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FedEx to Idle 14 Aircraft

The carrier is looking for a billion dollars in cost savings.
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says it will idle 14 aging aircraft this quarter as it continues to downsize in hopes of achieving a billion dollars in annual cost reductions.

The company said it will remove 10 Airbus A310-200 aircraft and four McDonnell Douglas MD-10 aircraft from its fleet by May 31. Currently, FedEx operates 670 aircraft, the world's largest all-cargo fleet.

"This will not affect service at all," says FedEx spokesman Jess Bunn. "It's part of the goal of right-sizing our air network to meet current volumes and anticipated volumes."

Although CEO Fred Smith said last month, during an earnings conference call, that he anticipates economic improvement in the second half of 2009 as companies act to boost depleted inventories, the overnight package company is acting aggressively to reduce costs by $1 billion in fiscal 2010, which begins June 1.

Said Bunn: "The global economy is in a recession, conditions continue to deteriorate and we have to take measures to manage our costs so we will be in as strong position when the economy rebounds."

Once considered a leading indicator, FedEx now is thought to reflect the condition of the economy in real time, given the increased reliance on just-in-time shipping.

FedEx noted that "a limited amount" of its aircraft remain temporarily grounded due to network overcapacity, and that it anticipates taking delivery of newer, more fuel-efficient aircraft in fiscal 2010. It will take a $180 million charge for removing the 14 aircraft. In a report, Jesup & Lamont analyst Helane Becker said the move reflects her view that the operating environment for FedEx "is seemingly not getting worse (and) not getting significantly better either, but rather seems to be bouncing along a bottom."

Becker said she is adjusting her EPS estimate to 34 cents a share and maintaining a buy rating. "We believe that as the year goes on and comparisons become easier, the shares will reflect an improving 2010 fiscal year (and calendar year) outlook," she wrote. "We are anticipating flat volumes by year-end rather than a continuation of the 20% declines that we have been seeing."