The first flight of the Boeing B-747-8F on Feb. 8, some 41 years after the original B-747 first flew in 1970, represents a major boost for Boeing coming on the heels of the B-787.

But with the airfreight market having contracted by more than ten percent in 2009 there exists limited appetite for the new leviathan, thereby potentially undermining values, at least in the very short term.

The first flight finally occurred after many months of delay. The first flight was originally scheduled for December 2008. The first B-747-8F is due to be delivered to Cargolux by the end of the year and will offer lower unit costs than the existing -400F. The delay to the new B-747 program has however, incurred a $1 billion charge and production rates are likely to be limited to 1.5 aircraft per month. A rate of some 20 per year is usually considered the minimum needed to achieve economies of scale. A lower production rate delays the payback period and potentially reduces pricing flexibility on new sales. Any increase in production has been put on hold.

Orders for the B-747-8F have failed to materialize for some time. The last order to have been placed was in November 2007 when Cathay ordered 10 units at the peak of the market. A total of 76 freighters have been ordered with another 32 orders for the passenger version. Boeing was able to record an order for five B-747-8Is in December 2009. The absence of orders for the B-747-8F is all the more notable – and disappointing - given the seeming indefinite postponement of the A-380F program.

With air freight having fallen by some four percent in 2008 and another 10 percent in 2009 (IATA statistics) the malaise is understandable. The decline in air freight traffic is the worst since 1945. Operators are still seeking to come to terms with the lack of demand.

FedEx has signed a letter of intent to acquire two yet to be delivered B-777Fs from Air France/KLM. However, there are indications that the market is improving, at least in terms of traffic. December 2009 saw a near 25 percent rise over December 2008 and figures for January 2010 were also encouraging.

AirBridgeCargo is acquiring two NCA B-747-400s which have been parked in the desert and a further B-747-400ERF from Air France is set to enter the fleet. A second -400ERF from Air France is also being sought. The disposal by Air France of youthful capacity nonetheless underlines the severity of the market.

Values of freighters have been hard hit due to the recession and those of the B-747-8F have not been immune. The 2008 list price of the B-747-8F ranged between $301.5 to $304.5 million compared to the $238 to $268 million of the B-747-400F/-400ERF.

Values of the B-747-8F in comparison are fortunate to exceed $170 million representing a discount of some 45 percent. When Boeing publishes list prices for 2010, the discounting will likely be in excess of 50 percent. Despite the reduction, the fall in B-747-8F values has been reasonably modest compared to some other freighter types such as the B-747-400. The Aircraft Rating for the B-747-8F has fallen from A- to B+ which reflects the short term problems of the wider cargo market. A rise in the rating is probable within the next twelve months.

Unfortunately for the -8F, the fall in values has meant that the value of a ten-year-old 400F now costs less than half that of the new aircraft. Combined with low yields, directional imbalances and less than desirable load factors, the efficiency of the -8F has yet to come into its own. Values of the -400F may also not have reached their low point largely because of the decision by troubled JAL to dispose of its fleet such that the differential between the two could further increase.

The values of the -8F are also anticipated to struggle in the next six months – albeit before service entry has even been effected - as the air freight market seeks to absorb more of the excess capacity that exists. However, in 2011 some stability is likely to be experienced with the potential for a rise. Unfortunately, with so many passenger -400s available for conversion, a major increase is unlikely.

The airfreight market continually seeks to reduce unit costs. The B-747-400F can carry 274,100 lbs of payload; the -400ERF 273,400 lbs; the -8F 295,200 lbs. Despite the higher payload of the -8F, the fuel consumption is only 11.2 liters per 100 tonne-km versus the 13 liters of the -400F. The -8F has a maximum range of 4,390 nautical miles, which is less than the 4,980nm of the -400ERF.

The passenger version of the B747-8 may have enjoyed a fillip with the order from Korean in December last year, but the type continues to face significant difficulties.
While service entry is some way off, the order book would be expected to be in excess of 32 at this stage.

Boeing CEO James McNerney has reportedly been quoted as stating that “We’ve kept a lot passenger discussions warm on this side, but no one is buying $250 million machines” (Source: ATI).

The figure of $250 million contrasts with the 2008 list price that ranged between $293 and $308 million. At $250 million, no customer will be interested as A380s are priced at $200 million. Values of the B747-8I by comparison are more likely to be around $165 million. Boeing hopes that some orders will be placed in the latter part of the year, which will do much to prevent values of the passenger version from falling further.

Paul Leighton (pleighton@aircraftvalues.net) is also founder and managing director of the Aircraft Value Analysis Company, a UK-based company that specializes in future value forecasting. AVAC was specifically formed in 1991 to provide independent advice regarding current and future aircraft values, and the factors that affect them, to the air transport community.

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