Boeing Bets on Jumbo Rebound While Some 747-8s in Desert

Boeing Co. (BA) said demand for the 747-8 jumbo jet, its largest and most-expensive model, will recover even as the company stashes some planes in desert storage and slows the production rate.

“We’ve actually got a lot in play,” Ray Conner, chief executive officer for Boeing Commercial Airplanes, said yesterday on the eve of the Paris Air Show, without identifying any possible customers. “One of the focuses we have is obviously to sell more 747s.”

Some 747-8 freighters are being parked in Arizona and near Boeing’s factory in Everett, Washington, according to the company, which isn’t disclosing how many planes are involved. They’re separate from three 747-8 cargo jets rejected by Atlas Air Worldwide Holdings Inc. (AAWW) in 2011.

The four-engine 747-8, the latest version of the jet known for its iconic fuselage hump, is being hurt by a freight slump that’s damping shipments on long-haul routes to Asia from the U.S. and Europe. Global cargo traffic fell 0.6 percent in 2013’s first four months from a year earlier, according to the International Air Transport Association.

Freighters account for more than half of the 55 unfilled orders for the 747-8, which lists for $352 million as a freighter and for $351.4 million for the passenger model. Chicago-based Boeing said in April it would pare output to 1.75 planes a month by early 2014, a 13 percent reduction.

Photographer: Patrick T. Fallon/Bloomberg

Workers assemble a Boeing Co. 747-800 Intercontinental Jumbo Jet airplane at the Boeing Everett Factory in Everett, Washington. Close

Workers assemble a Boeing Co. 747-800 Intercontinental Jumbo Jet airplane at the Boeing... Read More

Close
Open
Photographer: Patrick T. Fallon/Bloomberg

Workers assemble a Boeing Co. 747-800 Intercontinental Jumbo Jet airplane at the Boeing Everett Factory in Everett, Washington.

Lufthansa Experience

Conner said the passenger version, known as the 747-8 Intercontinental, will be easier to sell now that Boeing can cite Deutsche Lufthansa AG (LHA)’s experience with the jet. The German carrier began flying the plane last year and has placed 19 orders for the 747-8I, the most of any airline.

“As the 8Is have come into service now with Lufthansa, they’re starting to see some terrific benefits of the airplane,” Conner said. He wouldn’t comment on Boeing’s order expectations for the air show, the industry’s biggest showcase for new models and announcements.

The 747-8 freighters in the desert are at an outdoor storage facility in Marana, Arizona, said Joanna Pickup, a company spokeswoman. Boeing also has planes parked near its wide-body jet plant in Everett, Pickup said.

Boeing probably will have to continue storing 747-8s because of a mismatch between production and deliveries, said Eric Lindblad, the program manager.

‘Business Model’

“Because we build it in a given month, doesn’t mean we’ll actually deliver it in a given month,” he said. “We will store some airplanes until the customers are ready to come pick them up and it matches their business model.”

Airbus SAS also has struggled to add sales for its A380 double-decker jumbo, which isn’t available as a freighter. The Toulouse, France-based planemaker missed an order target last year and hadn’t booked a firm new deal through yesterday in 2013, against its plan of 25.

Building the 747-8 to carry both cargo and people gives Boeing an advantage, Conner said. The Intercontinental seats 467 people in a typical three-class cabin, according to Boeing’s website.

“When we looked at that big, very large market, it was always a tight market,” Conner said. “We’re very fortunate in the fact that we have a freighter and we have a passenger, which gives us a lot of flexibility.”

‘Very Bullish’

General Electric Co., which makes engines for the 747-8, expects demand for the biggest jet freighters to rebound, according to Chuck Nugent, general manager of the manufacturer’s GEnx engine program.

“The cargo market has been challenged, but we remain very bullish on the 747-8,” Nugent said today at the Paris Air Show.

Atlas cited “delays and performance considerations” in dropping the three 747-8 freighter orders in 2011, after the plane was more than two years late in entering service. The Purchase, New York-based company said at the time that jets from later in Boeing’s production run had been improved.

Lindblad said Boeing has reached an agreement to sell two of the planes turned back by Atlas and is in negotiations to place a third.

“The air cargo market has just been awful,” said Jack Atkins, a Stephens Inc. analyst in Little Rock, Arkansas. “The demand of freighters has been very, very low. We’ve heard of people taking 767s for routes they used to fly 747s on because the demand on that route is down so much.”

777 Success

The 747-8 is also being hurt by the success of Boeing’s twin-engine 777, which airlines prefer for carrying both freight and passengers, said Aaron Gellman, a professor of management and strategy at Northwestern University’s Kellogg School of Management in Evanston, Illinois.

The air-freight slowdown won’t last forever, said Randy Tinseth, marketing vice president for Boeing’s airplane unit. Boeing forecasts cargo traffic will grow an average of 5 percent a year over the next two decades. Tinseth said that growth will support the 747 program, which has logged 1,468 deliveries since the first was handed over to Pan Am World Airways in 1969.

“It’s a good long-term growth business,” Tinseth said. “When trade comes back, especially in those key markets, the traffic will come back as well.”

To contact the reporters on this story: Thomas Black in Paris at tblack@bloomberg.net;

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.