Peter Conway SEATTLE

Despite increasing competition from Airbus, Boeing holds most of the cards in the rapidly expanding freighter market

These are interesting times for the freighter people at Boeing. Demand for freighters looks set to soar in the next two decades - something that the latest Boeing and Airbus forecasts are in complete agreement on.

Driving that growth, according to Boeing, is that cargo is expected to outstrip passenger growth by at least 1% a year, pushing a bigger share of world air cargo volumes into freighters (from 40% today to 44% in 2019). The increasingly time-sensitive nature of global logistics will also drive logistics companies towards dedicated freighters, both to avoid congested passenger hubs, and to avoid competing for belly space with passenger baggage. Overall, Boeing predicts a doubling of the world fleet in the next 20 years, from 1,680 aircraft in 1999 to 3,200 in 2019.

Signs are that Boeing will get the lion's share of this market too. Nearly all freighters are Boeing and McDonnell-Douglas (MDC) aircraft today, and in most categories it has no rivals. For example, there is no alternative in sight to the highly popular 747 freighter - the only commercial aircraft designed with freight in mind: it has a high roof and the option of a nose door, as in the late 1960s Boeing expected the 747 to be replaced by supersonic passenger aircraft.

Most of the world's aged passenger aircraft are also Boeing or MDC models, and since passenger to freighter conversions are still expected to account for around 70% of freighters by 2019 (today they are almost the entire fleet), Boeing can expect lots of business.

It has a strong contender in the superjumbo category too. Whatever the success of the proposed 747X in the passenger market, the fact that world widebody freighter fleets are dominated by the 747F would seem to almost guarantee Boeing freighter orders for the type. The 747XF also has a number of cargo advantages over the A380F: it doesn't need new triple deck loading equipment, it can accommodate higher pallets and it has that unique nose door.

The 747X programme may make history by being the first new commercial type to be launched as a freighter instead of a passenger aircraft. No deals have been announced, but Boeing is so confident it has pencilled in the first test flight - 17 December 2004 for September 2005 delivery. An Asian carrier - possibly Korean Air - is likely to be the customer.

But there are clouds on the horizon. To Boeing's evident consternation it has for the first time a vigorous European rival on the freighter front. Jim Edgar, regional director marketing at Boeing's Commercial Airplanes Group, can dismiss the popularity of the Airbus A300B4 freighter conversion since the mid-1990s by pointing out that the type was not favoured as a passenger aircraft. However, the fact that UPS, previously an all Boeing and MDC operator, made a mouthwatering order for 60 new A300-600 freighters in January must have made Seattle sit up and think.

It was also a little unfortunate that the A380's first confirmed customer, Emirates, also ordered two freighter versions. Emirates senior general manager cargo, Ram Menen, bluntly describes the 747X as a "plane type at the end of its life cycle, whereas the A380 is at the start of its cycle". The A380Fs will be the first freighters Emirates has owned - currently it wet-leases 747Fs from Atlas Air.

Neutral stance

Worse was to follow. In January, FedEx ordered 10 A380Fs. It intends to use them to replace multiple MD-11F flights on key trunk routes. In addition, before his death, Atlas Air boss Michael Chowdry was also making positive noises about the A380F, dismissing Boeing's offering as a "freight afterthought". New Atlas chief executive Richard Schuyler was taking a more neutral stance in March, saying it was still negotiating with both manufacturers. But industry speculation has Atlas planning a big A380F order. That would be a blow, as it was Atlas that largely popularised the 747-400F, which has since been ordered by a slew of Asian carriers.

The two existing A380F orders are easier to explain away, however. Emirates' decision to go for the A380F was partly, admits Menen, because its commonality of cockpit design with the A330s and A340s in its passenger fleet made it viable from an operational point of view. Meanwhile, FedEx is something of a law unto itself, using one container type throughout its fleet that Edgar says wastes 23% of the volume of a 747F.

Neither operator is really a core target for the 747XF, which Boeing is aiming at existing big 747 users - the large Asian and European carriers. "By the time the A380F comes out there will be 300 747 freighters in service," says Edgar. "Since we only predict a requirement for relatively few large freighters, for the big 747F operators to go for a whole new type just doesn't make sense."

He has other niggles with the A380F. One is that it's awkwardly shaped upper deck needs specially configured pallets, and without them the A380F carries no more volume or payload than the 747XF, but has 60t more airframe. Edgar also doubts the Airbus fuel figures. "They would need unprecedented aerodynamic efficiency to compensate for the extra weight," he scoffs.

Symbolic though the superjumbo freighter is, however, it is likely to be only a small part of the future freighter market. Lower down the scale, Boeing finds itself in a much more comfortable zone. It passed a significant milestone in 2000 when, for the first time, it built more 747-400Fs than passenger versions. That partly reflects the decline in passenger orders - 25 were built in 2000, against 47 in 1999 and 53 in 1998 - but the freighter figures tell their own story. In 1997 only four 747-400Fs were built, but in 1998 that rose to eight, in 1999 to 10 and in 2000 to 15. A slightly smaller total of 13 -400Fs are due this year.

The -400F is unusual in that it is a production line freighter. UPS and FedEx's vast pockets aside, conventional cargo carriers have traditionally been loathe to pay the high prices of new freighters. Even Atlas thought long and hard about the economics of the -400F, Schuyler admits, haggling at length with Boeing. Other new freighter orders in recent years have been minimal. Lufthansa scrambled for MD-11Fs when Boeing announced it was closing the line and now owns 14 of the type. There have been a scattering of orders for 737, 757 and 767 freighters.

For the rest, conversions rule the roost, and the choice has not been wide. Apart from the insatiable demand for 747-200 conversions, stalwarts such as the 707, DC-8 and - particularly in the USA - the 727 have been the norm until recently, when noise regulations started to put them out of bounds. The DC-10 andMD-11 also found niches, but the interest of FedEx in both types and UPS in the MD-11 have made them hard to come by. No wonder the A300B4 freighter has been popular - it meets noise regulations and offers carriers a new option.

Airbus is expected to build on that by offering A300-600 and A310 conversions (FedEx already has a sizeable fleet of new A310s, showing the type has potential), but it is really Boeing that is sitting on the honeypot. In March it rolled out its first 757-200 conversion (DHL launched the type, and is taking 44), and it is also looking for launch customers for767-200 and -300, and 737-300 and -400 freighter conversions.

Increasing interest

Critics say residual values for all these types are still too high for efficient freighter conversion - Atlas, which has been eyeing either the 767 or A300-600 certainly thinks so - but a combination of growing cargo demand and increased noise restrictions should nudge carriers on. As ever, the integrators have led the way: DHL is replacing its 727s with 757s in the USA and Europe.

One positive sign is that leasing companies are increasingly interested in freighter operations, particularly of mid-range types. ILFC, for example, is looking closely at 767 conversions. Other customers to watch are the second-tier US integrators such as Emery and BAX. A lesser indicator might be whether mid-sized freighters take off in Europe and Asia.

Whatever happens, Boeing should be ready. It has cunningly involved international partners - Singapore Technologies, IAI, Aeronavali, BF Goodrich and Taiwanese consortium ICAS - in the conversion programmes for the 737, 757 and 767, keeping the Supplemental Type Certificates to itself, but sharing engineering and design work.

Its real advantage, however, is that it gets to keep the high-margin knowledge and parts side of the business, while outsourcing the low-margin installation work. Better still, it has access to plenty of extra conversion capacity for no capital risk, and benefits from lower labour costs outside the USA. On the whole, it appears to be in a good position.

Source: Airline Business