(c) 2013, Bloomberg News.
(c) 2013, Bloomberg News.
Boeing, the world's largest maker of air freighters, is headed toward its fewest cargo-jet orders since the 2009 recession as demand wanes for the overnight shipments that once drove purchases.
With 13 sales through July, Boeing's tally was just one- fifth the total of six years earlier. Airbus SAS, which didn't begin shipping freighters until 2010, has no orders this year, and the market for secondhand passenger aircraft being converted to fly cargo has dried up.
Airfreight operators are deferring acquisitions and parking older planes after worldwide shipment volumes were unchanged in this year's first six months, according to the International Air Transport Association trade group. A persisting order drought may threaten the $240 billion in industrywide freighter sales that Chicago-based Boeing predicts over the next 20 years.
"Who wants to go out and buy an expensive freighter right now?" said Kevin Sterling, senior vice president with BB&T Capital Markets in Richmond, Va., in a phone interview. "Can that change when the economy comes roaring back? Maybe."
The global air-cargo fleet is 6 percent smaller than a year ago and has shrunk almost 14 percent from a pre-recession peak, according to Air Cargo Management Group, a Seattle-based consultant. Freight haulers such as FedEx have scrapped flights to Asia, parked older jets and are now shipping cargo in the bellies of wide-body passenger jets like Boeing's 777.
Boeing describes the slump as an anomaly in a business that it projects will increase 5 percent annually through 2032 as world economic growth recovers and cargo airlines swap older jets for fuel-sipping models. The company expects industrywide sales of 850 new freighters over the next two decades while 1,450 passenger airplanes will be converted to haul cargo.
"It's our belief and our analysis that once trade turns around, we'll see growth again in the cargo market," Randy Tinseth, Boeing's vice president for marketing, said in an interview. "We don't think it's a question of if, it's a question of when."
The slump hasn't hurt shares of Boeing, which have advanced 37 percent this year, more than double the gain of the Standard & Poor's 500 Index.
For now, demand remains weak as Boeing and Airbus deliver freighters ordered before the market slumped on Europe's debt crisis and lower sales of Chinese-made electronics, Robert Dahl, managing director with Air Cargo Management, said in an interview. He expects air-cargo traffic to eventually rebound, growing at a 3 percent to 4 percent clip.
Boeing delivered 20 freighters this year through the end of July, 5.6 percent of its total commercial jet output, according to its website.
The company's 13 freighter sales this year compared with 65 orders placed over the same stretch in 2007. The aircraft are among its most expensive with list prices ranging from $188 million for a 767-300 freighter to $300.5 million for a 777 freighter and $357.5 million for a 747-8 jumbo variant. Carriers typically negotiate discounts from planemakers' published rates.
Airbus, based in Toulouse, France, didn't receive any orders for the A330-200 freighter, its only model, from January through the end of July. The plane has 44 orders against 23 deliveries.
"This is not a surprise given the current state of the airfreight market," Martin Fendt, an Airbus spokesman, said in an email. "Despite this, our operator base grew in the first half of 2013 with the addition of Avianca Cargo and Qatar Airways Cargo, thus enforcing the A330-200F's position as the only modern day solution for mid-size freighters."
With the planemakers delivering 40 to 50 large cargo jets annually, "older aircraft have to be retired to keep things relatively in balance," Dahl said. "With all the new capacity coming in, there's very little demand for conversions of a similar type."
Carriers haven't converted any Boeing 747-400 passenger planes into cargo jets this year, after transforming seven of the jets last year and 17 jumbos in 2008, according to Ascend Worldwide data compiled by Bloomberg Industries.
Air-cargo companies favor buying new freighters in this market over retrofitting old passenger jumbos for cargo because the 747-8 freighter's range is greater and operating and fuel costs are lower than older 747s, Boeing's Tinseth said.
Narrow-body conversions are still appealing to some air- cargo carriers, especially those seeking a low-cost foothold within emerging markets such as China or Africa, Dahl said.
FedEx has agreed to buy 27 Boeing 757 passenger jets from United Continental Holdings Inc. this year and convert them into freighters as it replaces old three-engine Boeing 727s with newer planes that burn one-third less fuel. FedEx declined to comment on aircraft plans, said Jenny Robertson, a spokeswoman for the Memphis, Tenn.-based company.
Another drag on Boeing and Airbus freighter sales is the competition they face against their hot-selling passenger counterparts such as the A330 and 777, which have ample cargo holds. Boeing's 777-300ER, in addition to carrying 386 passengers, boasts a 7,120-cubic-foot (201.6 cubic meter) cargo hold. That gives airlines about one-third the capacity of the freighter version.
"The exact factors that are driving jetliner sales to such heights are also clobbering freight," said Richard Aboulafia, vice president with Teal Group, a Fairfax, Va.-based consultant.
Cathay Pacific Airways is among carriers trimming capacity and shipping more cargo in passenger jets as it sizes operations to a smaller market, said George Ferguson, a senior aerospace analyst for Bloomberg Industries based in Skillman, New Jersey. The Asia-Pacific market has been hardest hit by the freight slump, contracting 2.3 percent during the first half of 2013 from a year ago, according to IATA data.
The Hong Kong-based carrier, which Ferguson describes as a bellwether for Asian freight transporters, agreed in March to buy three Boeing 747-8 freighters for delivery this year and acquired options to purchase five Boeing 777-200 freighters. In exchange, Cathay Pacific canceled a 2011 order for eight Boeing 777-200 freighters and struck a deal to sell Boeing four converted 747-400 freighters.
"These arrangements are in line with our reduced expectation for future cargo growth and enable us to reduce future cargo capacity," Elin Wong, a spokeswoman for Cathay Pacific, said in an email. "If the cargo market rebounds at a quicker pace than we expect, then we could add capacity in a timely manner by exercising our purchase options."
_ With assistance from Andrea Rothman in Toulouse, Mary Jane Credeur in Atlanta and Mary Schlangenstein in Dallas.