The recent data from IATA for the whole year of 2016 saw cargo traffic rise by 3.8% in freight tonne-kilometres (FTK), against a 5.3% increase in capacity measured in available tonne kilometres. This encouraging growth was compared to the anaemic 2.3% rise in 2015 and the past decade’s average annual growth of 2.6%. European carriers saw the fastest global growth by region for the first time.
The year ended on a high, with a 9.8% increase in FTKs in December, versus 3.2% in ATKs. These are encouraging figures and the fourth quarter represented a strong peak season, aided by Black Friday and Cyber Monday.
It was noted that the rise in growth coincided with an increase in the shipment of silicon materials for high-value consumer electronics, while a modal shift to air cargo following the collapse of South Korea’s Hanjin Shipping Company in August may have also helped. Still of concern are relatively flat global trade figures and this is driving the current conservative 3.5% growth prediction for 2017.
There was also optimistic news from Hong Kong airport, the world’s busiest in terms of tonnage handled, which reported a 3.2% increase for the whole of 2016, and a strong December showing, with 11% growth.
Looking at the overall jet freighter fleet, the past three years have seen a steady increase from the floor of around 2,000 in service to some 2,285 – an annual increase of 4% in 2016. Both narrowbody and widebody fleets have increased, driven mainly by the growth of express and e-commerce freight. The fleet is now approaching pre-2008 levels again.
The year 2016 was a quieter one for new-build freighter orders, with 27, compared with 75 the previous year, which was due to almost 50 new 767s being ordered by FedEx.
The Airbus A330-200 Freighter failed to gain any new orders in 2016 and the Boeing 777 Freighter, one of the most popular types in recent years, saw just two new orders from FedEx, as we know the 777 production rate is being reduced to five per month as a result of a struggle to find orders for passenger -300ERs and -200 Freighters.
FedEx also added seven more 767 Freighters to its backlog but the main activity was for the 747-8F, which saw 2016’s total of 18 orders equal the combined total of the previous five years.
The main story was UPS ordering 14 -8Fs in October, a welcome boost for the 747 programme which is heading for a reduced production rate of just six per year. This was also UPS’s first new order for nine years, since it topped up its 767 fleet in 2007.
Deliveries in 2016 were close to the 20-year annual average of 30 but below the past five years’ average of 44. Continuing overcapacity in the long-haul market has impacted demand for the largest freighters. The 747’s declining annual deliveries highlights this, as does the 777’s reduction from 19 to 11.
The current backlog totals 124, of which 70 are for the 767. Based on future delivery dates, the next two years should see deliveries around the annual average of 30, with slots open from 2019 onwards.
There was a total of 74 conversions in 2016, over 20% higher than the 60 jets converted in 2015. The prognosis for 2017 is similar. The increase was mainly driven by 10 more widebody conversions to 18, with narrowbodies relatively stable at 56.
The main drivers of conversions are currently the express/e-commerce operators – notably Amazon, FedEx, DHL, Chinese carriers and those serving the integrators and post offices in Europe. This is really a continuation of the trend seen in 2015, but accelerated by the launch of Amazon Prime Air.
DHL is replacing its 28 earlier converted 14-pallet 757s with younger 15-pallet machines at Precision, while FedEx is nearing the end of converting over 100 at Boeing/ST Aerospace. This and more demand from China has resulted in 14 more conversions of 757s in 2016. Conversions of 737 Classics saw a reduction, as feedstock of good machines starts running out. AEI has led conversions in 2016, ahead of Pemco, which has just been acquired by ATSG.
The main factor in widebody conversions has been a rapid increase in 767 conversions – for SF Airlines, ATSG, Kalitta, and Atlas including the first four of 28 for operation on behalf of Amazon. Its decision to launch its own Prime Air operation, which is building a fleet of 40 767 freighters at Cincinnati by the end of 2018, will be a key near-term factor in driving 767 conversions. The fleet will be leased from and operated by ATSG and Atlas Air units.
Conversions are being undertaken both by IAI Bedek and Boeing, which is using ST Aerospace in Singapore and EGAT in Taiwan from 2018.
In 2017, the market will see the likely end of A300 conversions and the completion of the first A330 conversion at EFW. DHL’s 2016 order for four A330-300SFs was an important boost for the programme.
Last year did surprisingly see the start of two more 747 conversions at IAI Bedek, as Asiana Airlines decided to convert two of its own -400 Combis. Given the glut of parked converted -400s and continuing overcapacity, this decision was likely due to the book values of the aircraft and the lower cost of converting a Combi, which already has the side cargo door.
Looking at the average age when aircraft are converted, during the past decade this has averaged 19 years (18 years for widebodies and 20 years for narrowbodies). In the past few years the age has been creeping up – to 22 years for both types in 2016.
The issue now facing converters of 757s and 737 Classics is that the feedstock is running out – most of the fleet is now over 20 years old. The focus is therefore shifting to subsequent generation types, especially as they face their own replacement in the passenger market with the A320neo and 737 Max families starting service in the next few years.
The backlog of aircraft lined up for conversion is now around 230 aircraft, which includes some 100 older generation types, including over 20 737 Classics, 757s and almost 30 767s.
Narrowbody conversions in 2017 will importantly see the first 737NGs be completed – 737-700SFs for Alaska at IAI Bedek, followed later in the year by the first -800s at Bedek, AEI and Boeing. With over 100 orders already received for the -800SF, this is one of the key programmes for the 2020s. It is expected to be a popular freighter, with one more pallet than the -400SF and a 23t payload.
There is less clarity on the A320/A321 conversions. US modifications specialist PacAvi confirmed in November that its A320 Freighter Lite is being delayed into 2018 as a result of a shareholder change, with details to come – the first A320 has been in conversion since 2015. EFW has its own A320/A321 P2F programme due in 2019/2020.
In terms of the customer base for conversions, there is a good spread of customers, both regionally and between airlines and lessors. Key airline markets include China where e-commerce is rapidly growing, with SF Express recently announcing a plan for a cargo hub at Ezhou in central China.
Initial orders for the 737 NG programmes are mainly focused on lessors and Chinese express operators. With values still relatively high, lessors are making an investment decision at the end of leases in the passenger market. So the industry is at an interesting point in the cycle as we transition to conversions of the most recent generation aircraft.
Chris Seymour is head of market analysis at Flight Ascend Consultancy
Source: Cirium Dashboard