The nose of a Boeing 747
Auto dealers have long
been willing to take an old clunker off a potential buyer’s hands in
order to clinch a sale of a shiny new model. Now airplane makers are
following suit. Boeing (BA)
is acquiring previous versions of the 747 from airlines ordering its
new, tough-to-sell 747-8. Of the 19 older 747s that have changed hands
so far this year, Boeing has snapped up seven, according to data
compiled by Ascend Online Fleets. That makes it the biggest buyer of the
used jets in 2013.
While the purchases put Boeing on the hook for
finding new operators, it helps nurture demand for the newer
747-8—among a class of fuel-thirsty four-engine aircraft that airlines
frown upon these days. New sales are pivotal to keeping 747 assembly
lines humming as Boeing slows output 13 percent to 1.75 planes a month
and stashes some unsold 747-8s in desert storage. “It unloads a problem
[from airlines] to Boeing,” says Douglas Kelly, senior vice president
for asset valuation at aviation consultant Avitas. “It’s just like
trading in your car.”
While Boeing declined to comment on specific
customers or aircraft sales, the Ascend data show that this year’s
sellers of 747-400s to the world’s largest planemaker are all buyers of
the 747-8 family, which includes both passenger and all-freight
versions. The buyers are Korean Air Lines (003490:KS) and Cathay Pacific Airways (CPCAY), as well as Cathay’s Dragonair unit and its cargo joint venture with Air China (AIRYY).
Production of the 747-400 ended in 2009. New features on the
747-8 include improved engines and an elongated version of the fuselage
hump that gives the plane its distinctive profile. It entered commercial
service in 2011, two years late, after Boeing diverted engineers to the
delayed 787 Dreamliner.
Potential buyers for the 747-8 are
dwindling as cargo companies increasingly ship freight by rail or in the
bellies of passenger versions of large twin-engine jets such as
Boeing’s 777s, favored for their fuel economy and low maintenance costs,
says Richard Aboulafia, an aviation consultant.
Purchasing older
747s is “a pretty smart move on the part of Boeing,” says aviation
consultant Michel Merluzeau. The latest 747s, which retail for about
$350 million each, have drawn only five orders this year. But there were
also five cancellations, according to Boeing’s website. “I think it’s
one year at a time for that program,” Merluzeau says.
Boeing’s buybacks help 747-8 customers avoid recording losses
on older planes they would otherwise struggle to sell amid a global glut
of used jumbos, Avitas’s Kelly says. With demand weak for air
freighters, conversions of passenger 747s to carry cargo have dried up,
he says, curtailing one of the usual options for airlines to extract
value from aging aircraft. About 75 747-400s are parked in deserts
around the world, according to Ascend, and valuations have tumbled. A
1992-vintage 747-400 that was appraised at $41.6 million in January 2008
is valued at $16.7 million now, Kelly says.
Korean Air, which has
sold six 747-400s to Boeing since 2010, agreed in June to buy five
747-8s as part of a planned $3.6 billion aircraft purchase. The carrier
is the second-largest global operator of the 747-400 and one of the
biggest buyers of the latest version of the 747-8, according to Ascend.
Cathay
Pacific, which has ordered 13 of the new 747s outfitted to carry only
freight, sold one 747-400 to Boeing this year, as did Air China Cargo,
which is 49 percent-owned by Cathay. Dragon-air sold Boeing three of the
jets.
Lately, planemakers are particularly eager to deal on
four-engine models. Last year, Boeing even bought five of its rival
Airbus’s A340s—a four-engine widebody no longer in production—from China
Eastern Airlines (CEA),
which was taking 20 of Boeing’s 777s in a $6 billion deal based on full
list prices (which are often discounted for early or multiple
purchases).
Airbus has acquired three of the nine A340s sold this
year after buying back 10 of the jets in 2012. “In some exceptional
cases, Airbus has bought back A340s to support new business,” Andreas
Hermann, vice president and head of A340 re-marketing at Airbus, said in
an e-mail. “Regardless of the negative perception of some, the
A340-500/600 continues to provide efficient lift for long haul.” Boeing
officials remain optimistic that the cargo market will revive, bringing
new orders for the latest version of a jumbo jet that’s been a
freight-hauling workhorse since the 1970s.
In some ways, the
747-8 is a victim of Boeing’s engineering success: The 777’s extended
range version has a maximum distance of 7,725 nautical miles (14,305
kilometers), giving airlines the ability to use a twin-engine plane on
routes once reachable only by four-engine jumbos. A 747-8 outfitted to
carry passengers has a listed range of 8,000 nautical miles.
With 53 unfilled 747-8 orders, Boeing has enough work to keep
the 747-8 production line busy through the end of 2015, figures George
Ferguson, senior aerospace analyst for Bloomberg Industries. “They see a
mission for those aircraft,” he says. “The market isn’t exactly telling
us that.”
- Businessweek
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