FedEx Shrinks Fleet, Will Speed Retirements

 - June 10, 2013, 11:15 AM
FedEx plans to accelerate the retirement of 60 MD-10s over the next “several years.”

FedEx announced last week the retirement of 10 aging widebody freighters and a decision to accelerate the withdrawal of 76 more in an effort to speed a fleet modernization as continued weakness in the cargo business pressures carriers to cut fuel and maintenance costs. Last week the International Air Transport Association projected a further 2-percent contraction in yields across the industry for this year following a 6.3-percent decline last year.

The permanent retirement of two Airbus A320-200s, three A310-300s and five McDonnell Douglas MD-10-10s along with 21 related engines resulted in an impairment charge of $100 million during the month of May, said FedEx. The acceleration of the remaining retirements will add $74 million to the company’s planned depreciation expenses in Fiscal Year 2014, it added.

As of July 1, the Memphis-based cargo carrier expects to complete the retirement of the last of 26 Boeing 727-200s it began pulling from service in the spring of last year. In 2007 it began acquiring Boeing 757s as replacements for the 727s, but has since said it will replace many of its older 757s with Boeing 737-900ERs and 737 Max narrowbodies. In March it ordered from United Airlines another 15 passenger 757-200s, now undergoing conversions for planned entry into service starting later this year.

In reaction to a “challenging” fiscal quarter ending February 28, FedEx Express started decreasing capacity to and from Asia on April 1 and said it would “aggressively” manage traffic flows to place low-yielding traffic in lower-cost networks. Although revenue increased to $11 billion during the quarter from $10.6 billion a year earlier, operating income fell 28 percent, from $813 million to $589 million, and operating margins from 7.7 percent to 5.4 percent. FedEx Express spent $3.8 billion on 1.2 billion gallons of jet fuel during its fourth fiscal quarter.

Now in the process of taking delivery of new Boeing 777s at a rate of two per year, FedEx expects to take the first of 50 new Boeing 767-300s next year. In the meantime, it plans to accelerate by “several years” the retirement of 47 MD-10-10s and 172 related engines, 13 MD-10-30s and 55 related engines and 16 A310-200s and 60 related engines. Capable of carrying as much freight as the MD-10s they will replace, the 767s promise a 30-percent fuel efficiency benefit and at least a 20-percent reduction in unit operating costs, according to FedEx.