Rise in demand keeps conversion companies busy

Though the international air freight market is still coming out of its prolonged period of weakness there is an uptick in demand for freighter orders and that is keeping freighter conversion companies busy to fulfill the orders. Reji John finds out.

The recent past has seen a surge in demand for medium wide body freighters. Amerijet International, Cargojet, Star Air, Uzbekistan Airways and many others have either acquired or placed orders for freighters. In January this year EADS EFW, an Airbus and ST Aerospace company, launched A330 freighter conversion. In April it passed the PDR (Preliminary Design Review) where the design on a system level is finalised. The CDR (Critical Design Review) is slated for December 2014 where the design work on the A330P2F will be completed and kit manufacturing will start.
Earlier this year, the US-based Aeronautical Engineers (AEI) launched 737-800 passenger-to-freighter and passenger-to-combi conversion programme. AEI said that it is still in talks with customers and does not have a confirmed launch order. The company says that the product is expected to be launched in two to three years.
The market for passenger to freighter (P2F) conversion was quite positive for the year 2013 especially for the narrow body conversion market, as orders poured in for P2F conversion of 737-300s, 737-400s, MD-80s, and 757-200s. However, for those offering wide body conversions it was unimpressive. Going by reports in the media and from company sources there had not been a single wide body conversion order placed in 2013.
Depending on which end of the market you are looking at, the freighter conversion sector is going full throttle or resembling a graveyard. In fact AEI is working hard to meet its backlog of Boeing 737 and MD-80 conversion orders and is preparing for the next types to come into the picture.
“The market is difficult currently. No doubt about it. Our product is not ready yet. The first (prototype) converted aircraft will enter into service in February 2017, so we are still three years down the road. We will have the A330 – 300P2F as the first prototype aircraft ready in the market by February and we will have the second prototype, which is A330 – 200 aircraft in the market by June 2018. There are still more than four years until we have our aircraft types as serial conversion products in the market, which we can offer,” said Andreas Mayer, director, sales, Aircraft Conversion, EADS EFW.
According Data available from Flightglobal’s Ascend advisory service during 2013 the number of 747-400Fs parked in storage jumped from 18 to 42; for MD-11s, the number stored grew from 11 to 20. Between 2012 and 2013, the number of wide-body conversions slumped from 29 to just eight; as Ascend’s head of analysis Chris Seymour observes, the 747-400 conversions have effectively gone, leaving just the 767 and Airbus A300 – at “low levels”.
“We do not see a 747 conversion or any large freighter conversion this year or next year, and there is a question mark over 2016,” says Dan da Silva, vice-president, Modification and Conversion Services, Boeing.
Despite efforts of freighter airlines to curtail capacity – often by replacing older freighters with newer types rather than expanding their fleet – main deck lift has also increased, due to the higher payload of newer models (for example, 140t versus 110t where a 747-8F replaces a 747-400F).
As a result, yields are under immense pressure, and passenger airlines can offer very aggressive prices on belly hold freight, as their prime costs are covered by the passenger business. Also hit by high fuel prices, over the past year, several 747 freighter operators ceased operations, including Evergreen International Aviation, World Airways and Air Cargo Germany.
In fact Boeing has a blueprint for a 777 conversion programme, but da Silva does not expect this to get under way in the near future, given the high residual value of 777-200s in passenger service.
Airbus has made a strong case for twin-engined freighters, arguing that intra-regional flows are on the rise as more traffic shifts from the traditional trunk sectors to emerging economies, favouring mid-sized cargo planes carrying between 30 tonnes and 80 tonnes.
AEI is extremely bullish on its next venture, the 737-800SF. This will produce a freighter with 12 pallet positions – one more than AEI’s 737-400SF – and a cross section in line with the integrators. “I think we will do half a dozen conversions a year. We plan to increase production to between 35 and 38 conversions a year, I think then we’ll be doing good,” said Robert Convey, vice president, Sales and Marketing, AEI.
AEI expects strong demand for the model in markets like China, Russia or Brazil, where rapidly rising domestic express traffic on the back of growing e-commerce is fuelling demand for freighters. The same dynamics are fuelling growing interest in converted 757-200 freighters. For instance last year Air China – historically a 747 operator in the freighter arena – ordered four converted 757-200s. The airline flies these on an ACMI basis for the Chinese postal service hauling express parcels on major routes to and from China Post’s hub in Nanjing.
“Asia has become a very strong market for us because there are a lot of A330s and we are definitely looking at Malaysia, Philippines, Cathay Pacific and Dragon Air. These aircraft are all at an age range of 15 to 20 years so they are in the perfect window for conversions. We believe that a lot of aircraft will become available eventually once our conversion is out there,” said Mayer. However, Mayer admitted that the industry is not in the best state. “Challenges are many: high fuel costs, slow cargo growth. The yields are in pressure along with imbalance of freight. The market will bounce back. Sooner or later, the freighter has to come back. The market is slow, as integrators are not purchasing. But they will increase their appetite in the future,” he elaborated.
According to forecast released by ACMG, a “high growth” scenario, which assumes five percent annual growth in demand for air freight services, would result in more than a doubling of the quantity of freighters in the global fleet by 2033. This produces the need for an average of 150 added freighters per year for the next twenty years. Even under the extreme case where there was no growth in air cargo demand over the next twenty years, there would be a need for about 60 added freighters per year to offset freighters that would be retired from the existing fleet. “Some vigor is returning to the air freight market, and when looking over the long term, the outlook for freighters is healthy,” said Robert Dahl, Managing Director of ACMG.
According to the latest forecast by ACMG, the robust market for narrow body freighter conversions stands in stark contrast to the wide body freighter segment, where there is a strong preference for production freighters. “We also found a strong belief by industry participants that belly capacity in passenger aircraft will threaten future demand for freighters in non-express applications,” said Dahl.
The 2014 report provides a sensitivity analysis showing the impact of future freighter fleet growth in response to variations in freighter productivity and the impact of shifts in the amount of freight that is carried in the belly compartments of passenger aircraft. Shifts in the belly-to-freighter ratio are shown to have a significant potential impact on future freighter requirements. 