Cargojet, which operates a nationwide air cargo network in Canada for e-commerce express companies plus international services, is moving more aggressively to cap fleet growth and preserve strong cash flows in response to the continued slowdown in shipping demand.
The airfreight specialist has a surplus of Boeing 757 converted freighters and recently listed four of them for sale, Chief Financial Officer Scott Calver said Tuesday during a conference call with analysts about third-quarter results. The planes were recently converted and had their engines overhauled. It costs about $5.2 million to remodel a 757 for cargo, not including millions more for acquisition, according to industry experts.
Until a sale is consummated, the planes are available for lease to other airlines and still will be used for charter work, Calver added.
The move follows an earlier decision not to proceed with converting four 777-300 passenger jets. One of the planes was sold during the summer at a $1.6 million (CA$2.3 million) loss, and two were sold in the third quarter. They were severely damaged in a hailstorm, which delayed their sale. Cargojet (TSX: CJT) received $8.8 million from its insurance claim, but the amount didn’t fully cover repairs. The fourth 777-300 was never purchased.
Management also said plans to convert two Boeing 767 passenger jets it owns are on hold.
Cargojet has 39 aircraft in its fleet, up from 34 at the end of 2022. More than half of them are Boeing 767 medium freighters. It expects to have 41 aircraft by the end of the year after two 757s it purchased complete conversion to cargo configuration, and 46 by the end of 2025, according to company figures. The Canadian carrier is moving forward with the passenger-to-freighter conversion of four Boeing 777-200s under a contract with aerospace startup Mammoth Freighters. Cargojet will operate the planes for DHL Express, one of its major customers and a minority owner.
But if the 757s are sold off, the number of aircraft will stay nearly the same. Executives said they hope to get about $87 million for the midrange freighters or will use the parts on other aircraft in the fleet if a buyer isn’t found.
Air Transport Services Group, a U.S. aviation firm that provides aircraft leasing and cargo services, is also cutting back on capital expenditures for fleet growth because of down market conditions. Executives this week said they have put on hold plans to convert seven used Boeing 767-300 passenger jets that were recently purchased.
Cargojet reported revenue in the third quarter declined 8% to $155 million, partially due to lower fuel surcharges, and adjusted earnings before accounting measures fell 17% to $50.6 million year over year, in line with analysts’ estimates.
The airline flew 8.8% fewer hours during the period versus last year.
Domestic revenues were marginally lower at $64.4 million due to a decrease in e-commerce and B2B volumes, partially offset by inflation adjustments in long-term contracts. CEO Ajay Virmani said consumer spending on household essentials is offsetting declines in discretionary items purchased through online channels.
Revenue from long-term transportation services agreements and one-time charters was $45.4 million, 9% below the 2022 level, as the company realigned international routes to match lower demand. Nonscheduled charter work has picked up, and the carrier is taking advantage of extra aircraft and crews to meet that demand.
Chief Strategy Officer JamesPorteous said a 9% reduction in revenue from long-term transportation contracts and one-time charters reflected a realigned international route structure with shorter stage lengths to match lower demand. In 2022, when shipping demand out of China was still strong, Cargojet operated two dedicated aircraft for DHL from Shanghai to the DHL hub in Cincinnati via Vancouver, British Columbia. Those aircraft were shifted to routes in North and South America when volumes declined late last year.
Optimizing routes is the primary way a cargo airline can reduce waste, but Cargojet has also combated revenue losses with what Virmani called a “new culture of frugality.” That has led to reductions in overtime, training and temporary employees.
Cargojet is also selling two Beechcraft that were purchased for crew transportation.
Management said it projects peak season to be flat year over year, which likely means sequential growth in the fourth quarter of 10% to 15%.
Click here for more FreightWaves stories by Eric Kulisch.
RECOMMENDED READING:
COVID cost initiative boosts Cargojet margins despite drop in volumes
The post Cargojet to sell off new B757 freighters, pause 767 conversions appeared first on FreightWaves.
