Boeing 747 Not Ready to Bow Out Just Yet

Ned Piplovic

Boeing

Because most commercial airlines are replacing their Boeing 747s with smaller and more fuel-efficient aircraft, industry experts have been predicting the demise of the “Jumbo Jet”.

However, we might still enjoy the sight of the iconic plane with its characteristic hump for a while longer as it continues to transport cargo across the globe. Boeing (NYSE:BA) delivered its last 747 passenger variant to Korean Air Lines in July 2017 and, out of the 1,533 units delivered since the 747 model entered service in 1970, almost 500 planes are currently still in use.

But the 747 planes mostly carry cargo, as more than half of the operational units are freight variants of the plane. While Boeing still had few more cargo variants on order, building more units for passenger application seemed highly unlikely and the end of production appeared to grow near.

That is until United Parcel Service Inc. (NYSE:UPS) breathed new life into the 747’s future by exercising its option for 14 additional units, which will keep the 747 manufacturing line open at least until 2020. These additional units bring the UPS’s current order to 32 planes to be delivered no later than the end of 2022. Cargo volume demand growth – especially European and U.S. routes to and from China and other Asian markets – was the main driver behind the decision to exercise the order option.

Of course, UPS also is trying to keep up with FedEx (NYSE:FDX), which announced its own capital assets expansion plans, as well as take advantage of the tax cut that lowers the corporate tax rate and allows a 100% capital investment write-off in the first year.

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UPS Chief Executive Officer David Abney said, “The biggest reason we decided to expand is, one, we had an option on the 14, and with the tax reform that came in, it made us more optimistic that the economy was going to continue to be clicking.”

Boeing’s 20%-plus share price growth since the beginning of 2018 has been the biggest gainer of the entire Dow Jones Index. FedEx’s share price is up 2.9% and UPS’s share price is down 1.5%. The UPS share price was 5% higher on a year-to-date basis when it closed at $127.42 on January 31, 2018. However, the share price fell 6.3% during overnight trading, opened at $119.24 and then gained only 0.2% to $19.51 by the market’s close on February 1, 2018.


Ned-Piplovic

 

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 

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