United Parcel Service Inc. (NYSE: UPS) and Boeing Co. (NYSE: BA) announced Thursday morning that the package delivery service has ordered 14 of Boeing’s 747-8F freighters and taken an option on 14 additional planes. At a list price of $379.1 million, the value of the order is about $5.31 billion.
At the end of September, Boeing had unfilled orders for six 747-8F freighters and nine 747-8 passenger jets. Since January of 2015, Boeing has taken orders for just 10 747s. Beginning last month, Boeing cut production of the planes from one per month to just 0.5 per month.
In late July, Boeing lowered the number of 747s in its program accounting block from 1,574 planes to 1,555 and took a pretax charge of $1.2 billion against the program. In a filing with the U.S. Securities and Exchange Commission the company added:
If we are unable to obtain sufficient orders and/or market, production and other risks cannot be mitigated, we could record additional losses that may be material, and it is reasonably possible that we could decide to end production of the 747.
Boeing said nothing about how the UPS order would affect the lifetime of the 747, but at a production rate of just one plane every two months, the 14 orders from UPS extend the program out more than two years. If the options are exercised, that adds another two years. And with 15 on the books already, the 747 may not fade away until the first years of the next decade.
Bloomberg reported that Boeing will begin to deliver the 14 planes in the UPS order over a three-year period beginning next year. The world’s air cargo market has been struggling, although it has picked up slightly in the past few months. Volumes have risen, but yields have only just appeared to turn a corner and move ever so slightly higher.
Analysts are already wondering about UPS’s desire for more capacity, asking why the carrier would order more planes when the market remains soft.
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