May 2 (Bloomberg) -- Boeing Co. lost an order of five 747-8 jumbo-jet freighters with a value of $1.76 billion less than a month after cutting production of the plane because of flagging demand for its biggest, most-expensive model.
Boeing reached an agreement with Dubai Aerospace Enterprise Ltd. to cancel the order, Jim Proulx, a spokesman for the Chicago-based planemaker, said today. DAE still has an order for five twin-engine 777 cargo jets, said Proulx, who declined to comment on the prospects of that purchase.
DAE’s pullback leaves Chicago-based Boeing with 54 unfilled orders for the 747-8, the four-engine plane with the iconic humpbacked fuselage. The monthly output is being reduced to 1.75 planes from two starting in early 2014 amid weakness in air-freight shipments, Boeing said on April 19.
Delays and cost overruns have plagued the upgraded version of the 747, which made longer airline routes possible in the 1970s because of its size and range. The 747-8 freighter went into service in October 2011, almost six years after the first order for the plane. Boeing booked writedowns of $1.35 billion in 2009 and $685 million in 2008 related to costs for the plane’s development and production, according to filings.
The 747-8 freighter has a selling price of $352 million and the passenger version, known as the Intercontinental, costs $351.4 million, according to Boeing’s website. Of the planes pending delivery, 28 are freighters and 26 are passenger jets.
Boeing has had more success with its wide-body 777 aircraft, which features a twin-engine design that saves maintenance and fuel costs. Boeing said yesterday it’s offering an upgraded version of the 777 to customers and expects the new plane to be in service by the end of this decade.
The loss of 747 orders isn’t a surprise after Boeing reduced production and cited weakness in the cargo market, said Michael Derchin, an CRT Capital Group analyst based in Stamford, Connecticut. The passenger version of the four-engine plane hasn’t caught on with airlines, which are looking to cut fuel costs, he said.
“The market for it is limited. It’s primarily a cargo carrier,” Derchin said in an interview. “You don’t see too many four-engine airplanes with jet fuel north of $3 per gallon.”
DAE has been canceling purchases after ordering 200 planes from Boeing and rival Airbus SAS at the Dubai air show in 2007. DAE has since canceled all its Airbus orders. Telephone calls made to DAE went unanswered.
DAE was set up in 2006 with the goal of becoming the world’s largest airplane lessor. The global financial crisis in 2008 and 2009 disrupted those plans. The company reported 2011 net income of $121.7 million, up from $10.3 million a year earlier, on revenue of $1.8 billion, according to a statement.
Boeing said in a February filing that the 747 has “a number of unsold freighter and Intercontinental production positions beyond 2013.” Orders for the plane will pick up when freight demand does, Jim McNerney, Boeing’s chief executive officer, said on an April 24 conference call.
“As the only provider of very large freighters, we believe our fuel-efficient 747-8 is well positioned to benefit our customers once cargo market conditions improve,” McNerney said.
The company has received an order for three planes this year after getting two orders for a total of seven jets in 2012.
Air freight volume dropped 1.1 percent in the first three months this year from a year earlier, led by a 4.6 percent decline in Asia Pacific international cargo, according to the International Air Transport Association.
Shares of Boeing rose 1.1 percent to $92.21 at the close in New York. The stock has gained 22 percent this year, outpacing the 12 percent advance for the Standard & Poor’s 500 Index.
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