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FEDEX CORPORATION (FDX)
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FedEx : Seals Turboprop Deal Amid Strength in Airfreight Market

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11/08/2017 | 12:18pm CEST
By Robert Wall 

FedEx Corp. is renewing part of its fleet of smaller cargo planes in a deal valued at $1.3 billion at list price, amid an improved outlook for the global airfreight market.

FedEx will buy up to 50 turboprop planes from European aircraft maker ATR--a joint venture between Airbus SE, the world's No. 2 plane maker behind Boeing Co., and Italy's Leonardo SpA--the Toulouse, France-based plane maker said Wednesday. The deal comprises a firm order for 30 planes and options for 20 more, and represents a boost for ATR in the U.S., the world's largest single aviation market.

The delivery giant typically uses such turboprop planes--which are slower and burn less fuel than their jet counterparts--to transport packages between smaller cities and larger airports where its big Boeing and Airbus jets operate.

The prospects for the airfreight market have improved in recent months after a prolonged slump. WorldACD, which tracks the sector, said air-cargo growth in September, the last month for which figures are available, grew above 5% year-over-year for the 13th consecutive month.

FedEx said in its latest quarterly earnings that sales at its air-shipping Express division benefited from higher rates to ship U.S. domestic packages and strong international package growth.

Though turboprop freight planes are typically modified passenger models, FedEx in this case opted for a new design. The plane is based on the European plane maker's 78-seat ATR 72-600 model, which features a new cockpit and more powerful engines than earlier versions.

FedEx Express Chief Executive David L. Cunningham said in a statement that the company "worked with ATR to develop this new aircraft, which include special features to help us grow our business, especially in the airfreight market where shipments are larger and heavier."

FedEx is expected to get the first planes in 2020. The aircraft typically can carry around 8.3 tons of cargo, though delivery companies are usually more focused on volume than weight.

"Our bet is that the freighter market is going to become much more active than it has been," ATR Chief Executive Christian Scherer said in an interview. Though much of the global demand will likely remain for converted planes, he said FedEx's endorsement could generate greater appetite for new planes as well as spur a general increase in demand for freight planes.

ATR and Canada's Bombardier Inc. are the world's leading producers of turboprop planes. Brazilian plane maker Embraer SA in September said it had opened talks with potential airline customers to gauge whether to re-enter the market for such planes, after exiting it years ago to focus on jet-powered regional planes and private jets.

The FedEx deal also is an important vote of confidence for ATR in the U.S., which it has coveted for years. Passenger carrying turboprops fell out of favor in the U.S. because passengers generally preferred jets they viewed as more comfortable and modern.

But ATR is starting to see demand rebound in the U.S. In addition to the FedEx deal, the plane maker has said it had won a preliminary 20-passenger-aircraft deal with Fort Lauderdale, Fla.-based Silver Airways Corp.

"We have been absent in the U.S. for many, many years and this marks our return," Mr. Scherer said.

Write to Robert Wall at [email protected]

Stocks mentioned in the article
ChangeLast1st jan.
AIRBUS SE -1.64% 101.9 Real-time Quote.24.82%
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Financials ($)
Sales 2018 65 391 M
EBIT 2018 5 647 M
Net income 2018 4 579 M
Debt 2018 11 839 M
Yield 2018 0,76%
P/E ratio 2018 15,09
P/E ratio 2019 15,49
EV / Sales 2018 1,26x
EV / Sales 2019 1,17x
Capitalization 70 694 M
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Number of Analysts 29
Average target price 289 $
Spread / Average Target 9,7%
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Managers
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Frederick Wallace Smith Chairman & Chief Executive Officer
David J. Bronczek President & Chief Operating Officer
Alan B. Graf Chief Financial Officer & Executive Vice President
Rob B. Carter Chief Information Officer
James L. Barksdale Independent Director
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