Fate of America's Iconic 747 jet in hands of Moscow firm

[CHICAGO] Time is running out for Boeing Co's iconic 747 jumbo jetliner, the plane that brought global travel to the masses in the 1970s.

The storied 747 has fallen from favor in the modern airline industry as carriers turn to twin-engine aircraft that can fly farther and use less fuel, like Boeing's own 777 or the Airbus A350. Sales of the cavernous freight model have waned as well, done in by an eight-year slump in global air shipping.

The plane can't even catch a break in Washington. An order to replace the quarter-century-old 747s used as Air Force One to ferry US presidents is running into congressional budget flak.

Now, as Boeing weighs the 747's future, a revival hinges heavily on an unlikely source: a Russian freight company that promises to buy 18 over the next few years. If that pledge falls through, and finding financing won't be easy, Boeing faces a tough choice: End production and take a financial hit, or try to limp along until a cargo rebound yields more sales. For now, Boeing's backlog is enough to keep building 747s only through mid-2017.

"The question is, can they get enough orders in the next five years to keep the production line open?" said George Dimitroff, head of valuations for consultant Ascend Worldwide. "If they close it, there is nothing to replace it." Boeing's strategy in recent years has been to cut output repeatedly, with another pullback due in March. Still, the current 747-8 is about one-third larger than its closest rival, and its ability to load massive cargo through a hinged nose remains attractive to some shippers. Dropping the jet now could create an accounting loss for some of the US$1.89 billion in deferred costs, filings show.

"I don't want to sugarcoat this: It has been a tough market," said Randy Tinseth, a Boeing vice president for marketing. "It continues to be a tough market. We have some near-term opportunities. We also have airplanes we need to sell." Dubbed the "Queen of the Skies" for its piano bars and spiral staircases, the distinctive hump-nose, four-engine 747 was introduced in 1970, ushering in an era of long-range travel and jets with two aisles. It has gone on to log orders for more than 1,500 of its various models, making it one of the best- selling planes in aviation history. The 747-8 can't claim much of that glory: It accounts for only 121 orders, and debuted in 2011.

This year, Boeing has netted only two 747 sales, matching its 2014 total. The latest customer: itself. Boeing's finance division bought two 747 freighters and leased them in November to AirBridgeCargo Airlines and Moscow-based parent Volga-Dnepr Group. The 747-8 lists for about $380 million, before the usual steep discounts.

AirBridgeCargo's pledge to buy 18 additional jets would almost double Boeing's unfilled orders as of the end of November. But Russia's economic slump and a 60 per cent drop in the ruble will challenge the carrier's ability to convert that promise to a firm purchase. (Aircraft sales are exempt from Ukraine-related commercial sanctions imposed on Russia.)

BLOOMBERG