Grounding Trims Capacity During Peak Season and Adds $175M in Costs

FedEx is hoping and praying that its MD-11 freighter fleet will begin returning to service sometime in the spring after a major cargo accident forced an industry-wide grounding during the peak shipping season. But damage has already been done, with the carrier expecting to incur $175 million in extra costs by the end of the disruption.

The grounding began November 8 and affects 28 FedEx MD-11s, including three spare aircraft. It was issued after a fatal UPS MD-11 crash revealed structural fatigue cracks in an engine pylon. Regulators have not yet issued final inspection and repair protocols, leaving operators waiting for formal guidance before the aircraft can be cleared to fly again.

The MD-11 grounding immediately removed about 4% of FedEx’s global air cargo capacity. To keep shipments moving, the company redeployed larger aircraft, consolidated flights, shifted maintenance schedules, increased trucking, and relied on third-party carriers. While those changes complicated operations and crew scheduling, FedEx said it has largely avoided service disruptions.

The carrier isn’t getting off easy, however. FedEx estimates the grounding will cost about $175 million in total. Roughly $25 million of that impact came in the final weeks of November, with another $150 million expected primarily in December as the company is forced to find outside help during the busiest shipping period of the year.

“It’s an expensive time of year to be getting outsourced lift to begin with, let alone when you have a fleet grounded,” explained FedEx Chief Financial Officer John Dietrich.

Despite the grounding, FedEx posted a strong fiscal second quarter. Revenue rose 7% year over year to $23.5 billion, while adjusted operating income increased 17% to $1.6 billion. Adjusted earnings per share came in at $4.82, well ahead of expectations, prompting the company to raise the lower end of its full-year earnings guidance.

FMI: www.fedex.com