Boeing’s 747 Slowdown Casts Shadow Over Cargolux Fleet Plans

Boeing Co. (BA)’s decision to slow output of the new 747-8 model is complicating Cargolux Airlines International SA’s fleet-renewal plans as Europe’s biggest freight-only carrier standardizes around the upgraded jumbo.

Cargolux, the first client for the 747-8, has seven of the jets in its fleet and six to be delivered. The Luxembourg-based carrier could have a further requirement when it retires aging 747-400s, having decided against smaller Boeing 777s or Airbus (EAD) SAS A330s, the only other wide-body freighters in production.

“It’s an issue on our radar screen,” said interim chief executive officer Richard Forson. “We are evaluating what the future should look like because neither Airbus nor Boeing is developing a wide-gauge freighter. What’s popping up on the horizon is whether there will be a replacement for the 747.”

Boeing said last week it would cut the 747-8 build rate to 1.75 aircraft a month by early 2014 from two now to combat weak demand. The U.S. company’s biggest and priciest model with a list price of $352 million, the new jumbo has won only 110 orders since it went on sale in 2005, 70 of them for freighters.

Cargolux, which has two more 747-8s due this year, is relying on fleet flexibility to spur a return to profit after its loss widened to $35.1 million in 2012 from $18.3 million a year earlier as volumes fell 1.8 percent to 645,759 metric tons.

Photographer: Alan Marts/Boeing Co. via Bloomberg

The first Boeing Co. 747-8 freighter painted in customer livery for launch customer Cargolux, emerges from the Boeing paint hangar in Everett, Washington, U.S., on Monday, June 7, 2010, in this handout photo. Close

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Photographer: Alan Marts/Boeing Co. via Bloomberg

The first Boeing Co. 747-8 freighter painted in customer livery for launch customer Cargolux, emerges from the Boeing paint hangar in Everett, Washington, U.S., on Monday, June 7, 2010, in this handout photo.

‘Complexities’

Forson said Cargolux needs to be able to quickly add or cut capacity as required, something that’s easier when operating a single aircraft type, especially once the completion of payments on 11 747-400s means they can be idled without a cash outflow.

“There are inherent complexities involving a dual fleet,” Forson said. “With a larger fleet it may make sense but in our business we only envisage a fleet of around 18 747s by 2017.”

A recent evaluation led Cargolux to decide against the cargo version of the 777, production of which is on a sounder footing after the twin-engine model won more than 700 orders in all its variants in the time the 747-8 has been available.

Airbus scrapped plans for an A380 superjumbo freighter in 2007 to focus staff and money on the delayed passenger version. Cargo specialists including FedEx Corp. (FDX) and United Parcel Service Inc. (UPS), had placed orders, as had Emirates, the biggest A380 customer, and lessor International Lease Finance Corp.

The European company’s only new-build freighter, the A330 200F, has a maximum payload of 70 metric tons, versus 102 tons for the 777 and 133 tons for the 747-8.

Labor Deal

Cargolux’s volumes increased 8 percent in the first quarter and business performance so far is 2 percent ahead of full-year targets, it said yesterday. Prices out of Asia remain under pressure as the operator seeks new routes to bolster sales.

“Growth in demand is starting to exceed growth in capacity,” Forson said. “That’s a positive indicator, but there’s still a lot of surplus capacity in the market with irrational competitors prepared to discount heavily.”

Cargolux, which employs 1,500 people, is seeking cost cuts and improved productivity to avoid job losses after canceling labor agreements last year. Forson said he’s hopeful a labor accord can be struck before a deadline at the end of August.

The acting-CEO said he’s also awaiting a decision on the sale of a 35 percent stake in Cargolux acquired by the government when Qatar Airways Ltd. exited after only a few months as a shareholder following a dispute over strategy.

Bidders

Forson said the government has disclosed it’s in talks with four potential buyers. “What their expectations are for the airline is crucial to ascertain on day one,” he said.

Cargolux is continuing to seek new revenue sources as it pursues a goal of delivering a profit next year after two years of losses, the executive said. The company said April 12 it would add Ouagadougou in Burkina Faso to its network of African destinations that includes Tripoli and Port Harcourt in Nigeria.

Deliveries of the 747-8F are meanwhile scheduled to continue through 2017, and Forson said Cargolux could even seek to accelerate those if the market rebounds.

“I see the 747 becoming more valuable just because of the limited number of orders placed,” he said.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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