FedEx Express set to upgrade aircraft assets

During its fiscal second quarter earnings announcement today, FedEx announced it has inked a deal with The Boeing Company to modernize its FedEx Express aircraft fleet.

Under the terms of the agreement FedEx Express said it will purchase 27 new 767-300F aircraft, with three arriving in fiscal 2014 and six per year in fiscal 2015-2018. FedEx officials said that the 767s will replace the company’s MD10 aircraft, many of which are more than 40 years old.

They added that these 767s provide similar capacity as the MD10s and are more reliable, are 30 percent more fuel efficient and offer a 20 percent reduction in unit operating costs.

FedEx also said that FedEx Express is delaying the delivery of 11 777F aircraft, with:
-two deferred from fiscal 2013;
- five from fiscal 2014; and
- and one per year in fiscal 2015-2018 to better balance air network capacity to demand.

With these deferrals, FedEx said FedEx Express will place into service four 777s in fiscal 2013 and two in fiscal 2014, as well as exercise two 777 options for aircraft to be delivered at the end of the delivery schedule.

“FedEx Express took action during the quarter to adjust its network, particularly in Asia, as recent inventory destocking trends have impacted demand for our FedEx Express services,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer, in a statement. “The deferral of our 777 aircraft deliveries is a continuation of those efforts, enabling us to make appropriately-timed international 777 capacity additions over the next decade. With these actions, we expect fiscal 2013 capital expenditures to moderate to approximately $3.8 billion.”

On today’s earnings call, Dave Bronczek, president and CEO of FedEx Express said the modernization of its aircraft fleet is of FedEx’ most important decisions for the future, explaining that FedEx has been aggressive in its fleet modernization efforts, beginning with the replacement of its aging 727s with 757s and continuing the acquisitions of 777s to support its international growth.

Today’s announcement to continue its modernization efforts will provide FedEx Express, he said, will reduce the structural costs of its operations into the future while maintaining a high level of service reliability shippers have come to expect.

“This is an excellent decision for FedEx in meeting our future operational requirements and lower costs and lower overall investments,” he said.