FedEx Corp. (FDX) plans to buy about 30 Boeing Co. (BA) wide-body freighters to replace older, less fuel- efficient jets, three people familiar with the matter said. The planes would be valued at about $5.26 billion at list prices.
The order of Boeing 767s by the world’s biggest cargo airline may be announced as soon as next week, said one of the people, who declined to be identified because the details aren’t public. Talks have ended with Airbus SAS, a Boeing competitor, the person said.
New twin-engine jets would help Memphis, Tennessee-based FedEx shave fuel costs because its large planes now include some Airbus A300 and A310 aircraft that are more than 25 years old. FedEx’s fuel spending rose 40 percent in the three months ended Aug. 31.
“There’s going to be some near-term cost savings,” said Kevin Sterling, an analyst with BB&T Capital Markets in Richmond, Virginia. “Fuel is one that comes to mind right away, operational costs, but also they’ll have a maintenance-free holiday in the short-term period.”
A FedEx spokesman, Jim McCluskey, and a Boeing spokesman, Marc Birtel, declined to comment.
FedEx fell 2 percent to $82.47 at the close in New York trading, while Boeing slid 0.6 percent to $70.17 as broad U.S. indexes slumped.
The 767 Freighter has a list price of $175.4 million, though airline customers typically buy at a discount. The 767 backlog at the end of October was 46 planes, according to the company’s website. Boeing is gradually replacing the jet with the similar-sized 787 Dreamliner, which doesn’t yet have a cargo variant.
A freighter order would help Boeing by keeping 767 production going before the planemaker starts to build U.S. Air Force tankers based on the plane.
“The FedEx deal is somewhat smaller than we might have considered possible,” Howard Rubel, a Jefferies & Co. analyst in New York, said in a note to investors. “But it is a significant boost to the 767 line.”
FedEx previously talked with Boeing and Airbus about an order of about 50 freighters including the Airbus A330, people familiar with the matter said in September. The order was pushed back and FedEx cut its full-year profit forecast by 10 cents a share that month.
‘Things Are OK’
While the planned freighter order was necessary given FedEx’s aging fleet, it may also indicate that the company doesn’t expect a recession soon, according to Sterling, who recommends buying the shares.
“It’s more kind of out of necessity, to get a younger fleet, to get one that’s a little more efficient,” he said in a telephone interview. “On the other hand, you’re not going to spend $5 billion to have a bunch of planes sitting idle. So I think in a roundabout way it does speak to, ‘at least they feel that things are OK.’”
Boeing is also in talks with Southwest Airlines Co. (LUV) about an order for the planemaker’s new 737 MAX jet, three people familiar with the matter said.
Boeing decided in July to upgrade the existing 737 with more fuel-efficient engines rather than build an all-new successor. The company isn’t taking firm orders yet because it’s still completing planned adjustments, and performance guarantees and pricing haven’t been set.
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