Carrying the freight

With its new 747-8F, Boeing takes the lead in the cargo jet business, with a monopoly in the production of wide-bodied freighters.

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Boeing's 787

With its new 747-8F, Boeing takes the lead in the cargo jet business, with a monopoly in the production of wide-bodied freighters.

Everyone is making a big deal out of the delivery of the first Boeing 787 Dreamliner, scheduled for September 25. Far fewer have noticed that one week earlier, the Boeing Company will deliver another new airplane — the freighter version of its recently debuted 747-8. Air cargo is one of those freight-mobility subjects that gets little notice in the mainstream press or other information sources. You see the planes occasionally flying over the city, on approach to Sea-Tac or Boeing Field: large windowless jets arriving from major cities around the world. But few people are aware of the role they play in Boeing's business, and in the regional economy. Air freight is an industry that defines Seattle as an international hub for people, products, and prestige.

In 2010 Memphis was the nation's top cargo airport, thanks to its FedEx base, and Anchorage was second, mostly because polar routes make it a perfect hub for cargo to change from one flight to another between Europe, Asia, and North America. But Sea-Tac, in 18th place, and Boeing Field, at 25th, still placed high. And they provide living-wage jobs to the workers who drive trucks, load planes, and fly them.

A passenger version of the new 747-8 still is undergoing flight testing, but the freighter is ready to fly, although it too had production problems and is several years behind schedule. The freighter's delivery was originally scheduled for the third quarter of 2009 and the passenger plane's for the fourth quarter of 2010. The 747-8F was finally certified in August by both the Federal Aviation Administration and the European Aviation Safety Agency. On September 19 Boeing will deliver the first two planes to its launch customer, Luxembourg-based Cargolux, one of the largest air-cargo companies in the world.

“There have been a few discoveries we have encountered, but we have dealt with those discoveries and are moving forward,” says Bob Saling, a spokesperson for Boeing Commercial Airplanes. “Examples of the discoveries include a low-frequency vibration within a limited portion of the flight envelope, and an underperforming actuator for the inboard aileron.” 

"We hit a few bumps on the journey from order to delivery, but I am convinced that the entire Cargolux team shares my sense of excitement and pride as we demonstrate industry leadership once again,” Frank Reimen, Cargolux's president and CEO, said in a statement.  “Clearly, the 747-8F will be the cornerstone of our growth and profitability for the next decades and a genuine industry game changer."

The 747-8 Freighter is 250 feet long, more than 18 feet longer than the predecessor 747-400 Freighter. This stretch gives customers 16 percent more revenue cargo volume, which means it can take off weighing nearly a million pounds. It lists for $319.3 million on Boeing's website. But Boeing customers, like car buyers, seldom pay list price.

“The 747-8 will be a successful airplane,” predicts Bob Dahl, managing director of Air Cargo Management Group, a lead air cargo consulting firm based here.  “It will fit in nicely in the fleets of the top cargo carriers.” But the new freighter is entering service just as the air cargo market hits a downdraft. Air cargo, like most business, took a steep dive in 2009 following the financial crisis and steep U.S. recession. It bounced back, somewhat surprisingly, in 2010 and was doing fairly well this year — until the past few months. The International Air Transport Association said in its July report that world freight markets were “stagnating,” with continued declines in traffic.

For the long term, however, most in the industry see a good future for air cargo. Dahl says the current slowdown could change quickly, depending on the economy and the need to move cargo quickly to take advantage of changing market conditions. And he notes that some of the delays in delivery occurred during the sharp downturn in traffic in 2008 and 2009. “Some customers were relieved, but then some customers expecting deliveries made changes in their fleets and were left short of capacity when the market turned around so quickly in 2010.”

Boeing’s biennial update on air cargo is equally upbeat: “Demand for air cargo transport rebounded sharply in 2010 after a calamitous 18-month decline that began in May 2008. In spite of this downturn, world air cargo traffic will triple over the next 20 years, compared to 2009 levels, averaging 5.9% annual growth. The number of airplanes in the freighter fleet will increase by more than two-thirds over the same period.”

Dahl agrees with Boeing’s assessment but points out that much of the growth is in the narrow-body market, which consists mostly of passenger planes converted to cargo. Nevertheless, he says, “there still is a strong niche for the 747s in the long-haul intercontinental market."

Saling says Boeing sees the 747-8F and 777F as complementary, in that both can carry loads either on 10-foot-high pallets or in containers, and both can take high-density loads, nearly 10 pounds per cubic foot. 9Smaller airplanes can carry just 8 to 8.5 pounds per cubic foot.) Korean Air, Cathay Pacific Airways, and Dubai Aerospace Enterprise have ordered both models. “Each airplane also has found its own customer base, due to the specific capabilities of the airplanes and the business models of operators,” says Saling. The 747-8F has a range of about 4,400 nautical miles and a capacity of about 300,000 pounds, while the 777F has a 4,900-mile range and a capacity of 225,000 pounds.

The freighter market faces a number of potential obstacles, mostly the same ones faced by all shipping, whether by air or by sea. The overall economy is the biggest factor, but fuel prices, a significant operating cost, have a major effect on air cargo rates and, consequently, traffic levels. Saling says Boeing also is following evolving requirements in cargo security on a global basis and the implementation of environmental regulations in some regions.

Boeing has booked orders for 114 747-8s, including 78 freighters. It has announced orders for 134 airplanes, including an Air China order for five passenger models and 15 passenger models for an unidentified customer announced at the Paris Air Show.

It is hard to figure the break-even point for the new 747s. In October 2009 Boeing announced it would take a pre-tax charge against third-quarter results of approximately $1 billion due to increased production costs and the difficult market conditions affecting its 747-8 program. It said about $640 million of that charge reflects higher estimated costs to produce 747-8 airplanes at both Boeing and supplier facilities: “As the program assembled major components of initial 747-8 Freighters during the third quarter, it became clear that late maturity of engineering designs has caused greater than expected re-work and disruption in manufacturing. This is resulting in additional resources being applied on the program and higher supplier expenses, which are the primary cost drivers.”

The remaining $360 million of the charge relates to challenging market conditions and the company's decision to maintain a  production rate of 1.5 747-8s per month nearly two years longer than previously planned, deferring an increase to 2 per month. Higher allocation of fixed expenses and volume-based penalties to suppliers are the main factors in the additional costs.

Boeing would not provide specific data on the plane's operating costs, a key to market acceptance. “We will continue to work with our partner, GE, to create more efficiency and value for our customers, including a performance improvement package,” Saling says.

The company will deliver its first 747-8 Freighter to Cargolux on September 19 at Paine Field, and celebrate the delivery with Cargolux, its employees, and other stakeholders the following day at its Everett factory. Cargolux will take delivery of the second 747-8 on September 21. "It's so exciting to be able to deliver two of these amazing airplanes to Cargolux in one week," Elizabeth Lund, the Boeing 7474 program's vice president and general manager, said in a statement. "Cargolux has been a great partner for many years, and we so appreciate its deep commitment to this program."

The 747-8 enters a tradition of jumbo jets that began in 1969. Many people around here then still remember I-5 coming to a near stop along Boeing Field when the first 747 landed there. Today, more than 1,000 747s are still in service around the world. And the new 747-8 and 777 versions give Boeing a monopoly on wide-bodied freighters. Airbus has shelved plans to produce a freighter version of its giant A380, and Air Cargo Management's Dahl thinks such a version is very doubtful: It's on a “back burner at best."

Boeing meanwhile has smartly hedged its bets, with two new wide-body freighters. "Other freighters in this segment currently have limited market traction," says Saling. "We anticipate that other competitors will be introduced in the future." But for now, Boeing and Seattle rule the jumbo cargo world.

Far fewer pe have noticed that one week earlier, Boeing will deliver another new airplane, the freighter version of its new 747-8. You see them occasionally over the city, on approach to Sea-Tac or Boeing Field: large windowless airplanes on their way here from major cities around the country and the world. Not many people are aware of the role these large cargo airplanes play in the business of the Boeing Company and the regional economy.


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About the Authors & Contributors

Stephen H. Dunphy

Stephen H. Dunphy

Stephen H. Dunphy writes on business and economic issues for Crosscut. He was a business editor and columnist for a number of years at The Seattle Times.