Back to top

FedEx in Purchase Deal with United

Read MoreHide Full Article

As per market sources, FedEx Corporation (FDX - Free Report) is set to purchase up to 30 The Boeing Company’s (BA - Free Report) 757 passenger airplanes from United Continental Holdings Inc. (UAL - Free Report) . None of the companies disclosed the financial terms of the deal.

The express delivery services provider aims to make these narrow-body jets part of its freighters fleet and utilize them for cargo delivery. Initially, the company will take possession of 14 jets, starting from the latter half of 2013 and continue through 2015. The conversion process of aircraft from passenger use to freight delivery takes around three months at a cost of nearly $5 million per plane.

With passenger airlines dropping Boeing 757s from their fleet, FedEx started buying them from 2007. This step was taken to put a check on the operating expenses due to rising fuel costs. These twin-engine based airliners are not only fuel efficient but also capable of transporting 20% extra freight than the three-engine Boeing 727s that are getting replaced.

FedEx has set a target of $1.7 billion in incremental profit by the end of 2016. Management expects to achieve this goal through cost improvements. The company is also concentrating on a fleet modernization strategy that will support it in extending services at a cheaper rate, attracting more clients.

In Jun 2012, the company announced plans to purchase 19 more Boeing 767 aircraft that are expected to be delivered between 2015 and 2019. These new aircraft will benefit the cost structure by replacing the old fleet of MD-10 and A31-200.

On the other hand, United started shedding its bunch of older 757s – that have been out of production since 2044 – after placing an order for 150 new Boeing 737-900ERs. As of Dec 31, 2012, the airline owned 56 Boeing 757s.

FedEx – which operates along with another prominent package-delivery firm United Parcel Service Inc. (UPS - Free Report) – currently retains a Zacks Rank #3 (Hold).

More from Zacks Analyst Blog

You May Like