Grounding of MD-11 aircraft due to fatal accident UPS The plane’s entry into service earlier this month could create a capacity shortage in some parts of the market and raise air freight rates during peak holiday shipping, but analysts don’t expect it to have a major impact.
The Federal Aviation Administration grounded the MD-11 aircraft on Nov. 8, less than a week after a Honolulu-bound UPS plane crashed shortly after takeoff from Louisville Muhammad Ali International Airport in Kentucky, killing three crew members and 11 people on the ground.
Earlier this week, the TAC Index, which tracks airfares around the world, announced that its Baltic Air Cargo Index rose more than 4% in the week ending November 17, and rose 2.4% last week compared to the same period last year.
“Interest rates typically rise before Thanksgiving in the U.S. and Christmas in Europe, but sources suggest they have increased further after all MD-11 cargo planes were grounded following the fatal crash in Louisville earlier this month,” the paper said in a note.
UPS and fedex The companies said they are grounding planes representing 9% and 5% of their fleets, according to a Bank of America memo.
FedEx said it is working with the FAA to ensure its 28 MD-11 jets meet standards.
In a statement to CNBC, the company said, “To provide superior service, we flexibly operate our integrated air-ground network in the most efficient manner possible. This includes utilizing contingency options such as utilizing reserve aircraft for service restoration within the network, utilizing ground services where possible, and strategically leveraging limited commercial line transportation and charter opportunities.”
UPS said after the incident that it has contingency plans in place to continue providing service.
“At the recommendation of the aircraft manufacturer, we proactively made this decision,” UPS said in a statement on November 7. “Nothing is more important to us than the safety of our employees and the communities we serve.”
UPS said in a Friday statement to CNBC that the company is not imposing peak season surcharges following the grounding of 26 MD-11s. Instead, the airline said it has secured additional aircraft similar to the leased aircraft it procures during busy seasons and consolidated flight routes to maximize air transport capacity.
“We have reconfigured our ground network and added capacity to carry more packages,” a UPS spokesperson told CNBC. “Our contingency plans ensure that we can effectively move volumes and continue to serve our customers now and throughout the peak season.”
In its most recent earnings call before the fatal crash, the company’s CEO, Carol Tomé, said early forecasts from its top 100 customers indicated a “substantial surge in volume” was expected during the peak season.
Still, as UPS begins phasing out initiatives such as: AmazonTomé, who was previously the company’s biggest customer, added that Amazon’s lower volume means its average daily volume during the U.S. peak season will be lower year-on-year.
Stifel predicted in a note Wednesday that the operational and financial impact of the grounding would be “minimal.”
“Importantly, rather than the entire MD-11 force waiting for a single ruling, the aircraft will resume flying once approved individually. According to management, the FAA can effectively deputize outside parties to conduct inspections that have already begun,” Stifel analysts wrote.
Bank of America said in a note Monday that air cargo volumes rose 4% year-over-year in October, and cargo capacity increased 3% year-over-year on average over the past four weeks. Analysts said that while the potential disruption from the groundings was not immediately clear, they expected a calmer holiday season overall compared to the past two years.
The National Transportation Safety Board, which is leading the investigation into the UPS crash, said the plane’s left engine separated from the wing during takeoff before crashing into a series of stores just outside the airport.
In a preliminary report released Thursday, the NTSB said it found evidence of fatigue cracks and areas of overstress failure on the jet.
UPS’s headquarters are in Atlanta, but the company’s largest global package handling facility is located at Louisville Airport.
The crash occurred during the nation’s longest government shutdown, prompting disruption to air travel due to a shortage of air traffic controllers. Some cargo flights were also restricted. Both commercial and private transportation companies move packages and other goods.
During the shutdown, Treasury Secretary Scott Bessent told ABC News that a slowdown in freight could lead to shortages around the holidays. The shutdown officially ended last week, and disruptions to air travel have largely been resolved.
Correction: Key points in this article have been updated to reflect the number of people killed in the UPS cargo plane crash.
