Fate of 747 rests in Moscow company’s hands
If promise to buy 18 planes falls through, Boeing could be forced to retire airliner
Time is running out for Boeing Co.’s iconic 747 jumbo jetliner, the plane that brought global travel to the masses in the 1970s.
The storied 747 has fallen from favour in the modern airline industry as carriers turn to twin-engine aircraft that can fly farther and use less fuel, such as Boeing’s own 777 or the Airbus A350. Sales of the cavernous freight model have waned as well, done in by an eight-year slump in global air shipping.
The plane can’t even catch a break in Washington. An order to replace the quarter-century-old 747s used as Air Force One is running into congressional budget flak.
Now, as Boeing weighs the 747’s future, a revival hinges heavily on an unlikely source: a Russian freight company that promises to buy 18 over the next few years. If that pledge falls through — and finding financing won’t be easy — Boeing faces a tough choice: end production and take a financial hit, or try to limp along until a cargo rebound yields more sales. For now, Boeing’s backlog is enough to keep building 747s only through mid-2017.
“The question is, can they get enough orders in the next five years to keep the production line open?” said George Dimitroff, head of valuations for consultant Ascend Worldwide. “If they close it, there is nothing to replace it.”
Boeing’s strategy in recent years has been to cut output repeatedly, with another pullback due in March. Still, the current 747-8 is about onethird larger than its closest rival, and its ability to load massive cargo through a hinged nose remains attractive to some shippers. Dropping the jet now could create an accounting loss for some of the $1.89 billion (U.S.) in deferred costs, filings show.
“I don’t want to sugar-coat this: It has been a tough market,” said Randy Tinseth, a Boeing vice-president for marketing. “It continues to be a tough market. We have some nearterm opportunities. We also have airplanes we need to sell.”
Dubbed the “Queen of the Skies” for its piano bars and spiral staircases, the distinctive hump-nose, fourengine 747 was introduced in 1970, ushering in an era of long-range travel and jets with two aisles. It has gone on to log orders for more than 1,500 of its various models, making it one of the bestselling planes in aviation history. The 747-8 can’t claim much of that glory: It debuted in 2011 and accounts for only 121 orders.
This year, Boeing has netted only two 747 sales, matching its 2014 total. The latest customer: itself. Boeing’s finance division bought two 747 freighters and leased them in November to AirBridgeCargo Airlines and Moscow-based parent VolgaDnepr Group. The 747-8 lists for about $380 million, before the usual steep discounts.
AirBridgeCargo’s pledge to buy 18 additional jets would almost double Boeing’s unfilled orders as of the end of November. But Russia’s economic slump and a 60-per-cent drop in the ruble will challenge the carrier’s ability to convert that promise into a firm purchase. (Aircraft sales are exempt from Ukraine-related commercial sanctions imposed on Russia.)
AirBridgeCargo is confident it will buy the planes to meet rising cargo volumes, executive vice-president Denis Ilin said. It plans to acquire three 747-8s next year — also through a leasing mechanism — and then two or three more annually until 2022, he said. The carrier’s specialties including moving oversize and heavy cargo such as drilling equipment, escalators and even wings for Boeing’s 787 Dreamliner.
“I’m not talking about a huge peak season, but it’s been quite positive,” Ilin said by telephone.
Boeing is working toward paring 747 output to one plane a month, a rate that will take effect in March, and executives are studying an even deeper cut, chief financial officer Greg Smith said in October.
No commercial-jet model has lasted more than a year or two on freighters alone, said aerospace consultant Richard Aboulafia. “Programs with backlogs like these don’t survive very long,” he said. “Either a cutback or death as soon as the Air Force One planes are built.”
Boeing continues to try to sell the planes. It’s redoubling efforts to unload six unclaimed jumbos worth $2.21 billion, known in industry parlance as “white tails” because they lack a buyer’s logo and colours. Two of those jets had been built for Transaero Airlines, a Russian carrier that is being liquidated.
Talks are underway with other potential customers for both freight and passenger versions, Tinseth said. Sales would pick up if the air-cargo business returns to its historic 4-percent to 5-per-cent growth rate, double the current pace, he said.
“The long-term future of this airplane is tightly tied to what we see in the cargo market,” he said.
There’s another possible surge ahead as package-haulers such as United Parcel Service Inc. start to phase out older freighters. Boeing expects that more than 250 aircraft will need to be replaced over the next five to 10 years.
“As long as demand is there, and demand makes sense from a production point of view, we’ll keep building the airplane,” Tinseth said.