Narrow-body freighter conversion market rolls on

MIAMI – While the booming narrow-body conversion market may need to find other models as 737-400s become scarce, demand for these short- to medium-haul freighters is expected to remain strong for the next few years, according to freighter conversion panelists at the 20th annual Cargo Facts Aircraft Symposium, held last week in Miami.

At a conference full of mostly good air cargo news, “The Narrowbody Freighter Boom,” held on Friday, Oct. 24, was perhaps the most optimistic of the sessions. Moderator David Harris, Senior Editor of Cargo Facts, even dubbed it “the Happy Panel.”

One of the main drivers of the narrow-body market is continued air carrier growth in China, especially from the white-hot express carriers SF Airlines (the air arm of Shenzhen-based SF Express) and China Postal Airlines. E-commerce giant Alibaba, based in Hangzhou, has also dramatically increased demand for international shipping services, the panelists agreed.

“Over the next two decades, the middle class around the world will expand to about 5 billion people, who will purchase more high-value, time-sensitive goods,” said panelist Kevin Casey, President of PEMCO World Air Services. “Two years ago, SF Express said it needed 65 aircraft. Today, Alibaba is thinking of going vertical, and SF is now thinking of adding 200 planes.”

Brad Smith, Managing Director of commercial aircraft lessor Kahala Aviation, said there are still about 120 first-generation 737s and DC-9s on the market that will need to be replaced over the next three years. “There will be demand for the next two to four years,” he said. “The question will be getting the feedstock for it.”

Panelist Bob Convey, Vice President, sales and marketing, at Aeronautical Engineers Inc (AEI), said his firm is planning on doing 30-plus conversions for 2015 and expects “a bit of a slowdown, but not a major drop-off” in 2016. “Demand will be there, feedstock may not.”

AEI announced at the Symposium that it had signed an agreement with Auckland, N.Z.-based Airwork for two 737-400 P-to-F conversions, plus an option for five others. While the very popular 737-400 line is getting hard to find on the aftermarket, Convey said the -300 models from the late 1990s are readily available.

Looking farther ahead in time, Convey said the 737-800 P-to-F market could begin heating up in the second half of 2017 or early 2018. The -800, he said, could be a “long-term solution for the next 20 to 25 years,” once the 737-400 feedstock dries up.

Casey said PEMCO would begin its NG conversion program with the 737-700, which is currently more affordable than the larger and more popular 737-800.

Gary Warner, president of Precision Aircraft Solutions, which specializes in 757 P-to-F conversions, said he continues to see “healthy feedstock” for the mid-range narrow-bodies – the 757-200 is currently the most popular freighter in the world – and that residual values are coming down.

The only aircraft that even comes close to filling in the gap that will be left by the 757 is the A321, Warner said. “The 737-900 is starting to look attractive, but that’s many years away,” he added.

As one of the newcomers on the conversion market, panelist Stephan Hollmann, CEO of San Diego-based PACAVI Group, announced that the company had received its first A320 airframe the day before the session and would “begin to cut metal in a few months,” with the help of AeroTurbine, Inc., at its Goodyear, Ariz., facility.

Citing great demand for narrow-body freighters in China, Latin America, India and Russia, Hollmann said that, until his service was launched, Airbus’ A320/321 feedstock was a “supply with no outlet.” Although PacAvi is starting with the “tricky” A320 airframe, Hollmann said he sees the A321 as “the natural successor” to the 757 in terms of P-to-F.

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