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Boeing's Faith in Air Freight Pays Off With $18 Billion in Sales

Bloomberg logoBloomberg 7/17/2018 Julie Johnsson and Benjamin Katz

Video by Reuters

Boeing Co. stood by the air-cargo market during a withering downturn a decade ago, and that decision is paying off handsomely now.

The U.S. planemaker has netted $18.2 billion in freighter sales and commitments this week at the Farnborough International Airshow, including deals for 48 of the cargo-hauling version of the 777 jet. The customers range from European package-delivery firm DHL to Gulf carrier Qatar Airways and Russian bulky-cargo specialist Volga-Dnepr Group. Boeing chief rival Airbus SE hasn’t sold a single cargo plane at the show.

Boeing’s freighter haul is well above the seven sales tallied for its popular 787 Dreamliner at the industry’s largest trade expo this year. It’s also more than the 34 passenger wide-body aircraft that Boeing and Airbus have sold in total this week, valued at $11.1 billion before customary discounts.

“We’re not done,” Boeing Vice President Randy Tinseth said with a laugh. He compiles detailed 20-year market outlooks for the Chicago-based manufacturer. “I think you could refer to it as unprecedented. It’s a testament to the strong two, two and a-half years in the market.”

One trigger for the cargo comeback is the growth in online shopping, which has transformed the retail experience, especially in emerging markets like China. After parking or scrapping freighters during the decade-long slump, many package carriers don’t have enough aircraft on hand to keep pace with demand.

There’s also unusual prosperity spanning the globe. By Tinseth’s calculation, only four nations have shrinking economies: Venezuela, Yemen, Syria and North Korea. The passenger-jet market, meanwhile, is shifting toward a new generation of narrow-bodies that can take on longer routes than before and are a good fit for discounters serving the rapidly growing Asian market.

Freighters are one segment where Boeing -- with three models, compared with one for Airbus -- is better positioned than its rival to capture the growth. The U.S. company reckons that global air-cargo traffic will increase at an average pace of 4.2 percent over the next 20 years, exceeding the 2.8 percent annual rise in gross domestic product. During that time, it expects airlines to buy $280 billion in aircraft.

Through the end of June, the Boeing had netted 58 orders for its 767, 777 and 747-8 freighters, a lineup that stretches from the midsize jets favored by FedEx Corp. and Inc., to a jumbo with a nose that flips open to handle massive items like the oil-drilling equipment hauled by Volga-Dnepr. Boeing has also landed 83 orders this year for a plane popular with passengers, the 787 Dreamliner.

Here are some of the highlights from Day 2 at Farnborough:

Mystery Buyers

For the second day in a row, Airbus unleashed the day’s biggest order without revealing the buyer’s identity, leaving industry insiders at the sprawling airfield to guess who it might be.

The unidentified customer signed a memorandum of understanding for 100 narrow-body jets valued at $11.5 billion, the Toulouse, France-based manufacturer said. The planes include 25 of the larger A321neo version, and 75 standard A320neos.

The deal was on top of Monday’s MOU for 80 aircraft in the popular A320neo family, sold to an undisclosed lessor. That agreement, with a sticker price of about $8.85 billion, helped Airbus eke ahead of Boeing on Day 1, when the tally reached $55 billion -- though the gap has since evaporated. Reuters reported that China’s ICBC was Monday’s buyer.

It would be no surprise if either mystery buyer was from Asia. After two days, more than a quarter of the $97 billion in sales announced at Farnborough have been to customers in the region -- second only to the U.S. Asia has been a powerful driver of narrow-body sales, and Boeing predicts that the region will account for 40 percent of the new airplanes sold over the next 20 years.

a screenshot of a cell phone© Bloomberg   

African Alliance

Ethiopian Airlines Enterprise, Africa’s biggest carrier, said it’s in discussions to back the Nigerian government’s plans for a new national airline. Africa’s most populous nation has struggled to support a home-grown carrier for decades, with several collapsing or slashing routes. That’s left the oil-rich country dependent mainly on European and Persian Gulf airlines for trips beyond the region.

Ethiopian Air, by contrast, has become Africa’s only consistently profitable carrier by turning Addis Ababa into a crossroads for travel around the continent and beyond, replicating the hub model of Persian Gulf peers. The network features about 70 global cities and almost 60 across Africa.

Last-Minute Demand

As he signed a contract to buy jets with a list price of $9.6 billion, Air Lease Corp. co-Founder and Chief Executive Officer John Plueger had one final demand: the Boeing executive’s neck tie.

Plueger kept the suspense going just a bit longer as executives from Air Lease and Boeing gathered in front of media for the signing ceremony in the planemaker’s media chalet. He wanted the snazzy, melon-green tie of Boeing Commercial Airplane CEO Kevin McAllister, who negotiated the deal alongside Boeing’s chief aircraft salesman, Ihssane Mounir.

“Kevin, there’s one more thing we need,” Plueger said, as the executives bantered.

“No please,” McAllister responded. The tie “is not part of the deal.”

Plueger didn’t get the tie. But he did snag 75 Boeing 737 Max jets and three 787 Dreamliners -- one of the biggest deals of the day.

--With assistance from Christopher Jasper.

©2018 Bloomberg L.P.

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