Retirement of 747-400 & MD-11 Freighters accelerates

For much of the last year, the topic dominating most conversations about the air freight industry is whether the rapid expansion of usable – and marginally costed – belly capacity will end civilization as we know it. An exaggeration, of course, but the swing in opinion from “the main deck/belly split is going to stay at somewhere around 50/50 forever, so stop worrying,” to “no one can afford to operate freighters now,” has been extremely rapid.

But whatever the relationship between belly capacity and demand for main-deck lift, it seems that hardly a week goes by without news of more 747-400 or MD-11 freighters being retired. Things are not always what they seem, though, so we felt it was time to take another look at what was really going on with these two types — were they really being retired in large numbers as some reports seemed to indicate? And if so, were the retirements driven by a shift to belly freight?

Eight months ago, when we last examined this subject, we found that the MD-11F fleet was surprisingly stable. At that time, only 8% (14 units of 173 available) were not in service – unchanged from the beginning of 2013. The 747-400 freighter fleet was a more complex issue, in that while freighter-converted 747-400BCFs were being retired in increasing numbers, carriers were not getting rid of their production freighters (both -400Fs and -400ERFs), or their freighter-converted -400BDSFs. However, while the overall capacity reduction to that point was relatively small, particularly in light of the steady delivery of new 747-8Fs and 777Fs and the influx of belly capacity, we noted that the picture changed significantly when planned retirements were taken into account. During the months preceding our snapshot of the fleet, five carriers had announced or confirmed plans to retire thirty-three large widebodies – eight MD-11Fs and twenty-five 747-400Fs.

747-400s Where are they now - June 2014Eight months later it is clear that we were right to raise the red flag of planned retirements. During that short period there have already been twenty-seven retirements (eleven MD-11s and sixteen 747-400s). But this vastly understates the case, because only seven of these sixteen were among the thirty-three planned retirements. That leaves twenty-six of the thirty-three still to come, plus twenty-two more that have been announced since.

We’ll get to the forty-eight planned retirements later, but first, a look at the MD-11 and 747-400 freighter fleets as they now stand, starting with the 747s as shown in the chart at right, and then the MD-11s.

Of the 241 available units, 22%, are now parked, up from 12% eight months ago. The percentage varies considerably depending on variant:13% of available 747-400ERFs are parked (down slightly from 15%), as are 13% of 747-400Fs (up from 8%), 53% of 747-400BCFs (up from 35%), and 17% of 747-400BDSFs (up from 10%). During the last eight months, five previously parked 747 freighters were returned to service, but this was more than balanced by twenty-two retirements, for a net decrease of seventeen units.

MD-11Fs Where are they now - June 2014There was less change in the MD-11F fleet, which saw eleven retirements and no previously parked freighters returned to service. The total operating MD-11F fleet now stands at 147 units, with the percentage of available units in storage at 15%.

As mentioned above, a handful of the previously announced retirements were actually carried out over the last eight months, but there were many new retirements either announced or strongly hinted at. The current tally is as follows:

  • Taiwan-based EVA Air said it would replace its entire fourteen-unit freighter fleet (three 747-400Fs, six 747-400BDSFs, and five MD-11Fs) with an unspecified number of 777Fs. It has since retired two of the MD-11Fs.
  • Nippon Cargo Airlines (NCA) confirmed that as part of its Phoenix Rising Plan, it would switch to an all-747-8F fleet, and move its seven remaining 747-400Fs “outside of NCA operation.” The official plan is to sell or lease them to other operators, but there are unlikely to be any takers.
  • Air France-KLM announced that the three 747-400ERFs operated by Air France, and one 747-400ERF, one 747-400BCF, and one MD-11F operated by subsidiary carrier Martinair would be retired soon. Since then, it has retired just one 747-400ERF.
  • As part of Air China Cargo’s 777F order, Boeing agreed to accept return of the carrier’s remaining four 747-400BCF. Two have so far been returned, but the carrier now also seems likely to retire its three 747-400Fs.
  • Lufthansa Cargo indicated it would retire the oldest two of its eighteen MD-11Fs as 777Fs entered its fleet. Those two are now retired, but a new fleet review is underway (see p. 3), and it is possible that more retirements will take place.
  • Cathay Pacific which previously retired its six 747-400BCFs, is now in the process of retiring all of its six -400Fs. Four are already gone, and we expect the remaining two to go soon.
  • Korean Air recently indicated that as it took delivery of 747-8Fs and 777Fs it would retire a matching number of 747-400Fs. We expect two more to be retired.
  • At AirBridgeCargo’s recent tenth anniversary celebration, CEO Denis Ilin said the carrier was in negotiations with Boeing regarding a transition to an all 747-8F fleet. He didn’t say when this transition might take place, but the writing seems to be on the wall for ABC’s four 747-400ERFs and three -400Fs.
  • And finally, Centurion Cargo informed Cargo Facts that it, and sister carrier SkyLease Cargo, would retire all eight of their remaining MD-11Fs, and replace them with an undisclosed number of 747-400 freighters.

The bottom line on the charts above shows the impact of these planned retirements. Given that plans may change, and that it is possible that increasing demand for air freight will pull some of the retired freighters back into service, the forecast percentages shown may be different from actual. But it is nonetheless clear that while MD-11 and 747-400 freighters still make up some two-thirds of the large widebody fleet, the future belongs to the 777F and 747-8F.

Which brings us back to the starting point of this discussion – the extent to which increasing belly capacity is impacting freighter operation. There is no question that the availability of useful belly space, the kind of space available in aircraft like the 777-300ER, the 787, the Airbus A330 family, and soon in the A350, offers a lower-cost alternative to the main decks of freighter aircraft. But this is only indirectly responsible for the accelerating retirement of MD-11 and 747-400 freighters. Demand for air freight has been increasing for almost a year now, and while belly capacity has absorbed some of this demand, there is still a need for freighters. The real problem for MD-11 and 747-400 freighter operators is that despite the demand increase of the last twelve months, yields have continued to fall, putting operators of older, less fuel-efficient freighters in an impossible situation. In an environment of expensive oil, low interest rates, and declining yields, the operating cost of older freighters is prohibitive. We have now reached the point at which it is almost cheaper to buy or lease a new 777F than it is to continue operating a freighter-converted 747-400.

The availability of usable and inexpensive belly capacity plays a part in the erosion of yield, but what is really sending the MD-11s and 747-400s to the desert is not the 777-300ER and A330-300, but the 777F and 747-8F.