FedEx orders Boeing 777 and ATR cargo aircraft, delays MD-11 retirements

The decision to acquire more widebody cargo jets and hold on to the MD-11s is motivated by the need to replace legacy aircraft with more modern ones, the availability of Boeing jets at attractive prices and growth projections for international heavy freight, Dietrich said.

Growth in freight demand is largely a function of FedEx’s recent strategy to segregate its Express air network along product lines, dedicating a portion of the fleet to go after premium international air cargo that is traditionally consolidated and booked on airlines by freight forwarders.

“Given the demand that we’re seeing out there, particularly in the international economy [segment], we elected to extend the life of those aircraft,” Dietrich said of the MD-11s. “Those assets are mostly depreciated but have some useful life left in them and can support our profitable growth strategy. So if the demand environment doesn’t pan out, we also have the ability to accelerate any retirements on MD-11s.”

FedEx needs extra capacity after permanently removing 31 aircraft from the fleet last year, including nine MD-11s and 22 Boeing 757s, Dietrich said. The airline division has retired 20 MD-11s over the past three years and currently has 37 of the large freighters in service.

The fleet upsizing represents a change in thinking given that FedEx had excess aircraft following the expiration in September of its domestic air cargo contract with the U.S. Postal Service and that as recently as last year the company was downsizing the air fleet in response to a slowdown in parcel demand. 

The express carrier had decreased total U.S. domestic flight hours by 24% in the second quarter, primarily due to a 60% reduction in daytime flying for the Postal Service. It expects to realize large savings, starting this quarter, by not having to dedicate more aircraft and other resources to meet service commitments when planes routinely weren’t full of letters and packages.

“Taking down the daytime network that supports the post office, that really increases our flexibility,” President and CEO Raj Subramaniam said.

The pivot appears directly connected to FedEx’s Tricolor strategy to streamline the air network and compete more aggressively for deferred cargo business as part of an enterprisewide campaign to remove $4 billion in permanent costs and improve profitability. Management has previously explained it intends to capture a larger share of the $80 billion airfreight market, where it currently has low-single-digit penetration, by reallocating assets, building a dedicated sales organization and investing in digital customer technology.

FedEx has spent 20 months building to the point of tackling the third-party airfreight market at scale.

Under the plan, a Purple network of aircraft and facilities is geared toward international express parcel shipments that move at night for next-day delivery. Those flights accept fewer large freight shipments to maximize sorting efficiency.

The Orange network operates off-schedule to carry heavy freight that doesn’t require maximum speed and is better suited for a truck-fly-truck delivery model than flying the entire trip. FedEx says it is targeting high-yield freight with similar characteristics to less-than-truckload freight – such as pharmaceuticals, perishables, electronics and automotive components – that is more profitable per pound than larger shipments of general goods. Flights are scheduled into primary and regional sortation centers during the daytime, when workers have more time to build dense pallets and then layer on small parcels or poly mailer bags with e-commerce orders to maximize capacity.

The White network is for low-priority shipments booked on commercial passenger aircraft by FedEx’s freight forwarding arm.

“Tricolor is driving better asset utilization. As we improve aircraft density and better leverage our surface network, we have a broad range of KPIs that we are tracking to measure our progress,” said Subramaniam. “We’re especially pleased that on a year-over-year basis, payloads across our air network are up 9% with a 5% improvement in density. This is a key objective of our tricolor operating model.”

Management said the changes are already having a positive impact, especially as trucking increasingly replaces flights to connect smaller markets with hubs.

The Express segment boosted adjusted operating income by 17% to $1.4 billion on a 2.7% increase in revenue during the third quarter, despite the negative impact of losing the U.S. Postal Service contract. Higher U.S. and international export volume buoyed results. International economy package volume increased 48% in the third quarter and airfreight average daily pounds increased 3% for International Priority Freight primarily due to continued growth in deferred air service and e-commerce.

The acquisition of 777 production freighters was influenced by the fact that FedEx hasn’t ordered any widebody aircraft in several years and Boeing was offering them at a good price because they are the last ones to be built before Boeing closes the 777 production line in 2027 so it can focus on a new freighter model, Dietrich said. The newer aircraft are more fuel efficient and require less maintenance than aging units.

As CEO of Atlas Air before joining FedEx, Dietrich purchased the last four 747-8 jumbo jet freighters Boeing produced. Atlas Air, the largest operator of 747 freighter aircraft in the world, took delivery of the final 747 in January 2023. “That turned out to be one of the best financial acquisitions for that company,” Dietrich said.

“These aircraft are in very high demand, and we didn’t want to let them go, for one. But our decision was really informed by both our MD-11 retirement plans, as well as our growth projections for the international freight market,” he explained.

Dietrich reiterated that the deal doesn’t depart from FedEx’s plan to contain capital expenditures, including a $1 billion target for aircraft in the upcoming fiscal year, as part of the effort to run a leaner organization and increase shareholder value.

“We’re planning to stay within that area of investment not only in FY 2026, but for the immediate years beyond, and these aircraft acquisitions are within that framework,” he said.

Feeder fleet upgrade

But FedEx isn’t only focused on large cargo aircraft. 

The ATR order adds to a previous FedEx commitment for 30 aircraft. FedEx has received 23 aircraft so far and expects the remainder of the first order to be delivered by the end of 2026, according to its latest fleet update.

FedEx subleases the ATR fleet to partner carriers that operate smaller aircraft between smaller cities and hub airports to feed its mainline aircraft. The new ATR 72-600s are being acquired to replace older ATR 72 aircraft, of which FedEx operates 19.

The ATR 72-600 has a payload of about 10 tons. It can be optimized for bulk transport with nine vertical nets attached to the floor but also has a large cargo door, wide cross section and loading system to handle shipping containers, which are compatible with larger freighters. 

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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