After two years of shedding planes, FedEx has reversed course and is expanding its widebody freighter aircraft fleet.

Management sees opportunities in the freight market that should not only feed10 more Boeing 777 freighters but also a supporting cast of McDonnell Douglas MD-11Fs that were headed for retirement but are now being kept on longer than intended. 

At the presentation of its financial results for the quarter ended on February 28, the integrator announced an order for eight new 777Fs and revealed that it had secured two used 777s from an unidentified party. Three of the new models are due for delivery next year, with the remaining five following in 2027. 

Chief financial officer John Dietrich noted that the company had last placed an order for 777 freighters back in 2018. The last two planes of that batch are set to join the fleet this year. He added that the aircraft of the new order are going to be the last production models of the 777-200F, and that FedEx is obtaining them at “very attractive prices”. 

Boeing is going to stop production of the 777-200F model as it transitions to the 777-8 type, which promises lower fuel burn, higher payload capability and lower operating costs. However, the plane maker had to push back the entry into service for the plane by a year to 2028, owing to a combination of issues. Rival Airbus also had to postpone the market entry of its A350 freighter by one year to 2027 due to supply chain problems. 

Dietrich noted that the fleet additions largely replace ageing older planes, but not entirely. 

“We permanently removed 31 aircraft at the end of FY24, which were nine MD-11s and 22 757s. So, it’s a combination of incremental versus replacement capacity,” he said in a call with financial analysts following the results presentation. 

Over the last three years, the company retired 20 MD-11Fs, which used the be the backbone of its large widebody fleet before it built up its 777 contingent, which today stands at 57 planes, while the MD-11 fleet has shrunk to 37 units. Altogether,FedEx currently has 471 freighters in service, and 37 more planes are parked for the time being. 

One reason for the cull of aircraft last year was the end of the contract with the United States Postal Service to fly domestic airmail. 

Management had intended to phase out the remaining MD-11s by 2028 but has now decided to hold on to them four years longer.

The news of the pushback of their final retirement to 2032 came as a surprise to most observers. The reason for this was not in the integrator’s core parcel business, but in regular airfreight, Dietrich revealed. 

“Given the demand that we’re seeing out there, particularly in the international economy [business], we elected to extend the life of those aircraft,” he said. 

FedEx has a stronger focus on the traditional airfreight market since it embarked on the overhaul of its express flight network, which has freed up capacity to chase international cargo traffic. 

It has helped that airfreight yields have gone strong over the past few years, and freighters have enjoyed a historically high share of the international airfreight market, which climbed as high as 61 percent of global traffic in 2023, up from 52 percent in 2019. The recovery of passenger networks has reduced this market share, but some sectors – notably China-North America – have not seen a full recovery of passenger flights, leaving a larger role for freighters. 

Moreover, airfreight rates have been at elevated levels since the disruptions in the Red Sea forced container lines to take longer routes than going through the Suez Canal. The continuing hostilities in the region, despite efforts to stop them, continue to delay a return to previous container shipping patterns, which is keeping a floor under airfreight rates. 

There are ominous signs on the horizon, though. The decision by the U.S. government to end de minimis exemption from ecommerce parcels from Hong Kong and China in May is expected to accelerate shifts in ecommerce patterns towards U.S. deliveries from distribution centres in the country, fed chiefly by ocean transportation.

As it was ecommerce that powered a rising number of dedicated freighter flights from Hong Kong and other Chinese airfreight gateways to North America, this should significantly reduce demand for air cargo capacity. 

Industrial demand has been lacklustre, with production in Europe and the U.S. in contraction for most of the past two years. The U.S. manufacturing PMI finally returned to expansion in January and February, but March saw it drop back into contraction, and the trade war launched by Washington is widely expected to depress production. 

For FedEx, a marked decline in airfreight demand would not spell disaster in terms of its decision to hang on to the MD-11s, according to Dietrich. 

“Those assets are mostly depreciated, but have some useful life left in them and can support our profitable growth strategy. So if the demand environment doesn't pan out, we also have the ability to accelerate any retirements on MD-11s,” he said.