With passenger carriers rapidly pulling back capacity and in several cases shutting down entirely, the pool of available aircraft for freighter conversions has suddenly deepened. But cargo carriers and leasing companies for now seem to be taking a wait-and-see attitude before committing to conversion slots, including several slots for 2009 that still remain unsold.
For example, Boeing and Israel Aerospace Industries' Bedek Aviation Group division are both struggling to find customers for their Boeing 747-400 conversion lines despite the recent improvement in feedstock. Their problem of the last few years - a shortage of available 747-400s due to booming demand in the long-haul passenger market and Airbus A380 delivery delays - is now gone. But new challenges have emerged, including slumping demand for air cargo and a credit crunch that makes it more difficult to secure the funds needed to invest in conversions.
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© Bedek Aviation |
"Unfortunately next year looks fairly soft," Bedek corporate vice-president and general manager Dany Kleiman told the recent Cargo Facts aircraft symposium in Miami.
Bedek expects to redeliver eight Boeing 747-400 Special Freighters this year, but Kleiman acknowledges at best it will complete five or six only next year. As for commitments, he says "we're still working on that".
Boeing vice-president of freighter conversions Dennis Floyd also acknowledges "we probably have two or three slots available for next year". Floyd expects Taikoo (Xiamen) Aircraft Engineering (TAECO) will convert slightly fewer 747-400s in 2009 compared with 2007 and 2008.
The 747-400 Boeing Converted Freighter (BCF) back-order, which at one point exceeded 40, now stands at only 14 aircraft. Eight of these are earmarked for conversion at TAECO, the only shop Boeing uses for the orders it secures, with the other six split evenly between Korean Air and Singapore Airlines, which in 2004 opted to acquire only the kits from Boeing and convert the aircraft on their own.
Boeing and IAI believe the current downturn will be short-lived and the 747-400 conversion business will pick up again. "We're in a downcycle now and hoping we're on the cusp of an upcycle," Floyd says.
Adds Kleiman: "The cargo market is uncertain. I don't have a crystal ball, but we expect in four to six months to see decisions in the marketplace."
Q Aviation senior vice-president Steve Fortune also predicts a turnaround: "Our view is the cargo market will recover in the 2010 or 2011 timeframe. Now is the time to lay ground work for that recovery."
For the 747-400 Fortune notes that "the feedstock is increasing dramatically and values are starting to come down", making conversions more attractive. Fortune also believes Boeing 767-300ER conversions are becoming more attractive, saying "early next year we feel we'll see prices where it makes sense for conversion".
So far only Q Aviation and All Nippon Airways have placed orders for the newly certificated 767-300ERBCF and Bedek has yet to secure a launch customer for its 767-300SF, which is scheduled to be certificated next year. Both are confident of a flood of orders and say the 767 market, which has been tight the last couple of years in part because of delays in the 787 programme, is finally starting to open.
Kleiman says there are now 10-15 767-300ERs on the market. "Availability has increased over the last few months," he says. "We think it will be a very strong programme."
Floyd agrees: "It's still a pretty tight feedstock, but it's improving. The 767-300ER is really going to be, from a conversion point of view, the most desirable plane in the market. The economics of that plane as a freighter are really strong."
Conversion shops and lessors say Boeing 757s are also starting to become available, including aircraft from Northwest and US Airways. Over the last year FedEx Express has been able to secure most of the 87 757s it requires for its conversion project at Singapore Technologies. But other parties have struggled to find 757s, putting a dampener on business at other shops including Precision Conversions, which is still only running one line. "The good news is FedEx is mostly done so the rest of us can go out and pick up some airplanes," Fortune says.
He says the availability of A300-600s has also significantly improved in recent months with American Airlines and Thai Airways parking large numbers of aircraft. "I've been working this for years. We're always fighting to get this aircraft," Fortune says. "By the end of next year there could be over 60 on the market, which is one-third of the remaining stock."
The 737-300/400 market has opened up even more, led by wholesale fleet cuts at Continental and United Airlines. The three shops converting this type, Aeronautical Engineering, Bedek and Pemco, have not yet reported any up-tick in business, but are confident the market will improve soon.
"There are a lot of airplanes, a lot of people need options and the cargo market is giving [lessors] better returns than the passenger market," says Pemco president Kevin Casey. "There's very little risk. Boeing built a good aircraft and we didn't mess it up."
Overall, if you are an airline or lessor looking for an aircraft to convert, things are looking much brighter than they did a few months ago. "The crisis is pushing a lot of aircraft values down to a level where conversions make sense," says Bristol Associates president Pete Seidlitz.
Source: Flight International
