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TheStreet Open House

Boeing Can't Like World Air Cargo Trends

CHICAGO TheStreet) -- Did the Boeing (BA) 747-8 freighter, in a final misfortune after two years of delays, come to market at the wrong time?

While it is difficult to say that an airplane that will be sold for decades should be judged on what happens during its first few months of availability, it is clear that the first two deliveries of the largest U.S.-built commercial aircraft will be made during a lengthening cargo slump stemming from the sluggish economy.

The first 787-8 freighter was delivered to Luxembourg-based CargoLux on Oct. 12, with the second delivered to Cathay Pacific on Tuesday.

Meanwhile, the International Air Transport Association reported Monday that September freight volumes were 5% below volumes at the end of the first quarter. "We think there's a cargo slump," said IATA spokesman Perry Flint. "Air cargo was stagnant for a year into the early summer and then it started to decline."

The slump has been accompanied by some carriers' reluctance to take scheduled early deliveries.

CargoLux initially declined delivery because of performance issues. Cathay Pacific, the world's largest international air cargo carrier, reconsidered an order for ten 747-8 freighters, but Boeing assuaged the airline with concessions on a recent order for eight 777 freighters, Reuters reported recently.

Atlas Air (AAWW) said last month that it had exercised its right to terminate delivery of three "early build" 747-8s because of lengthy delays and performance considerations. The cargo carrier now expects to take nine aircraft -- rather than 12 -- between 2011 and 2013. Atlas is expected to take delivery of its first 747-8 shortly.

Also, Korean Air Lines had a delivery scheduled for August, but now prefers to wait until the second quarter of 2012, an industry source said.

The air cargo slump has been most pronounced on Asia-Pacific routes. "Asia-Pacific carriers are the largest players in air cargo and have been the hardest hit with a 6.3% decline in demand compared to September 2010," IATA said in a prepared statement.

On its Oct. 25 quarterly conference call, UPS (UPS) said it had reduced trans-Pacific capacity by 10% during the third quarter.

The cutback was largely "driven by concern and uncertainty in the U.S." early in the third quarter, said CEO Scott Davis. "There was a lot of concern about a double-dip (and) people stopped buying" products from Asia and elsewhere." In Asia, added CFO Kurt Kuehn: "We built a network expecting a certain level of growth and it did not materialize."

On Boeing's Oct. 26 earnings call, CEO Jim McNerney called cargo trends "a watch item."

"The last couple of months, there has been some softening, but the path on these growth curves is often up and down quarter-by-quarter," McNerney said. He noted, however, that Boeing is not deeply concerned, "not ready to conclude that there's a fundamental change in our market assumption at all," adding there has been little change in customer receptivity to the aircraft.

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