FedEx Accelerates Retirement of Aircraft, Lifts Dividend 7.7%
06/04/2012| 06:03pm US/Eastern
--Cargo specialist to retire 24 more planes
--FedEx will lower depreciation age of other aircraft
--UPS has no plans to retire more planes
(Updates throughout with background and comment from UPS)
By Nathalie Tadena and Bob Sechler
FedEx Corp. (>> FedEx Corporation) said it will permanantly retire some of its widebody jets and take an $84 million charge against net profits in its latest quarter as its reconfigures its fleet in the face of sluggish domestic demand and still-high fuel prices.
The package-delivery company has already consigned some of its older narrowbody planes to the scrap heap and will now shed 24 larger Airbus and Boeing jets, most of which had already been parked in desert storage.
FedEx also said it is shortening the economic life of another 54 planes from a fleet of almost 700 aircraft, a move that will add $196 million to depreciation costs over the next three years, including $69 million in the quarter to May 31. Cargo planes typically have an economic life of 30 or more years, five more than for passenger aircraft.
The cargo specialist is the latest carrier to scrap older, less fuel-efficient planes in favor of newer or converted passenger aircraft and the accounting change will be closely followed as finances in the sector are closely tied to the availability of tax and depreciation benefits.
FedEx said it would permanently retire 18 Airbus 310-200 aircraft and 26 related engines, as well as six Boeing Co. (>> The Boeing Company) MD10-10s and 17 engines. It had already consigned five Boeing 727-200s to retirement, with 21 more to follow.
"Along with the decisions to retire these 50 aircraft, we are also developing detailed operating and cost structure plans to further improve our efficiency," David Bronczek, chief executive of its airline unit, said in a statement.
FedEx is buying new 757, 767 and 777 freighters from Boeing and other parties to boost its operations and competitiveness on domestic and international routes against a backdrop of sluggish demand in the U.S. and volatility in overseas markets.
The company also announced a one-cent, or 7.7%, dividend increase that takes its quarterly payout to 14 cents a share and will cost the company about $12.6 million more a year.
In March, FedEx said that the U.S. and global economies have slowed, even as it reported fiscal third-quarter earnings that more than doubled from a year earlier, helped by strong holiday shipping and higher prices.
FedEx had also said it's taking action to reduce capacity in its U.S. domestic express business--where volume slumped 4% in its fiscal third quarter--including trimming its work force through attrition and putting some aircraft into storage.
Its shares were off by 40 cents to $84.80 in recent after-hours trading. The stock has fallen 6.2% over the past three months.
United Parcel Service Inc. (UPS), which also operates MD-11s in the domestic market, said it had no plans to retire additional aircraft.
-Write to Nathalie Tadena at firstname.lastname@example.org