Southern Air continues to look to acquire additional Boeing 747 Classic freighters even as the US cargo carrier begins operating new Boeing 777Fs.

Southern Air new chief executive Daniel McHugh says the carrier has been taking advantage of the significant drop in the value of used aircraft and engines over the last year by closing several transactions for 747-200Fs and General Electric CF6s. He says Southern, which now has 12 747-200s and three 747-300s in its active fleet, continues to be on the hunt for more 747 Classics and CF6 engines as more become available.

He says Southern specifically is looking for 747-200 and 747-300 freighters that were previously operated by "good airlines with exemplary maintenance records". He says Southern has a strong preference for GE-powered 747s although it does have some Pratt and Whitney-powered 747s in its fleet.

McHugh adds while the sharp drop in cargo traffic last year led to the grounding of a "remarkable number" of 747 Classic freighters only a few aircraft that have become available during the downturn meet Southern's criteria.

"You have to have an eye on what to buy and when," he says. "There are a lot of 747-200s out there. There's not much premium grade -200s."

McHugh says Southern in 2009 acquired multiple 747-200s, some of which were added to its active fleet while others were parted out. McHugh says Southern also acquired several CF6s last year, explaining "the game is engines" as the carrier tries to keep its total fleet size at about 15 aircraft by replacing engines and aircraft as they reach the end of their useful service lives.

McHugh says Southern is "in the process of looking at another aircraft" as well as more engines. But he expects total size of the active fleet to remain at about 15 aircraft as some aircraft are retired.

"We have multiple years left with a fleet of that size," McHugh says, adding he expects Southern will still be operating 747 Classics "well into this decade".

He adds some aircraft in its current fleet will need to be retired over the next two to five years but can be replaced with newly acquired aircraft while other aircraft in its fleet can continue running 10 more years. "We believe the classics have a whole bunch of mileage and use in them," McHugh says.

Southern earlier this month took delivery of the first of six 777Fs ordered by its parent company, Oak Hill Capital, and McHugh expects the carrier will ultimately operate at least 10 777s. He says the 777Fs offers its wet-lease customers a new option with more versatility, better range and improved fuel efficiency and trip economics. McHugh says all its "core" 747-200 customers have expressed interest in also wet leasing 777s, especially airlines interested in higher density flying. Southern is also confident the new aircraft type will open up opportunities with new customers, especially as Southern is the world's first 777 operator.

A new Southern customer, Thai Airways International Airways, has agreed to wet lease the carrier's first two 777s. McHugh expects the deal will "springboard" a new growth path for Southern, which over the last four years has tripled the size of its 747 fleet.

But McHugh says for several wet lease and charter customers the 747-200 is still the best option as the aircraft caters to a different market.

"We got two different platforms now. We'll continue to have classics as the core part of our platform," McHugh says.

He adds Southern has an advantage over other 747-200 operators because of its extensive in-house maintenance capability. He claims the carrier has an unmatched track record of efficiently and reliably operating 747 Classic freighters for customers in six continents, pointing out Southern specialises in operating into the most difficult parts of the world.

McHugh took over as Southern's CEO at the beginning of this year, replacing James Neff. The Neff family, which established the latest iteration of Southern in 1999 and steadily expanded its 747-200 fleet before selling the carrier to Oak Hill in 2007, remains involved with James Neff still serving as chairman.

McHugh has not made any huge alterations to Southern's business plan. He says wet-leases contracts continues to account for 65% to 70% of the company's revenues, with civilian charters accounting for another 20% and the remaining 10% to 15% coming from charters for the US military.

He acknowledges 2009 was a tough year with Southern's business down roughly in sync with the drop in worldwide air cargo volumes but the outlook for 2010 is rosier.

"We're seeing customers looking again at growth and putting in capacity again," McHugh says. "We think over the next few years the market will be very good."

Source: Air Transport Intelligence news