FedEx Projects $175 Million Hit from MD-11 Grounding Amidst Peak Season

FedEx is bracing for a $175 million financial headwind impacting adjusted operating income this fiscal year. This stems from the grounding of the MD-11 fleet, according to information shared by John Dietrich, Executive Vice President (EVP) and Chief Financial Officer (CFO), during the Q2 earnings call last Thursday.

The shipping giant already absorbed $25 million of that impact in November, with the remainder expected to accrue in the third quarter. CFO Dietrich noted that FedEx will face "significantly higher costs," particularly in December, due to expenses related to securing third-party air cargo capacity.

Commenting on the cost pressures, Dietrich stated: “It’s an expensive time of year to be getting outsourced lift to begin with, let alone when you have fleet grounded.”

FedEx’s current financial outlook assumes the MD-11s will return to service in Q4, starting March 1.

Context of the Incident and Capacity Impact

FedEx and UPS grounded their MD-11 aircraft last month following a recommendation from manufacturer Boeing after a fatal accident involving the same aircraft type. The Federal Aviation Administration (FAA) also issued an emergency directive prohibiting MD-11 flights until inspections and fixes are performed, putting immense pressure on cargo capacity for both carriers during the busy holiday shipping season.

Raj Subramaniam, President and CEO of FedEx, noted that 25 of FedEx's 34 MD-11s were in service before the grounding took effect. He highlighted several contingency plans the company has since implemented, such as shifting volumes to other aircraft or moving via truck, to mitigate the impact.

Discussing the response strategy, Subramaniam shared: “For the final week of peak, we have additional contingencies in place.”

He elaborated on the extent of the impact: “We lost about 4% of our global cargo capacity before mitigating actions during our busiest season. As a result, our cross-functional teams are working around the clock to minimize any service disruption.”

Commitment to Peak Season Service

Despite the ongoing challenges with the MD-11 fleet, FedEx maintains it is effectively handling this peak period.
Brie Carere, EVP and Chief Customer Officer (CCO), praised the operational efforts: “I cannot say enough about the incredible work of the airline.”

Carere concluded with cautious optimism: “But the team does need to execute next week without the MD-11, we’re very focused on that, and they have demonstrated that this is definitely going to be a strong peak and could not be more pleased.”

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Source: Phaata.com (According to SupplychainDive)

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