircraft, record numbers of new-build large widebody freighters are entering, or are about to enter, service. Up to a point, the influx of new capacity can be balanced by retirement of older freighters, but another option for carriers is to renegotiate their purchase agreements with manufacturers to defer delivery of ordered aircraft to a later date. The advantages to the carrier are obvious – no additional capacity to fill, and deferral of a significant capital outlay – but the disadvantages to the manufacturer are equally obvious.
Of course Boeing is not alone in facing deferrals of freighter orders. The Airbus A330-200F program has weathered cancellations (Flyington Freighters and MatlinPatterson), swaps for passenger units (Intrepid Aviation and Guggenheim Aviation Partners), and deferrals (OH Avion); but the current extent of the problem is hinted at by what appears to be happening with the 747-8F program. As shown in the chart above, Boeing has so far built thirty-eight 747-8Fs. Of these, twenty-eight have been delivered to six carriers, but that is where certainty ends. It is no secret that Boeing has announced a total of sixty-seven firm orders, so the current official backlog (as of early February) is thirty-nine units. But the status of those thirty-nine, including ten that have already been assembled but not yet delivered, is less certain. Boeing also has about fifteen more in various stages of production, and as we have reported in the past, some of the units in the early stages of production appear to be for customers without announced orders. We expect that most of the 747-8Fs in the backlog will be delivered to the carriers that ordered them, either on schedule or after some period of deferral, but there are some whose fate is less clear.
For example, according to the FAA, the registration of six 747-8 Freighters was changed on 22 January. Freighters formerly registered to Atlas Air Worldwide Holdings (1), AirBridge Cargo (1), Nippon Cargo Airlines (2) and Korean Air (2) were all given Boeing registrations. This is a move that usually indicates deferral, although it may be due to a temporary factor such as extended test flying or modification. It can also be the result of a cancellation. Of the six 747-8Fs that were moved onto Boeing’s certificate, three are finished units and three are units not yet on the final assembly line, but for which subassembly processes have begun.
- The first of these is no surprise. Atlas ordered twelve 747-8Fs, but then cancelled three of those orders, citing “delays and performance considerations” with regard to the first three units to be delivered. Whether Atlas would have cancelled the orders if market conditions had been more favorable is an open question, but the net result was three 747-8Fs parked on the tarmac at Everett for over a year until Saudia Cargo agreed to buy two of them. Registration of the third (37564) has now been transferred to Boeing – usually a sign that no delivery is expected in the near future.
- The second is unit 37669, ordered by Volga-Dnepr and originally scheduled for delivery to AirBridge Cargo in late 2012/early 2013. This aircraft is now registered to Boeing and has been flown to Marana for storage.
- The third and fourth are units 37394 and 36141, both ordered by Nippon Cargo. One (37394) has been built, but now is reported to be scheduled for transfer to Marana rather than for delivery to NCA. The second (36141) is still in the subassembly stage, but the change of registration is an indication that when it rolls off the final assembly line it may not go directly to Tokyo. These two deferrals are not a surprise, as NCA had indicated some time ago that it intended to delay delivery of some of the fourteen 747-8Fs it ordered as part of its cost restructuring plan – the so-called “Phoenix Project.”
- The last two re-registrations are of units 37655 and 37656, the fourth and fifth of seven 747-8Fs ordered by Korean Air (KAL) and currently in the subassembly process. In its recently released fourth-quarter financial summary, KAL noted that it would take delivery of just one 747-8F in the 2013 fiscal year (ends 31 March 2014). That aircraft (37654) is currently in final assembly, so the two that were re-registered appear unlikely to be delivered until April 2014 at the earliest.
In addition to the above six units that have been re-registered to Boeing, there are three early-build units whose fate is unclear. Two of these are units 39240 and 39241, originally intended to be the third and fourth of ten 747-8Fs ordered by Cathay Pacific. They were rolled off the production line without engines in 2011 and have remained on the tarmac at Everett (in full Cathay livery, but without engines) ever since. A recent report on one of the plane-spotter websites indicates they are now scheduled for delivery in April and July of this year, but that is unconfirmed. The third early-build but so-far undelivered 747-8F is unit 36136. This is the second 747-8F built, and one of the fourteen ordered by NCA. It was used extensively in the test flight program, then ferried to San Antonio for refurbishment in May 2012. As far as we can determine, it is still in San Antonio, and still registered to NCA, but no delivery date has been announced. In addition, as we were going to press, we learned that Cargolux has begun negotiations with Boeing to defer delivery of some or all of the seven units it has on firm order.
Regarding the reported upcoming delivery of the two Cathay airframes currently without engines, we also note that Cathay appears to have three more 747-8Fs currently in the early stages of the assembly process. While this is unconfirmed by either Boeing or Cathay, Cargo Facts believes these are part of a larger deal to upgrade the fleet of Air China Cargo (in which Cathay is a 49% jv partner) with not only the three 747-8Fs, but also a large number of 777Fs. As part of the deal, Boeing would reportedly acquire the six 747-400BCFs in the Air China Cargo fleet. [Note: this has now become official. See our report here.}
As mentioned above, Boeing is not alone in facing deferrals in freighter orders. Airbus has faced a similar situation in its A330-200F program. OH-Avion worked with the manufacturer to defer delivery of its eight orders, Guggenheim swapped its three orders for A330 passenger aircraft, and Intrepid Aviation has swapped eight (so far) of its twenty orders for pax units. In addition to the deferrals, both manufacturers have seen cancellations – by Dubai Aerospace Enterprise and Guggenheim Aviation Partners for Boeing, and by Flyington Freighters and MatlinPatterson for Airbus. Boeing’s 777F program has not seen any cancellations, but there have been requests for a few deferrals by FedEx and Hong Kong Airlines.
The full extent of all of this deferral/cancellation activity remains to be seen. But the message is clear enough: Carriers and lessors placed orders with the expectation of demand growth that has not materialized, and perhaps without taking into account the impact of the proliferation of belly space. And now they – and the manufacturers – are paying the price.