China Airlines said Thursday it has ordered four 777 freighters from Boeing as it seeks to capitalize on a booming air cargo market that helped propel the Taiwan flag carrier’s revenues last year. Deliveries are slated to commence in 2023 and be completed the following year.
The 10th-largest cargo hauler by volume, China Air already operates three 777 all-cargo jets and has three more on order — two of which are scheduled for delivery this year. The bulk of the fleet consists of 18 B747-400 freighters. The new aircraft will help grow China Air’s network capacity and replace older aircraft.
The deal is valued at $1.4 billion at list prices, although China Air is likely to get a discount as a recurring customer with a multiunit order. It follows an order earlier this month by Atlas Air (NASDAQ: AAWW) for four 777 freighters as interest in Boeing’s factory-built aircraft increases along with shipper demand during the pandemic.
Boeing (NYSE: BA) booked record orders for new and converted freighters last year, including 84 orders for 767, 777 and 747 freighters, driven by e-commerce growth and demand for faster, more reliable transport amid widespread logjams in ocean shipping. That exceeded the previous record of 80 production freighters set in 2020. During the year it also opened, or made plans for, 10 new assembly lines around the world for passenger-to-freighter conversions. Boeing forecasts that the global freighter fleet will grow by 70% in the next 20 years as international trade and e-commerce continue to flourish.
Air cargo volumes increased 7% in 2021, according to the International Air Transport Association.
“Our fleet modernization program will enable us to deliver added value to our customers, especially as the global supply chain continues to evolve,” China Airlines Chairman Hsieh Su-Chien said in the announcement.
The twin-engine 777 is 17% more fuel efficient than older-generation aircraft in its class, enabling operators to make fewer fuel stops on long-haul routes and avoid costly landing fees. With a maximum payload of 224,900 pounds and range of 4,970 nautical miles, the 777 can carry nearly as much as the 747 series aircraft, which Boeing will stop producing this year. The aircraft is equipped with fully temperature-controlled cargo holds. Those characteristics, along with the ability to maximize hold space, make the aircraft especially desirable for trans-Pacific routes.
The main hold can be fitted with a cargo pallet restraint system used for carrying semiconductor machinery and engines, providing secure transit for high-value cargo such as precision instruments and temperature-controlled goods, China Airlines said.
Taiwan is a major manufacturing center for semiconductors.
In 2021, China Airlines’ cargo revenue soared 186% above the 2019 benchmark, nearly balancing out a 96% drop in passenger revenue. The cargo division had its best year ever with more than $3.6 billion in revenue, a significant achievement given the heavy reduction in passenger flying and available belly capacity. Cargo yield increased more than a quarter from last year to 16.45%.
As a point of comparison, United Airlines (NASDAQ: UAL) last week reported a record $2.4 billion in cargo revenue for 2021. United, however, does not operate any freighter aircraft. Its business was done entirely with passenger aircraft carrying people and goods, or aircraft flown in cargo-only mode, as well as a handful of leased cargo charter flights.
China Airlines Cargo set multiple records last year, including dispatching more than 100 cargo charter flights in a single month, highest sales in a single month ($492 million for December) and exceeding $319 million in revenue for five consecutive months.
Notable commodities being delivered by China Airlines to Taiwan include Wagyu beef from Japan, lobsters from North America and Australia, fresh flowers from Kenya, California grapes and COVID vaccines.
The airline said it transported more than 1,000 temperature-controlled containers last year, more than double its pre-crisis volume.
Boeing rebuilds
Boeing reported a $4.2 billion fourth-quarter net loss on Wednesday as revenue fell 3% to $14.8 billion. Commercial revenue rose to $4.8 billion, helped by rising 737 MAX deliveries. For the year it lost $4.3 billion, the third consecutive year of losses but an improvement from $11.9 billion in 2020.
The loss was primarily due to a $3.5 billion pretax charge on the Dreamliner 787 program, which has been plagued by quality issues that have delayed production for 15 months. The charge is mostly to cover estimated customer compensation for the longer delivery delays. Boeing said it expects another $2 billion in costs through 2023 after scaling back production again.
American Airlines (NASDAQ: AAL) recently said it had to scale back its international schedule because of 787 delivery delays.
Boeing had 110 Dreamliners in inventory at the end of the quarter and says it is finalizing a solution for the manufacturing defects.
Company officials said they still anticipate first delivery of the next-generation 777X in late 2023. The company has completed engine and airplane performance testing for the 777X, flown more than 1,800 flight hours and is close to beginning certification flight testing under Federal Aviation Administration supervision.
Boeing is heavily marketing a freighter version of the 777X and if it receives orders will increase the aircraft’s planned production rate.
The 737 MAX began flying again about a year ago after being grounded by regulators following two deadly crashes. The MAX is now approved to fly in more than 185 countries and Boeing said it expects to win approval from Chinese aviation regulators in the first quarter.
Aircraft sales and deliveries significantly improved last year but still lagged those of rival Airbus. The airframer said 737 MAX production has increased to 26 per month, up from 19 per month from the previous quarter.
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