Times have been rough lately for the business that launched the Israeli aerospace industry, but the worst may be over. Two major projects are underway within the Bedek division of Israel Aerospace Industries (IAI), reflecting a new optimism about the struggling cargo aircraft conversion market.
By 2018, passenger-to-freighter conversions of the Boeing 777-200 and 737-800 may have joined the Bedek portfolio, adding to existing cargo modifications for the 737-300/400, 767-200/300 and 747-400.
The ability to rip apart a widebody commercial aircraft, add extensive modifications and certificate the result is a rare capability normally reserved for the original manufacturers. IAI represents one of the few maintenance houses in the world with the design and engineering skills to compete in that market.
“The thing that defines us strongly is the engineering power. You don't see any other company with as strong an engineering power as we have here,” says Jack Gaber, senior vice-president of marketing and business development at Bedek.
After six decades in the aviation business, Bedek is familiar with industry’s fluctuating market cycles. Israeli president Shimon Peres, then director-general of the ministry of defence, founded Bedek Aviation Group in 1953 to maintain Israel’s foreign-built aircraft fleet and engines. Now a key operating unit of IAI, Bedek has added conversions of cargo and special mission military aircraft to its repertoire.
The cargo conversions unit has been hit the hardest. After completing more than 200 projects beginning in 1995, Bedek’s customers in the air cargo market still have not recovered from the global economic recession of 2008.
The express delivery market appeared to bounce back strongly in 2010, but the hoped-for return to growth was short-lived. Air freight operators showed declines again in 2011, and the numbers continued a soft but steady drop through mid-2013.
What had seemed like a reliable growth market for Bedek only a few years ago is now flooded with un-used capacity. IAI has not signed an order in more than a year to convert a widebody aircraft into a freighter.
Demand for certain types of aircraft – such as the four-engined Boeing 747-400 – may never return, says Gaber.
“Depending on oil prices, probably there will not be too many of those,” Gaber says.
Despite the dark cloud over the air freight industry, there are still hopeful signs. For the last five months of 2013, global demand for air freight stabilised and even increased slightly.
Still, the recovery must be sustained and continue to improve for several months before demand regenerates for new cargo conversions.
“There is so much capacity that’s not utilised now that it will take a little bit of time – maybe into the middle of next year, I would say so – until we really start feeling the effects,” Gaber says.
Bedek is preparing now with the expectation that the air cargo market will recover, but a return to pre-2008 growth levels of 5% per year may be unlikely. Some goods and items that were shipped only by air freight were converted to other modes of transportation during the recession.
“Now everybody speaks about 3% [annual growth rate],” Gaber says. “All air freight is less than 2% of the overall freight market. Everything else goes ocean and ground. We have this niche really – 1.5-2% [of the overall freight market]. As commerce grows, they will need this air freight.”
In the near term, the company can offer a conversion of the 767-300. Bedek has certificated two variants of the type – one with a rigid cargo barrier and one with a net barrier. The latter is cheaper to install, but comes at the expense of removing one of the 24 cargo pallet positions available with a rigid barrier, Gaber says.
Since 2008, Bedek has explored launching a cargo conversion of the 777-200. The global recession that began that year dampened the market’s interest, but Bedek senses the mood could shift. Indeed, Bedek has started working with real hardware.
“We actually have acquired an aircraft, which is right now in the facility,” Gaber says. “So we’re really making progress.”
Bedek is still analysing the business case, but believes the feedstock will be available in time to begin deliveries of the first 777 passenger-to-freighter conversion in 2017 or 2018.
It will likely not be alone. Boeing has signalled plans to deliver a similar 777 cargo conversion. Meanwhile, Airbus has teamed with EADS EFW and ST Aerospace to develop an A330-200 passenger-to-freighter by 2016.
For such companies, widebody conversions are the most desirable because they offer higher margins for profit. IAI, however, has stayed active in the narrowbody conversion sector, even if it is less financially appealing and low-cost alternatives abound.
The latest recession strengthened IAI’s interest to remain in the narrowbody sector, as opportunities for widebody conversions dried up.
“Our lesson learned is we need to have a presence in narrowbodies,” Gaber says.
IAI is now close to a final decision to launch a 737-800 conversion programme. A supply of used aircraft is expected to become available at low enough prices by 2015 or 2016, Gaber says.
Five years ago, Israel Aerospace Industries (IAI) sensed an opportunity in the military aircraft market.
Hundreds of ageing aerial refuelling tankers were coming up for replacement, and Airbus and Boeing were offering highly capable – although expensive – widebody tankers in the form of converted Airbus A330-200s and Boeing 767-2Cs.
But offering a conversion of a used widebody aircraft could make for a cheaper tanker. IAI already understood the passenger-to-freighter conversion business. The cost of converting a used tanker aircraft with modern military equipment would be higher, but it could still offer certain customers a bargain compared with an all-new aircraft.
“We offer the same capabilities and the same performance and there is a price difference,” says Moshe Scharf, IAI Bedek’s senior vice-president of business development.
The Colombian air force agreed with IAI’s business case, launching the IAI Bedek 767-200ER multi-mission tanker transport (MMTT) in late 2010 with a single order. The Brazilian air force selected a Bedek proposal based on an MMTT version of used 767-300ERs in March 2013, and both sides are continuing to finalise the contract, Scharf says.
Bedek now confirms the negotiations are underway with Colombia to order a second 767-200ER MMTT, perhaps replacing the 707 tanker that IAI converted for Colombia in the early 1990s.
A second aircraft for Colombia could help Bedek launch a fly-by-wire refuelling boom system for the 767, which is now in ground testing, Scharf says.
The Colombian air force is evaluating several new fighters to complement a fleet of Kfir fighters, which were recently rebuilt and delivered by IAI. One of the fighters in consideration is the Lockheed Martin F-16, which requires boom refuelling.
“They are expecting to get some F-16s from the United States,” Scharf says. “So they will need a boom system. Then, they also will retrofit [the boom on the first 767 tanker] with a boom system.”
Bedek is not disclosing many details of the boom refuelling system, except to say that it will be fly-by-wire with a 1,000gal (3,800 litre) per minute flow rate and based on Israeli-controlled technology.
Adding the boom refueller will put the IAI 767 MMTT on par with the basic capabilities of the Boeing KC-46A for the US Air Force, and the A330-200 multi-role tanker transport ordered by the UK, United Arab Emirates, Saudi Arabia and Australia.
At the same time, Bedek depends on access to the 767 platform, which requires governmental approval of one of its international competitors.
“There is always a concern they might try to block this,” Scharf says.
However, he notes, Boeing has already won the biggest order on the market – the USAF KC-X contract with 179 aircraft. Orders by other countries needing only one or two aircraft barely register by comparison.
“I don’t think they will fight fiercely,” Scharf says. “They did not compete in India. They did not compete in Brazil eventually. There is always a concern.”