Management is hopeful that the new flight will benefit its cost structure by replacing the old fleet of MD-10 and A31-200 aircraft. The 767 Boeing will provide similar capacity compared to MD10 with 20% and 30% reductions in operating cost and fuel cost, respectively. Further, the new planes will add more cost efficiency by exchanging equipments like spare parts, tooling and flight simulators with the existing FedEx Boeing 757 Fleet.
The purchase of the new flights remains additional to the previously announced plans of buying 27 Boeing 767-300 freighter planes to replace the old MD10s. The first aircraft is expected to arrive in 2014, with six additional planes per year from 2015–2018.
Additionally, FedEx delayed the delivery of eleven 777 freighter aircraft that were scheduled to be delivered between 2013 through 2018. We believe the delayed deliveries would help FedEx to better utilize the MD-11 fleet on international flights and lower overall costs and investments over the short and long terms.
At FedEx Express, the company is realigning its network capacity to match weak international volumes due to the drop in Asian demand. Moreover, FedEx is taking several initiatives including reducing flights and frequencies as well as redeploying equipment in other networks to reduce costs.
Consequently, we believe that FedEx’s goal on fuel efficiency is a significant step toward exercising significant cost control that can be achieved through fuel efficient transportation.
Currently, FedEx retains a Zacks #3 Rank (short-term Hold recommendation). We also reiterate our long-term Neutral rating on the stock.
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