Aircraft & engines: Heading skywards

While it often sits in the shadows of the dominant passenger market, the cargo market is attracting interest from the leasing community

The recently launched Airbus A330-200F has attracted the attention of the leasing community, giving Airbus some much needed good news. USA-based lessor Guggenheim Aviation Partners has become the first to firm up its order for the type, agreeing to take six units. Fellow US lessor Intrepid Aviation has signed a letter of intent to buy 20 of the type, which will enter service in 2009, and Iceland's Avion Aircraft Trading plans to acquire six. India's Flyington Freighters and Turkey's MNG have emerged as the first airline customers, with commitments for six and two.

Airbus seems to have caught the mood of the market. Intrepid chief executive Ronald Anderson points to a number of factors in its favour, including the fact that the A300-600 line is shutting down, while UPS's 27-strong order for Boeing 767 freighters plus the prospective US Air Force freighter programme means that slots for this type are limited, "if they are there at all".

Tight market

The conversion market - Boeing has recently launched conversions for both the 767-200 and -300 - is also tight. "We've been trying to buy aircraft for conversion - we didn't see many," explains Anderson, noting 767-300s aren't coming out of passenger fleets. He also doesn't believe Airbus will come up with a conversion programme for the A330 before 2014-2015. Both Intrepid and Guggenheim have made no secret of the fact that they are willing to take on leased passenger intermediate widebodies with a view to converting once the A350 and 787 come on stream.

Flyington's managing director, Deepak Parasuraman, echoes these comments, adding that even MD-11s have become a scarce commodity. "If you are looking for a 64-69 tonner with low-fuel burn and 4,000nm of range, I think this is the aircraft," he says of the A330-200F. There are some other aircraft, he says, "But the reality is they cost more."

Flyington also has four 777Fs on order. Boeing has already chalked up 62 orders for the 777F, which will enter service in late 2008, from 10 customers.

As well as operational performance, it seems price helped sell the A330-200F. "Airbus was interested in launching that freighter for a long time and is willing to sell at a price that is attractive," says Doug Kelly, vice-president of asset valuation at Avitas. "It surprises me, the interest in that aircraft. I would have thought the 747 offers lower ton/mile costs. But I think operators are seeing demand for smaller sized freighters where you can't fill up a 747."

Anderson argues that unbalanced trade flows with China act in the A330-200F's favour. "If you are operating a 747-400 with low-yield freight into China, it can cause you problems. The A330 helps alleviate this issue."

Steve Rimmer, executive officer at Guggenheim, believes this is all backed up by the dynamics of the cargo market and the move towards just-in-time delivery. "Freight didn't use to mind how it travelled - that is not true any longer," he says, pointing to reliability issues with aircraft such as 747-100s and DC-8s. On the back of this, he sees demand for 3,000 new and replacement cargo aircraft over the next 10 years.

Rimmer believes the cargo market offers a steadier path for investors, avoiding the severity of the troughs seen in the passenger sector. "Half of all cargo travels as belly freight. If passenger services are cut, you have more demand for freighters." He admits, however, that financing for conversions can be hard work. "There is a need to educate the debt markets. They will take risk on passenger aircraft or a freighter, but when it comes to conversions, it generally takes a lot of education."

Indeed, Rimmer believes the popularity of common types with the financial community increases the danger of oversupply and is aiming Guggenheim towards what he sees as "less commoditised products", such as freighters.

Source: Airline Business