Prediction: Boeing 747 Cargo Use to Expand Sharply

At some point, we will come out of this pandemic thing.  Long before that happens, we should expect to see more Boeing 747s hauling cargo, or at least, getting painted up for the big night out.  Why?

Airlines are shedding older airliners first as they chop capacity, struggling to catch up with the collapse of demand — as well as the A380, which always had the economics of an obsolete machine.  The only other 4-holer of note, the A340, was already nearly removed from service, being exactly a less-efficient A330 with better numerical redundancy (losing one engine meant 25% of power gone, not 50%).  Engines grew up, and better overall reliability along with a better power to gross weight ratio meant that the benefit of shoveling coal at four engines made no sense when the A330 was literally the same aircraft, but better.

So while the 757 and 767 depart with little fanfare, each airline that finds it has just landed its last revenue 747 flight seems to hold a ceremony, much attended by the propellerati online.  747s have been hauling people and holding up the bottom line for fifty years — people and organizations know who got them this far.

A380s not so much.  Recall that the A380 was already a beached whale in business terms, and I’m on the record here saying that the A380 would go away much faster than the conventional wisdom posits.  Obviously, Chindemic 2020 is a special condition which is only partially within the remit of that prediction — I won’t present it as standalone proof that I was right, as I staked my claim in business terms — the machine is unprofitable and will become an unwelcome money-loser faster than people are admitting.  Sunk costs are not always a fallacy, or else amortization and depreciation would not be things.  But I will still claim partial credit, because the pandemic has not changed the nature of the problem facing the A380 — it has only accented the pressures, accelerating its unceremonious departure.  The A380 was already being hurried out the door, as several operators had shortened their retirement timelines before the Wuhan Flu had even begun to matter.  Air France, for example, which was going to orphan five and refurbish their remaining five, eventually balked at any refits whatsoever, and committed to simply pasturing the whole lot of them as quickly as possible.

My argument went that as the A380 program seen as a whole (planes, parts, pilots, mechanics, suppliers, providers, purchasers/lessors, terminal slots) began to shrink, that shrinkage would become the driving factor in decision-making at each individual point within the whole, driving a decay that we might see as exponential — once it got going, it would just accelerate until some reflection point had been reached.  This is fundamentally the same thing that we are seeing now, but with the collapse of passenger demand taking over as an industry-wide “gripping hand” — a factor so dominant that others are effectively moot.

Yet the same cannot be said for the 747.

Cargo flights are probably in higher demand now than ever.  If not they likely will be soon.  The 747 is a proven cargo performer, and cargo has higher margins in some ways than passenger flight.  Among other things, you can fly ratty aircraft with peeling paint and funky odors to unlovely cargo terminals in off-brand cities at any hour of the night and the cargo doesn’t complain.    747 parts and service supply chains and providers are widespread and optimized after decades of operation.  As I write, there are only 12 A380s airborne, while there are 72 747s currently making smoke and foiling air.  Obviously, this is just a snapshot, and many factors feed into it — I can’t pull it all apart.  Just as obviously, the 747 has a much larger installed base, and a lot of those are cargo flights.  And that’s what drives my prediction.

Cargo companies are not dumping the 747 — just the opposite.   Boeing began buying up every used 747 it could find in about 2017, and converting them into certified used cargo planes.  Airbus, on the other hand, is eating A380s with no plausible business use case for the unwelcome returnees.  Whether Airbus had to accept some due to lease option terms, or opted to accept some in order to “facilitate” increased orders for successful models (“you take this pig back or I’m going to Boeing”), the fact is that Airbus is scrambling to “create” a market for the huge, uneconomical, used luxury liners.  Good luck with that.

There is speculation that the A380 cannot even be converted into a freighter — not a good one, anyway, with that second deck.  There was always consideration of designing an A380F, but industry reporting is split on whether those planes can actually be converted.  If so, it will take remarkable investment (including development risk) to get it done.  The 747 on the other hand happily converts via already-sourced, currently operating service and parts providers, including the mothership in Renton.  Investment required to ignite a profitable 747 freighter market segment?  ZERO.

Now the passenger industry is about to start raining Boeing 747s intact — with up-to-date maintenance records and current certifications of airworthiness — upon the cargo industry.  This translates into lower per-hull cost, a boon of spare parts from perfectly serviceable (but still surplus) aircraft, and a hungry market of providers looking to stay in the business, which by all accounts, does not look to end any time soon.

The ChinaPlague has brought identical pressure upon all of the popular four-engined passenger liners.  The A340 was already admittedly at end of life (for most purposes), and the A380 is at the end of its life for any purpose whatsoever, says me.  But the 747 will be a surprise beneficiary.  In overall numbers, the hull count will drop for this model as well, of course, but it will surge in the share of large cargo hulls aloft.  The 747 just got yet another lease on profitable life through the addition of what amounts to a Chinese subsidy of planes, parts, providers, and pilots.

Icing on the cake — if fuel prices stay low (i.e., are held low by political will) through several years of recovery from this virus’ economic effects, well, that’s just one more factor disproportionately helping the 747, while it’s too late to save the Airbus, even if fuel suddenly became free.

Heh.

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4 thoughts on “Prediction: Boeing 747 Cargo Use to Expand Sharply”

  1. I know zip about the aviation industry. Withal, this is fascinating commentary on account of how it tells about how things work.

    In my world, high-producing dairy animals are being sold off by good clients. These are the tail-enders, near the end of their current lactation curves. Why sold? The NYC market for high-end, non-UHT cream favored by restauranteurs has been shut off. Some cows you dry off early, others you sell to other dairymen locally, others you sell for dairy beef.

    It’s like repurposing an airplane with regret: you sell a Holstein with good genetics to the dairy beef market, out of necessity.

    The ones you dry off early need their dry-off meds to prevent infection and death. So all of a sudden the drug orders double; our drug bill doubles; we ask for credit from our distributors. What does that do to the distributor? This is a little shock wave, like a ripple in a ripple tank in a high-school physics class, compared to the national industries like aviation – and yet the principles and the causes and effects are similar.

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  2. jzdro:
    The ones you dry off early need their dry-off meds to prevent infection and death. So all of a sudden the drug orders double; our drug bill doubles; we ask for credit from our distributors. What does that do to the distributor?

    Dang.  Fascinating in its own right.  Do you think that a long-term result of this disruption will be a genetic bottleneck?

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  3. Haakon Dahl:
    Do you think that a long-term result of this disruption will be a genetic bottleneck?

    That would not be my first expectation, if I understand your question right. US dairy genetics has, what is it called, a deep bench; the problem has been too many high producers and too much milk.

    Results of this disruption will include some dairymen going out of business, either to consolidate with the big farms in an area (they are always hungry for cropland) or now sell out to NYC refugees looking for new homesites. This just accelerates the trend of zapping the smaller-sized family farms. (The big farms are family-owned, also. Most people are incorporated just for their own protection.)

    News from the past few days gives a hint as to intermediate-term results. Supermarkets limit their customers to 2 gallons of milk as a response to hoarders, which you know about if you read Ammo Grrrl at Powerline. At the same time, reports reach those customers of milk being dumped in northern Vermont, for example. They are upset by this, as you might expect. Those with de Blasio-type thinking will rant that the military must “seize the supply chains.” Only thoughtful readers of industry news ever learn that the milk dumping was a couple of cases of milk truck drivers getting sick – not with Wuhan, even. It demonstrates a danger to all of us that has been around for decades: the thin ranks of our skilled-labor force. Ever seen a big milk truck being maneuvered? In New England hills? You have to know what you are doing, and there are not enough who do. One or two guys get sick and the trucks stop running for a day. Cows do not stop making milk, so the dairyman has to dump it, which is a complicated business because you can’t just dump it anywhere.

    By chance I am re-reading The Moon Is a Harsh Mistress. In one memorable passage Man says something like grow as much as you can of your own, sell the extra to the neighbors, and don’t go anywhere near that catapult. Maybe there will be a trend in that direction; what impedes that is a stack of regulatory hurdles to setting up a creamery that are tough on a little guy. Our client spent a year getting okayed.

    A big meat-packing plant in Pennsylvania that people in NY also relied on for selling cull dairy animals has just suspended operations because the line workers are afraid to come in to work. They think they will get Wuhan. Maybe they also heard that the unemployment checks are going to be more that they get for working. Thanks, Democrats! Anyway, this could be a boon for small-deal butchers who are sprinkled around locally. How much of the demand can they satisfy?

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  4. jzdro:
    A big meat-packing plant in Pennsylvania that people in NY also relied on for selling cull dairy animals has just suspended operations because the line workers are afraid to come in to work. They think they will get Wuhan.  Maybe they also heard that the unemployment checks are going to be more that they get for working. Thanks, Democrats!

    This is particularly chilling.  It’s how we kill economies with foreign aid.

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