The world’s biggest maker of air freighters is finding its most formidable competitors to be the huge bellies of its own passenger planes.
Sales of Boeing Co.’s 777 and 747-8 cargo aircraft have stalled as carriers such as British Airways and FedEx Corp., operator of the world’s largest cargo airline, shift less-urgent shipments to the cargo holds of Boeing 777 jetliners.
Boeing’s largest twin-engine model is leading the influx of aircraft with spacious cargo bays that are squeezing out older freighters and damping demand for new planes. The global fleet of wide-body passenger jets is projected to grow 8 percent this year, adding to a capacity glut as the fuel-efficient 777 and other long-range models are manufactured in record numbers.
“I haven’t sold a wide-body freighter in four years,” said Glen Langdon, president of Langdon Asset Management Inc., a San Francisco firm with extensive experience selling used 747s and other large commercial jets. “I have sold wide-body passenger aircraft, including 777s. I was stunned and amazed by just how much capacity there is below deck.”
The cargo hold on a 777-300ER is so roomy that a passenger airline can hold 7,120 cubic feet (202 cubic meters) of freight -- 25 percent more than a four-engine 747-8 jumbo can take beneath its cabin. A 777 also can carry as many as 386 people.
“These are immensely capable airplanes,” Robert Mann, a former airline executive who heads consultant R.W. Mann & Co., based in Port Washington, New York, said in a June 19 phone interview. “Once you have a network of them, you can start providing an in-house cargo service without flying an all-cargo airplane.”
Boeing has sold five dedicated freighters this year, four of the 777F variant and one based on the 747-8 jumbo. The 777F is its current top-selling freighter, at 134. Airbus Group NV has garnered no orders for the A330-200 freighter this year, six in 2013 against 18 cancellations, and just 38 since introducing the plane in 2007, according to its website.
Boeing, the world’s largest planemaker, needs both its major freighter offerings to flourish if the Chicago-based company is to avoid production cuts that could hurt revenue, said Yair Reiner, a New York-based aerospace analyst with Oppenheimer & Co. He rates Boeing shares market perform.
Of 51 unfilled orders for the 747-8, 21 are for the freighter variant, according to Boeing’s website. That’s a backlog of about three years after the company cut output twice last year to 1.5 a month due to slow sales. The 747-8F and 777F are among its priciest models, listing for $357.5 million and $300.5 million.
Passenger jets such as the 777, 787 Dreamliner and A330 are all being produced at record rates, and the glut of big aircraft will only get worse when the A350, Airbus’s first twin-engine comparable in size to the 777, begins service later this year.
The shift to so-called belly cargo has accelerated since oil prices topped $100 a barrel and the global recession in 2008 sent shocks through the airfreight market, according to data compiled by the International Air Transport Association trade group. With volumes squeezed, cargo haulers have parked older, four-engine freighters, such as Boeing’s 747-400 jumbos, according to Ascend data compiled by Bloomberg Industries.
Delta Air Lines Inc. and British Airways are among the carriers that have grounded dedicated cargo fleets in recent years as low interest rates and smaller consumer electronics sap demand for overnight shipping.
Even Memphis, Tennessee-based FedEx is shifting parcels that aren’t time sensitive to “these prolific underbellies” from its own jets, FedEx Ground President Henry Maier said on a March conference call.
While main-deck freighters hold several advantages over passenger models, including larger doors and the flexibility to fly during hours that travelers would shun, they “operate at higher unit costs as cargo needs to pay for the full operation of the plane,” David Vernon, a New York-based analyst with Sanford C. Bernstein & Co., wrote in a June 17 report.
Atlas Air Worldwide Holdings Inc., which manages the largest fleet of 747 freighters, questions the idea of passenger airlines being able to displace cargo-only operators.
“I’m not saying that belly’s not viable or not a good economic proposition for shippers -- it is,” William Flynn, chief executive officer of the Purchase, New York-based company, said in a phone interview. “This hypothesis that all this belly capacity has come in and it’s going to disintermediate or fundamentally change the equation for main deck, I think, is simply overstated.”
Pure freighters will be vital on busy cargo routes linking Chinese manufacturers with U.S. and European consumers, he said. “Freight moves through hubs.”
The market share for international air cargo carried on main-deck freighters, traditionally split evenly with belly cargo, “is around 40 percent, and one could see it slipping to 30 percent,” said Perry Flint, a spokesman for Montreal-based IATA, which projected the 8 percent growth in the wide-body fleet. “But there will always be a need for freighters.”
Flynn said the amount of freight shifted to belly cargo is being over-counted and main deck air cargo is still about 60 percent of the market. Analysts aren’t fully accounting for cargo lost to passenger luggage, weight limits or inconvenience of long-range jets bypassing shipping hubs, he said.
Boeing has tempered its forecasts since the 2008 recession and now sees annual cargo-market growth of about 5 percent, down from more than 6 percent, Marketing Vice President Randy Tinseth said by phone. That should drive a need for about 850 new planes through 2032, valued at $240 billion, according to the company’s 2013 market outlook.
“Over a prolonged period of cargo growth, I think the demand is going to come back, and that’s going to mean good things for both the 777 freighter and the 747-8 freighter,” Tinseth said.
Boeing is counting on a recovery in global demand to boost 777 freighter orders to bridge a gap in sales until an overhauled passenger version of the 777 is introduced in 2020, Joseph Nadol, a New York-based JPMorgan Chase & Co. analyst, wrote in a June 20 research report.
While the 777 freighter is “an attractive offering,” Boeing has garnered only 13 sales since orders peaked in 2011 at 42, said Nadol, who rates the company’s shares overweight. “The trend looks poor, but we consider the freighter an important part of the bridge, as does Boeing.”