A Slim Fit: E-commerce and the narrowbody conversion boom

0715_Conversions_ftIn recent years there has been a slimming down, as it were, regarding freighters – a turning away from the jumbo 747s and 777s and toward the squat 737s and svelte 757s. The e-commerce revolution, especially in Asia, requires smaller freighters to make more frequent stops. But because there are no current programs to build narrowbody freighters from the factory, customers must rely on companies providing passenger-to-freighter (P-to-F) conversions.

The type of conversions being ordered depends on the lanes of travel, said Rich Corrado, chief commercial officer with aircraft lessor Air Transport Services Group (ATSG). “Express freight needs quicker service with more frequencies of flight,” he said. “With a 747, you typically see three-times-per-week service. But for DHL’s jets, they operate on a hub-and-spoke model and fly about three hours or less. You’re just not going to fill a whole 747 for express shipments in a three-hour flight.”

Today, there are more widebody freighters flying than narrowbodies by a factor of nearly two to one. But demand for new-build widebody freighters is decreasing, and widebody freighter conversion programs are all but dead. Take a trip to the aircraft purgatories of Victorville and Marana in the American Southwest and you’re likely to see plenty of perfectly adequate 747-400Fs parked in the desert sun.

While many shippers rely on the ample belly space of today’s widebodies for cargo, there is a renewed demand for narrowbody main-deck space as express freight traffic rises and as older freighters get phased out. According to market research and global consulting firm Air Cargo Management Group, the airfreight market will need about 125 new freighters per year to meet growth and replacement needs over the next 20 years, assuming a 4.5 percent annual growth rate in freight tonne kilometers. (Click here for more details on the ACMG forecast.) “The news on the freighter front over the past year was a mix of good and bad, with most of the good news coming in the narrowbody sector,” said Bob Dahl, ACMG’s managing director.

Indeed, this spring has been aflutter with recent announcements from the various aircraft conversion houses for narrowbody freighters. Some recent developments include the following:

  • Aeronautical Engineers Inc (AEI) launched its 737-800 P-to-F program in April 2014 and, at the just-completed Paris Air Show, announced a launch order from lessor GECAS.
  • The PacAvi Group, which formally introduced an Airbus A320 P-to-F conversion program last September, said it had firm orders for forty-two A320 conversions for two customers – one in Europe and one in Latin America.
  • Precision Aircraft Solutions said it had booked an order from DHL Express for an unspecified, but significant, number of 757-200 freighter conversions. The company also agreed to provide four more 757Fs for China-based SF Express, and a number of converted 757Fs for San Francisco-based aircraft lessor Vx Capital Partners.

This is all great news for the conversion houses, but it does not come without problems. One concern is finding enough feedstock that meets their customers’ needs. Brian McCarthy, vice president, marketing and sales, at Precision Aircraft Solutions, warned that the current appetite for narrowbody conversions could lead to a shortage of available freighter candidates, namely the mid-range (3,150 to 4,100 nautical miles), single-aisle 757, which Boeing stopped making in 2004.

He estimated that Precision, which specializes in 757 conversions with 15 pallet positions, will need to convert 130 to 135 of the mid-range planes over the next five to six years to keep up with demand. Currently, the company has seven conversion lines running in five locations simultaneously, producing a new 757 P-to-F every three and a half weeks, on average.

“Somebody has got to do another 757,” McCarthy said. “Its absence will leave a bomb crater in the middle of the market space. What else can you use if you want to fly express freight more than 2,800 miles?” The only other option, he said, is to scale up to the larger, more expensive 767F, which is still very popular among the global integrators. “If you don’t have 757s or 767s with those range profiles, you may end up with a lift problem.”

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