More insight into FedEx’s fleet plans

Speculation about a possible “restructuring” at FedEx Express took off after an article in the Financial Post quoted a Bank of America Merrill Lynch report as saying that FedEx “is poised to reveal plans for restructuring its Domestic Express network that could produce about US$270 million in savings.” We felt this speculation was overheated, and predicted that what FedEx would “reveal” was a continuation along the path it was already following: headcount reduction through attrition, reduction of flight hours, and the retirement of older freighters to match capacity with demand.

On 4 June, FedEx released a public statement addressing the issue, specifically the matter of aircraft retirements.  In the statement, FedEx said that it had made a decision to accelerate the retirement of older freighters, as follows:

• Eighteen A310-200Fs will be permanently retired (along with 26 related engines)
• Six MD-10-10Fs will be permanently retired (plus 17 related engines)
• Five 727-200Fs were retired in the fiscal fourth quarter (ended 31 May)
• Twenty-one 727-200Fs will be retired through May 2013.

At first glance, the retirement of fifty freighters sounded dramatic, but a closer look revealed it to be considerably less dramatic than it appeared. Fifteen A310-200Fs and seven MD-10-10Fs were already parked, so the change to the FedEx Express operating fleet was actually just three A310 freighters. And regarding the 727-200Fs, FedEx was not retiring freighters it had intended to keep, but rather speeding up an already-existing retirement schedule – with one extra retirement in FY12 and eleven extra retirements in FY13. The net effect of which was that the last 727 freighter would leave the FedEx fleet in FY15 rather than FY16. In other words, while FedEx accelerated the 727 retirement schedule by a year, and removed an additional three A310s from its fleet, the change was not a radical one, but rather a relatively modest expansion of its already existing refleeting schedule.

With today’s release of its fiscal fourth-quarter and full-year results, FedEx offered some further insight into the fleet plan for the next six years:

• In addition to the above-mentioned retirements, the company confirmed what had been expected ever since it ordered twenty-seven 767-300Fs late last years — that the 767 freighters would replace  MD-10-10Fs on a one-for-one basis beginning some time in the 2014 calendar year, reducing the MD-10-10 fleet from the current 52 units to 21 by some time in 2017.
• In addition to the eighteen A310 retirements announced on 4 June, FedEx will also retire eighteen more in the 2013 – 2016 period, leaving it with seventeen A310-200Fs/-300Fs.

None of this is particularly surprising or unexpected, but in a conference call this morning following the release of the 4Q results, senior FedEx executives several times deflected questions about other potential changes in the works at FedEx Express, saying that they would address the issue in detail at a multi-day investor event in early October. Will there be any big surprises then? We tend to think not, but on the other hand, if all that was going to be announced was a continuation of business as usual, why would there be any need for secrecy?