Can the world afford a 140-ton freighter with a price tag north of US$300 million? The viability of the Boeing 747-8 cargo aircraft is in question after a major freighter operator scrapped most its outstanding orders for the aircraft type. Nippon Cargo Airlines (NCA), one of the world’s largest 747 freighter operators, has cancelled orders for four 747-8s worth about US$1.5 billion at list prices.

“We ordered 14 -8s in 2005. Eight of these were firm orders, the remaining six were options,” remarked Shawn McWhorter, president of the Americas of NCA. “Basically we are cancelling four options. We are still going ahead with two orders.”

He noted that the order was made when the Japanese cargo airline was plotting a long-term expansion strategy, in markedly different market conditions. “The market outlook in 2005 and in 2015 is completely different,” he said.

However, there are indications that the cancellation marks a potential turning point for the 747-8 altogether, rather than a mere reversal in the face of temporary slow market conditions. Developments over the past year have undermined the case for the 747-8 vis-à-vis older models, which previously had seemed poised to hasten their exit from the market.

NCA, which was one of the launch customers for the 747-8 freighter 10 years ago, currently has 10 Boeing 747-400Fs and eight 747-8Fs in its fleet. Five of the 747-400s are leased to other carriers, the other five are used by NCA for extra sections and charters, while the 747-8s ply its scheduled routes (with the exception of the Singapore-Bangkok sector).

Over the past years, the airline has steadily taken older 747-400Fs out of service as it took delivery of 747-8 models. At 110 tonnes, the -400F has a lower payload, and the 747-8 offers longer range and better fuel efficiency. However, in the current situation – marked by low oil prices and depressed yields – the superior operating economics of the 747-8 seem insufficient to offset the high capital cost of the plane, which has a sticker price of US$379.1 million.

“Although you get efficiency, your asset costs are off the clock,” observed Ram Menen, former head of cargo of Emirates, which has used 747-400Fs and converted orders for 747-8Fs into 777-200Fs.

“If you factor in yield decline, the fact that the industry seems to go into a downturn every seven months, and the fact that many markets are directional, which means empty legs, it becomes harder to make the case for the 747-8,” he continued.

“This puts the future of the 747-8 into question,” Menen commented.

From his vantage point, the writing had been on the wall for some time. “The NCA dumping of the B747-8F doesn’t come out as much of a surprise to me,” he remarked. “Declining yields and growth in time-definite e-commerce combined with China-Europe train transportation, with added growth of wide body passenger capacity, is putting tremendous pressure on pure freighter airlines. Today about 94-95% of cargo can be transported in bellies of passenger aircraft.”

In a market that looks set to remain extremely volatile, assets with a large price tag are tough to manage, Menen continued. If yield erosion actually forces carriers to park freighters, the pain would be particularly acute for those who have expensive assets like the 747-8, he warned.

“As long as the fuel price remains low, older, lower-cost assets make more sense. So the question now is whether Boeing can continue on with keeping the production line open with single digit backlogs. The world needs the likes of the efficient B747-8F, but can we afford it?” Menen asked.

With four NCA orders gone, Boeing is down to just 29 unfilled orders for the 747-8. Two-thirds of these are a single order for 20 units announced in June with Volga-Dnepr, which intends to acquire the planes through a mix of direct purchases and leasing over the next seven years. The magnitude of the order surprised most observers. However, some have expressed doubts that it will actually come through.

In any event, Boeing has already braced itself for slow going with the 747-8 programme.

In July the aircraft manufacturer reported an increase in the number of freighter aircraft delivered during the first half of the year, but also stated that it was going to scale back its 747-8 output to one plane a month.

By Ian Putzger

Air Freight Correspondent | Toronto