ANALYSIS: the Boeing 747-400 freighter aircraft report

London
Source:
This story is sourced from Pro
See more Pro news »

The market for high capacity, widebody freighter aircraft has been weak for some time.

Difficult market conditions have led to further storage of Boeing 747-400 freighter aircraft, and a continuing softening of vales and lease rates.

Some market observers suggest that there is little demand for high capacity freighter aircraft anymore., while others expect 747-400 freighters to be the first aircraft to benefit when market conditions improve.

The 747-400 freighter aircraft is an all-freight version of the passenger variant, the 747-400.

It features the original short upper deck found on the Classic 747s in order to save weight. The freighter has a main deck nose door and a mechanised cargo-handling system.

The 747-400F has a maximum takeoff weight of 875,000lb and a maximum range of 4,445 nautical miles (nm) allowing for flights between New York and Frankfurt, London and Beijing and Tokyo and Sydney.

The model first flew in May 1993 and entered service with Cargolux Airlines in November 1994, while the last -400F was handed over to Nippon Cargo Airlines in May 2009.

Boeing delivered a total of 126 aircraft to operators.

In April 2001, the US manufacturer launched the 747-400ERF variant, the freight version of the -400ER model.

The freighter is similar to the 747-400F, except a strengthened fuselage, landing gear but, as expected, with a longer range of nearly 5,000nm, while maximum takeoff weight is 910,000lb.

Boeing first delivered the -400ERF to Air France in October 2002, and the last aircraft went to Kalitta Air in December 2009.

The new 747-8 Freighter, launched in 2005, has a 4,390nm range and a 987,000lb maximum takeoff weight.

In addition, two passenger-to-freighter conversion programmes were offered.

The Israel Aerospace Industries’ 747-400BDSF was the first to hit the market. Launch customer Guggenheim Aviation Partners contracted for a pair of Combi aircraft to be converted to all-cargo configuration in November 2003.

The conversion programme includes the installation of an aft main deck cargo door and strengthened main deck floor beams, while the upper deck floor beams are cut back to accommodate 10 feet high cargo containers on the forward main deck.

Boeing launched a competing passenger-to freighter conversion programme, the 747-400BCF, which was formerly known as the 747-400SF. The first aircraft was converted by the Chinese maintenance operator TAECO and was redelivered to Cathay Pacific Airways in 2005.

Market

Flightglobal’s Ascend database shows that the 163 factory-built fleet comprised 123 747-400Fs and 40 747-400ERFs at 11 January 2013.

asset image

An estimated 17 aircraft were in storage, 11 of which are -400F models.

The data shows that General Electric powers 99 aircraft, Pratt & Whitney 47 units while the remaining 17 are equipped with Rolls-Royce engines.

asset image

Of the 17 aircraft in storage, 10 are equipped with General Electric engines, six with Pratt & Whitney engines and one unit is powered by Rolls-Royce.

Ascend shows that -400 freighter conversions total 74 units, with 29 aircraft converted to the -400BDSF model and 45 for the -400BCF variant.

The widebody freighter conversion market collapsed in 2013 with just eight aircraft (six A300s and two 767s) converted, compared with 28 in 2012.

“The widebody freighter market has been so poor that we have seen in 2013 retirements of four A300-600Fs, two A310-300Fs, three 747-400BCFs and two MD-11Fs - all of which we would have expected to see longer lives,” says Chris Seymour of Flightglobal’s Ascend consultancy arm.

Demand for early-generation freighters has weakened because of high fuel prices and weak cargo demand, which undermines their economics.

The current generation of long-haul freighter aircraft have also been affected by air freight demand. In addition, the market is being dampened by the entry of new and more fuel-efficient Boeing 747-8Fs and 777Fs, while the popular 777-300ER model offers additional belly capacity.

Several cargo operators have also been disrupted by the weakness in the freight market during the past few years.

Last month Evergreen International Airlines, operating a total of 12 747s including one -400F and three converted 747-400s, filed for chapter 7 liquidation.

Global Aviation filed for Chapter 11 bankruptcy protection in 2012, but re-emerged last year. One of its subsidiaries, World Airways, operated nine MD-11Fs and four 747-400BDSFs. According to Ascend, World Airways now has two 747-400BDSFs and one MD-11F.

Also in 2012, cargo and military charter operator Southern Air filed for chapter 11 protection, citing weak international freight market and cutbacks in US defence spending. The airline re-emerged from the restructuring process in April 2013 and today operates one -400SF and one -400ERF along with a 777F fleet.

Jade Cargo International parked its fleet of six relatively new 747-400ERFs in 2011, and all six remain grounded due to overall weak air cargo demand and a commercial dispute with its joint venture partners, says consultancy group ICF SH&E.

The air freight market continues a moderate recovery, according to IATA. New data released by the organisation showed demand growth of 6.1% in November 2013. “This continues an improvement trend in the weak air cargo markets, which has been developing over 2013.”

The IATA Airline Industry Forecast 2013-17 shows that international freight volumes are expected to grow 17% during the next five years. This consensus outlook incorporates a conservative estimate of the recovery in global economic activity and world trade volumes over the coming years, says IATA.

Operating lessor Aircastle indicated on a conference call that the leasing market continued to benefit from industry conditions that are “generally strong” with the notable exception of the air freight sector.

“Air cargo demand continues to remain flat, while capacity from dedicated freighters and from belly space and passenger aircraft continues to grow,” said Ron Wainshal, chief executive officer of Aircastle on a third-quarter conference call, adding: “The cumulative effect of diverging supply and demand trends for the past two years has manifested itself in a glut of aircraft, which has become increasingly visible over the course of this year.”

During the quarter, the lessor wrote down the book values of six 747-400 converted freighters that were on short-term leases. These aircraft will come off lease in 2014.

Wainshal noted the lessor has four other 747-400 converted freighters, all on long-term leases, and the cash flows from these deals "support their carrying values.”

Aircastle also decided not to convert a passenger aircraft it had acquired, and market observers suggested this move could signal the end of 747-400 conversion programme.

“There is no appetite to convert 747-400 passenger aircraft,” says a trader. “Values are trading well below $10 million. A converted aircraft would be worth less than $10 million, so there is no rationale to convert anymore 747-400s now or in the future,” he says.

asset image

The parting out of 747-400BCF aircraft, only a few years after conversion, further indicates the weakness of the market.

IBA says there have been reports of 747-400BCF/SF aircraft being retired for part-out. “Set against this gloomy backdrop it is impossible for IBA to ascribe anything but very conservative market values to 747-400Fs,” says IBA senior analyst Jonathan McDonald.

“Furthermore, although a smaller aircraft type, the McDonnell Douglas MD-11 Freighter is seeing distinctly soft market characteristics and we are aware of various ex-Cargo Italia and even Lufthansa Cargo MD-11Fs that have been retired for part out. The relevance of this is that the MD-11F is a similar generation aircraft to the Boeing counterparts. This provides IBA with further impetus in implementing a significant and permanent shift in values for the largest wide-body freighters which obviously includes the 747-400F/BCF/ERF models.”

The total converted storage fleet equates to 21 units, including 14 -BCF aircraft parked with eight aircraft in the hands of Boeing subsidiaries.

Trading has been light for almost three years now, but four transactions closed in the final quarter of last year. Turkey’s MyCargo Airlines leased a 1991-built ex-Air China Cargo 747-400BDSF from AerCap.

Cargolux Airlines leased a 2009-vintage -400ERF aircraft previously operated Kuwaiti freighter cargo start-up LoadAir.

Centurion Cargo leased a 1998-built ex-Cargolux 747-400F from AWAS last October and added an ex-Air France 747-400ERF from ILFC last month.

The only sale transaction that closed in the marketplace last year involved Cathay Pacific’s 747-400Fs. Boeing agreed to purchase six production freighters from Cathay as part of 21 Boeing 777-9Xs order.

One trading source tells Flightglobal that 747-400 factory built aircraft have been badly impacted by the downturn. “Presently an aircraft would lease for between $250,000 and $400,000,” he says.

According to him, values range from a low of $20 million to a high of $35 million, depending on the vintage age.

Another source says -400F are very difficult to assess now. “Lease rentals are up to $275,000 a month so theoretically a value of $20-30 million could make sense.”

But he adds that from a lender’s perspective, the aircraft is not ideal loan collateral and credit is what counts.

CMVs and lease rates

Ascend data indicates the current market value of a 10-year-old 747-400F, CF6-80C2B1-powered aircraft, with a 875,000lb maximum take-off weight, has declined substantially since 2008 to around $47 million.

“With the global airfreight market still in the doldrums, demand for large freighters has been on the wane, although the 747-400F has been faring better than converted -400BCF and -400BDSF variants, larger numbers of which have been parked and/or parted-out. Nonetheless, with even brand-new 747-8Fs being parked in the desert pending better times, it is quite possible that more -400Fs will be joining them,” says Ascend.

MBA says the 747-400F model will be one of the first freighters to benefit from recovery. The firm has a $63 million current market value for a 2003-vintage aircraft against a $83 million base value, highlighting “the ground to recover”.

IBA Group has a $36 million current market value and a base value of $60 million. Collateral Verifications has the lowest appraisal at $43.2 million.

A 1993-vintage factory built aircraft has a current market value of $37.8 million, according to MBA. Ascend appraises the aircraft at $32.5 million, while IBA Group has a value of $23 million. Collateral Verifications’ current market value is in the $26 million range.

A 2009-built aircraft has a current market value of $86.8 million, according to MBA, and $66.7 million, says Ascend. Collateral Verifications has a value of $62.7 million, while IBA Group has the lowest value at $53.4 million.

Monthly lease rates vary from $275,000 for a 20-year-old aircraft, according to IBA and Collateral Verifications, to $570,000, according to MBA. Ascend has a lease rental of $500,000 a month.

Ascend values a 2003-vintage aircraft in the $600,000 a month range, MBA says $650,000. Collateral Verifications and IBA Group are more pessimistic with values of $425,000 and $380,000, respectively.

A 2010-built aircraft commands rentals that range from $725-800,000 says MBA. Ascend has a $690,000 lease rate quote. Collateral Verifications and IBA are on the lower side with $515,000 and $440,000 quotes, respectively.

Collateral Verifications says values and lease rates dropped by 25-30% during the past year.

“Not unlike many other aircraft, the lack of capital has also made it tough for anyone to finance these older aircraft, which in turn has reduced the values that interested parties are willing or able to pay for these aircraft,” says Collateral Verifications’ vice president Commercial Aviation Services Gueric Dechavanne.

He sees this trend continuing in the near term, which will not help stabilise values and lease rates. “Should the cargo market begin to strengthen over the next 12 months, availability will diminish quickly thereby strengthening the values and lease rates fairly quickly.As we have yet to see any real signs of a rebound in this market, the current trend will remain for the foreseeable future.”

Stuart Rubin principal at SH&E, says while the near-term outlook is not positive, if the broader global economy recovers in a more robust manner, air cargo demand and yields should improve. This will also support a recovery in values and lease rates of the aircraft.

“On the positive side, the nose cargo door of the factory 747-400F gives it the unique capability to transport oversized items that freighters with only side cargo doors are not able to carry such as oil drilling and mining equipment,” he adds.