Trade-ins and slowed production sustain Boeing freighter lines as cargo market hints at recovery
Just a decade ago, prospects for the air cargo market were bright—so good in fact that in 2005 the became the first new jet airliner to be launched as a pure freighter before the passenger version.
With recovery getting underway following traumatic downturns in cargo traffic in 2001 and despite a more modest dip in 2003, it seemed the industry was on the rebound as Boeing prepared for the go-ahead of the 747-8F. Confidence was boosted by numbers from the previous year showing global air freight had grown 3.9%. The most dramatic gains were in Asia—particularly within China, where cargo by air expanded by an astonishing 9.4% in just a year. Intra-Asia routes similarly saw a 6.7% rise, while Asia-Europe traffic climbed by 6.1%.
Spurred by these optimistic signs, Boeing forecast the cargo fleet would grow to 3,450 by 2023, passing 2,600 by 2013-14. Crunching the numbers in those days of optimism, Boeing projected that of the 3,450-strong fleet, just around 500 would be old survivors from the 2000s. Of the remaining 2,950 freighters, the majority of those “new” units entering the fleet would be conversions, and more than 700 would be all-new aircraft. Breaking it down even further, the company felt confident that more than half of this newly built fleet would be made up of some 436 “large” freighters—aircraft that are capable of hauling 65 tons or more, such as the.
Today, Boeing forecasters are the first to agree with Danish physicist Niels Bohr, who once famously said: “Prediction is very difficult, especially if it is about the future.” The intervening years have witnessed unprecedented turbulence in the air cargo market. Although overall annual growth could theoretically be pegged at 5.4% by graphing out the numbers back to 1982, severe slowdowns and even reversals hit the market in 2001, 2008, 2009 and 2011-2012. Annual traffic as measured in revenue tonne kilometers (RTK) approached 200 billion by 2013, well below the 300 billion RTKs of the base estimates made by Boeing a decade before.
The stark reality was that by the end of 2012 the actual world cargo fleet stood at 1,730, smaller than the 1,766 aircraft in the fleet in 2003. However, a big difference behind the numbers—particularly for Boeing's focus on the larger new-build fleet such as the 777F and 747-8F—was the growing proportion of bigger aircraft. In 2003, these made up 24% of the fleet, a figure that rose to more than 31% by 2012 as the number of smaller narrowbody freighters began to see a relative decline. In Boeing's latest forecast, this trend is set to continue, with bigger aircraft making up more than 35% of the 2,810-strong feet predicted to be flying in 2032.
Boeing now forecasts a demand for 2,300 new aircraft in the fleet, of which 1,450 will be conversions. The remaining 850 will be all new-build aircraft, some 640 of which will be in the-747-8F category. But is the reality showing any signs of meeting these expectations, and how much longer will the 747-8F production line be forced to survive at its current rate of 1.5 per month? The lower rate, announced in October, will be maintained through 2015, and it followed previous slow-downs from a 1.75 rate announced in April and a 25% decline in production from the levels at the start of 2013.
There are hopeful signs, according to Boeing's cargo marketing regional director, James Edgar. “We are feeling a little better about the marketplace,” he says. “After worldwide air cargo market weakness since mid-2011, industry data shows improvement beginning early last year with the return of an actual 'peak' in the fall. We expect full-year 2013 results to show positive growth after two consecutive years of decline.
“We have seen an improvement in terms of traffic, and seven out of the past eight months have showed positive traffic,” Edgar continues. “We haven't seen that since mid-2011. Further good news is that November was better than October and for the year to date, we've been projecting 1.15% [currently 1.2% through November]. So the year will be positive, and I haven't been able to say that for quite a while. It has been very stagnant in terms of RTKs. There's been a historical debate over whether air cargo is a leading or lagging indicator. But it is an indicator and, although there is still some uncertainty that's tending to constrain air cargo, there are certainly reasons for feeling optimistic about the future. Generally, we're in agreement with [the] that we'll see a return to more historic growth patterns in 2014.”
There are even glimmers of hope in the Asia-Pacific region, where operators have borne the brunt of much of the recent downturn. “Asia-Pacific carriers have generally not enjoyed the same degree of positive results, but they have recently reported similar strengthening, with the rebound dependent on improving global economic conditions and trade,” Edgar says. The improvement “is reflective of a strengthening of the Asian economies and trade volume. China, for instance, has shown strong growth recently,” he adds.
The distances and volumes involved in both trading to and within the Asia-Pacific region have helped drive the gradual adoption of larger freighter models. “When it comes to freighters, it is all about economic efficiency—it's very straightforward. Thus, those with the latest, most efficient aircraft are going to be the beneficiaries as things improve. The 777F and 747-8F users tend to look forward. [They] make decisions for the long term because they realize it's a long-term investment. Many of the carriers are building these fleets,” he adds.
However, over the darkest days during the past two years, with the threat of “white tail” 747-8Fs potentially stacking up in desert storage or in Everett, Wash., alongside growing numbers of undelivered, Boeing also made some tough decisions to protect its own long-term investment in the 747 line.
“Since we have 90 percent of the world's capacity, I believe we have an obligation to help the industry when there are challenges,” Edgar says. “Our most recent campaigns have involved trade-outs.” Citing an agreement withas a “most recent” example, he adds: “We're doing our part. As the freighter business goes, so goes Boeing.”
Under the terms of a complex agreement hammered out in March 2013 between Boeing, Cathay andCargo (in which the Hong Kong-based carrier controls equity interest), the collective “group” purchased three additional 747-8Fs while canceling orders for eight 777Fs. At the same time, it acquired purchase options on five 777Fs and sold four 747-400BCF converted freighters. Air China Cargo meanwhile acquired eight 777Fs and sold seven -400BCFs. In addition to the used freighters, Boeing also took ex-Cathay passenger models.
“We've taken both. If the aircraft is older and the values written down, then we part-out some. It's a business decision,” Edgar says.
It is also a decision that keeps customers loyal when better times return. On Dec. 27, just a few days after Cathay took delivery of the 747-8F to be—powered with the performance-improvement-package-version (PIP) of the-2B67, the airline revealed it was taking an additional -8F to increase its eventual fleet to 14.
Overall, Boeing now holds 68 firm orders for the 747-8F, 47 of which had been delivered by the start of this year. Asian-based carriers still in the undelivered backlog include, Nippon Cargo and Cathay. Boeing also holds orders for 128 777Fs, 86 of which had been delivered within the same period, with China Cargo, , Korean Air and Hong Kong Airlines among those with undelivered units.
With more “active” sales campaigns underway, Edgar hopes Boeing's freighter orderbook will be boosted again in the coming year. “I'd be reluctant to say we've turned the corner. It's a modest market improvement at this point, but after a couple of years of negative growth, I'm as optimistic as I've been,” he says.