FW: UPS goes against tradition – outsider named to run its fastest-growing unit
Mark Solomon writes: “The keys to UPS Inc.’s fastest-growing and arguably its most pivotal 21st century business ...
The decision by UPS in February to turn 14 options on B747-8 freighters into firm orders was hailed as a lifeline for the iconic type – but it may be the last hurrah for the jumbo.
Speculation is mounting about the future of the programme amid rumours that Boeing may end production of the aircraft.
According to two sources, the aircraft manufacturer is not taking orders for the 747-8. One cited a major production issue as the key reason. A supplier that provides a key component for the 747-8 is, apparently, withdrawing support for the programme, he said.
It would be very expensive for Boeing to replace this supplier, he added.
Moreover, demand for the 747-8F has been less than robust.
Stan Wraight, president of Strategic Aviation Solutions International, noted that 747 operators like Cargolux were not buying new aircraft. Instead they were looking for B747-400Fs.
Even passenger 747-400s that can be converted into freighters are hotly pursued. Air Atlanta Icelandic is looking to add one or two 747-400s to its line-up, which currently includes five 747-400 freighters, according to Baldvin Mar Hermannsson, vice-president of sales and marketing. The carrier’s management sees a role for 747-400s – both production freighters and converted planes – for years to come.
The 747-8 offers superior operating economics, but these are somewhat subdued by the cost of fuel. Boeing projects that oil prices will remain in the $60-$70 a barrel range for the next eight or nine years, notwithstanding occasional spikes. The volumetric nature of e-commerce also mitigates the 747-400’s payload restrictions against the 747-8.
In light of these developments, continuing with the 747-8 may not be the most profitable route for Boeing. Mr Wraight says the production line it occupies could be used for B767 production. The smaller aircraft is enjoying strong demand – both from cargo and passenger operators.
Despite its iconic brand, the B747 was overtaken by the 777 this spring as the world’s leading widebody aircraft, in terms of numbers delivered. On the freighter side, Boeing has delivered 139 777-200Fs so far, versus 77 747-8Fs.
Boeing scaled back its 747-8 production last summer to one aircraft every two months. With the UPS order, production looks set until 2022, which is ample time for a turn in the market. One freighter executive suggested that the 747-8 had suffered from unfortunate timing, entering the market just ahead of the global downturn.
But that may change, especially looking at the upcoming widebody freighter retirement cycle, he added.
He sees no alternative to the 747-8, particularly in light of its superior unit costs on trunk lanes and the nose door – a view shared by Shawn McWhorter, president, the Americas at Nippon Cargo Airlines.
“There is no replacement for the capabilities of the 747, especially the nose loading and capacity,” he said. “I did hear there was a supplier issue with one part, or maybe a group of parts, but I haven’t heard that it means they aren’t taking orders,” he added.
And Boeing has stressed its commitment to the 747-8 programme.
“We remain confident in the 747-8’s unique value proposition and committed to the programme,” a company spokesman said. “We closely monitor the air cargo market and, as always, will make adjustments to meet market requirements and run a healthy business.
“As demonstrated by the UPS order for 14 additional 747-8Fs this year, there continues to be solid customer demand for this airplane. Recent orders secure our production plan into early next decade,” he added.