News / FedEx places order for 24 new aircraft to modernise fleet as profits grow

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Tax benefits played a part in boosting FedEx’s full-year profits, although margin pressures bit hard, and the logistics operator has placed a major new aircraft order.

Announced alongside its annual results, the company said it had ordered 12 Boeing 777 freighters and 12 B767 freighters as part of its modernisation programme.

During an investor call yesterday, chief operating officer Dave Bronczek said the aircraft, due for delivery between 2020 and 2025, would replace older, “less efficient” aircraft.

He said: “The reliability of our air fleet has improved significantly and will continue to improve in this next phase of the fleet modernisation programme.”

Furthermore, Mr Bronczek noted, the orders would provide some flexibility for the company during a period of strong airfreight growth.

“The great thing about these aircraft is we can completely replace the MD11, pick them out of international, bring them back to the US and move the MD10s out,” said Mr Bronczek.

“On the other hand, if we continue to see strong growth like we’re seeing now, we could use them to add capacity. So, we can hold and replace, or we can grow and add capacity.”

The order – which could cost anywhere north of $6bn – comes amid a period of healthy growth for the company, which saw turnover hit $65.5bn, up 8.6% compared with 2017. This, in turn, generated some $4.6bn in net income, although the company pointed out this included tax benefits to the sum of $2.1bn.

Chairman and chief executive Fred Smith said: “It was a year of opportunities and challenges – anticipated and unexpected – and FedEx emerged more competitive than ever.

“In all my years at FedEx, I have never been so optimistic and so sure of our strategy and our ability to deliver an exciting future.”

As far as success goes, its freight division took the crown, with a 35% surge in operating income ($175m) on the back of a 16% upturn in revenues ($1.8bn).

And while its express unit did not see quite the same rate of growth, revenues were up 9% to $9.6bn, generating $990m in profit (up 11%), and it remains its largest division.

“FedEx Express segment revenue growth was driven by primarily by our international business,” added Mr Bronczek. “And we had excellent growth in both international and US freight services which helped drive better profitability.”