FedEx has ordered 27 -300 freighters to begin replacing its nearly 40-year-old MD-10Fs and is deferring the delivery of 11 777Fs in a multi-faceted move company executives say will lower maintenance and operating costs and short-term capital expenditures, while enabling them to alter international capacity to projected demand.
FedEx currently operates 58 MD-10-10Fs, which began life as passenger-carrying DC-10-10s and were later converted to freighters and upgraded with new, MD-11-like cockpits, and 17 moderately younger MD-10-30Fs. The company originally planned to replace the MD-10Fs, which are used in domestic service, with MD-11Fs being replaced on international routes by new 777Fs.
But now, FedEx has decided to leave the MD-11Fs in international service longer and replace the MD-10Fs with purpose-built 767-300Fs, a similar sized aircraft with 23% lower operating costs per trip and a 30% fuel efficiency advantage. FedEx Corp. Chairman, President and CEO Fred Smith left open the possibility that converted 767 passenger aircraft could be in the delivery mix in the future.
During yesterday’s second-quarter 2012 earnings conference call, FedEx executives went to great pains to indicate how happy they are with the 777F and the flexibility it gives them in international markets, and pointed out that even with the deferrals, FedEx will be taking delivery of 16 777Fs through fiscal 2018. The company also exercised two 777F options.
“These deferrals will allow us to balance our overall international capacity to expected demand,” FedEx Express President and CEO Dave Bronczek told analysts, according to a transcript of the conference call. “However, it will not impact our ability to meet projected international growth requirements, as we are still adding an additional 16 777 aircraft through fiscal 2018,” he said.
Bronczek described the 777 deferrals as opening a capital expenditure window into which the company was able to push the 767F, which, because of its size, is better suited to the domestic market than the higher-capacity MD-11F. The bottom line, according to Bronczek and Smith, was that replacing the MD-10Fs with 767Fs offered the company a greater return than pushing the MD-11Fs into the domestic fleet as thecame on line.
Two 777Fs scheduled for delivery in fiscal 2013 will be deferred; five will be deferred from fiscal 2014; and one per year from fiscal 2015 through 2018, FedEx said.
The 767Fs will start arriving in fiscal 2014 with three aircraft the first year, followed by six per year in fiscal 2015 through fiscal 2018. The new freighters will be powered by-80C2 engines, which will be covered by a multi-year OnPoint maintenance, repair and overhaul agreement, said.