Boeing's Endangered 747 Gets Lifeline as UPS Buys 14 Jumbos
(Bloomberg) -- The long goodbye for Boeing Co.’s iconic 747 jetliner is turning out to be a little premature.
The planemaker won a $5.65 billion lifeline for the endangered jumbo as United Parcel Service Inc. exercised options for 14 more of the freighters. The deal came weeks after Delta Air Lines Inc. parked the last of its 747 aircraft, marking the end of U.S. passenger service for the iconic humpbacked plane nicknamed the Queen of the Skies.
The UPS order rewards Boeing’s optimism that the venerable jet, which transformed air travel when it debuted in 1970, would live on as a cargo-hauler. The courier is also taking four Boeing 767 freighters as it rushes to keep up with growing demand and parlays gains from the recent U.S. corporate tax cut into stepped-up investment.
“The biggest reason we decided to expand is, one, we had an option on the 14, and with the tax reform that came in, it made us more optimistic that the economy was going to continue to be clicking,” said UPS Chief Executive Officer David Abney.
Boeing rose less than 1 percent to $357.50 at 2:08 p.m. in New York. The company’s 20 percent gain this year through Wednesday is the largest among the 30 members of the Dow Jones Industrial Average. UPS slumped 6.7 percent as investors fretted over the investment plans.
The hulking jumbos, built to carry a 137.7-ton payload, are needed as UPS expands its network to profit from burgeoning air shipments in China and other Asian markets. The Atlanta-based company plans to use the 747-8 freighters on heavily trafficked “trunk routes” between the U.S. and China and between China and its European hub, Abney said in an interview.
All 32 of the new Boeing jets will be delivered by the end of 2022, adding more than 9 million pounds of cargo capacity, UPS said. The company’s global airline network includes more than 500 owned and leased aircraft. UPS received three new 747-8 freighters in 2017.
UPS’s appetite for the 747 means Boeing will continue producing its largest aircraft into the 2020s, more than half a century after the plane started whisking passengers across oceans. As sales slowed, the manufacturer had insisted that a long-awaited rebound in the air-cargo market would spark new interest in the jumbo freighter. The hinged nose of the jet flips open so that large, bulky items such as oil-drilling equipment can be loaded quickly.
At the end of 2017, Chicago-based Boeing had just 12 unfilled orders in its dwindling 747 backlog, 11 of them destined for UPS. The latest deal will provide more than two years of output at the production rate of six jets annually.
Airbus SE is moving to a similar manufacturing pace for its A380 superjumbo after landing a lifesaving order from Emirates Airline last month. Demand for such four-engine aircraft has fallen as the airframers created twin-engine models, such as the Boeing 777 and Airbus A350, which are able to fly similar numbers of people over long distances.
The 747 freighter has a list price of $403.6 million, according to Boeing’s website, before the discounts that are customary for aircraft orders.
©2018 Bloomberg L.P.