Update, July 22, 2016: Boeing yesterday announced it is taking an after tax charge of more than $800m against the 747-8 program. It also cancelled plans to increase production of the 747-8F from the current 0.5/mo to 1/mo in 2019 on the long-held belief demand for the 8F would recover as 747-400Fs age.
July 13, 2016, © Leeham Co., Farnborough Air Show: Boeing steadfastly believes the demand for its iconic 747 freighter will recover after years of slow orders and declining production rates.
Randy Tinseth, VP Marketing, told LNC years of missed targets for main deck freighter demand in its annual Current Market Outlook come down to the global softness in air cargo trading.
“It’s all about trade in air cargo,” says Tinseth. “The one thing we’ve seen in the last five years regarding growth and trade, if you look at 2010, it came back very strongly. We saw trade growth. In 11 and 12 and the first part of 13, we saw growth very quiet in terms of trade. Then in the back half of 13-14 and into 15, we saw trade grow at 5%. Guess what? The cargo market came back and grew at 5%.
Forecasts need to materialize
“Then as a result of some challenges in the economy, the world economy in the middle of last year, we saw cargo slow down again,” he said. “As we look into the next few years and we work with the many, I call it economic houses, there are about five of them, they’re forecasting a return to growth in GDP. They are forecasting about 4% growth in trade. We see trade growing at 4% and another 4% growth in the market.
Tinseth said that Boeing has to see these forecasts “really materialize.”
“We keep asking ourselves, is there something that has fundamentally changed in the market? From an expert’s point of view, they are saying no. We just have to see how it plays out.”
Many observers believe that the proliferation of twin-engine wide-body aircraft and their voluminous lower deck holds mean a significant rerouting of cargo, diminishing the demand of the 747-8F. Tinseth agrees there is some diversion, but maintains it’s not enough the make much of a difference.
“Not really,” Tinseth said. “I think that is a myth created by people who don’t sit down and do the analysis.
“Lower hold will grow,” he said. “The first thing we did in our forecast is we take that lower hold and we remove it from the forecast. What’s left we put in the upper deck of the main deck of cargo aircraft.”
Tinseth said that the belly and main deck capacity must be put into perspective.
“Today on a daily basis there are 150 commercial flights across the North Pacific. Their lower hold is equal to about 10 cargo aircraft,” he said. “That same day, there are about 50 daily cargo flights. The lower hold only provides something like 15-20% of the total capability. Even if that doubled, it would make a small impact.”
Tinseth also pointed out that lower hold capacity doesn’t necessarily go where the cargo needs to go.
“You have to bear those two things in mind,” Tinseth said.
He said there was a peak of about 60% of all cargo carried by main-deck freighters. “The long-term trend will be somewhere between 50 and 55%.”
“There will be a small impact but this doesn’t take away the need for dedicated cargo aircraft,” he said.
The 777-8F is the next freighter that Boeing is likely to be built. “We haven’t decided when we’ll flip the switch and go from today’s 777Fs to the 777-8F. It will happen at some point,” Tinseth said. “Right now we’re focusing on sales of the 777F to our 777 customer base and expanding that and bridging the 748F to next replacement cycle toward the end of this decade.”