This column has been updated since distribution to our e-mail recipients Sept. 22.
There is an emerging demand to replace aging small- and medium-size wide-body freighters, but with limited choices to replace them.
Airbus A310Fs and A300Fs are rapidly aging. Used principally by FedEx, UPS and DHL, these aircraft are in a size that is too small for the new-build Boeing 777F and Airbus A330-200F, and for which these airplanes are too costly to provide a good return on investment.
FedEx is replacing many of its aircraft with the new-build Boeing 767-300ERF, but it deferred and reduced its order for the 777F. UPS has no 767s on order from Boeing, having previously fulfilled its backlog.
The package carriers may down-gauge. FedEx contracted to acquire a large number of Boeing 757s for P2F conversion, but many of these have been replacing Boeing 727Fs. DHL is currently evaluating proposals for converting 757s from P2Fs from third-party conversion companies. The 767-300ER is the one airplane most comparable with the A310s and A300s.
FedEx, UPS and DHL may simply retire some of these aging Airbuses rather than replace them.
Cargo continues to shift to belly capacity of large passenger airplanes, further diminishing the prospect of the demand for medium- and large-freighters.
The decision by Air France-KLM to exit KLM’s all-cargo business, citing the shift to passenger airplane reliance as one reason, is further proof that the demand for expensive new-build freighters is in free fall.
There are just 18 Boeing 747-8Fs, 44 767-300ERFs and 39 777Fs in backlog at August 31. There are 11 A330-200Fs in backlog, also at August 31.
There has been only one 747-8F firm order booked this year, six in 2013 and only 13 since 2011.
FedEx is the sole customer for the 767-300ERFs in backlog; there have been no orders this year. FedEx ordered two in 2013, 19 in 2012 and 48 since 2011.
Four 777Fs were ordered this year, nine in 2013, none in 2012 and a total of 55 since 2011. Qatar Airways announced an order for four 777Fs at the Farnborough Air Show but these have not been booked yet.
Airbus has seen its A330F orders converted to A330Ps. There have been no A330F orders booked so far this year.
Boeing continues to claim a recovery in the cargo market in 2016-17 will support production of 2-3 747-8Fs and 777Fs per month, but industry experts in the cargo space remain skeptical.
Boeing has also been promoting 777P2F conversions for years, but this would depress sales of the new-build 777F. Furthermore, a 777 BCF suffers the same handicaps as a 767 BCF: high BCF pricing, limited feedstock and residual values that aren’t yet where they need to be. Additionally, floor beams in the 777 are composite, which were selected when the airplane was gaining weight in the design stage. Replacing these to beef up the floor adds to the cost and the design issues.
We expect a new entrant into the 767-300P2F conversions to emerge. Currently only Israel’s IAI is a third-party trader in this space. The Boeing Converted Freighter has been offered for years, but pricing of the BCF has been too high for the market. Feedstock and pricing has also been an impediment. However, with the Boeing 787 now entering service in large numbers, allowing customers who had to retain the 767 due to 787 program delays to release them, feedstock is increasing and with it residual values are declining. This will open the doors for third party vendors to emerge.
Single Aisle P2F Conversions
There continues to be strong demand for single-aisle P2F conversions. Boeing 737s nearly have the exclusive in this sector. Demand has largely been confined to the 737-400, with some 737-300s also being converted. Residual values and feedstock drive this. Some contracts for P2F conversions of the 737-800 are just beginning to emerge. A few McDonnell Douglas MD-80s are now being converted. Aeronautical Engineers Inc. is the leader in both programs.
An intriguing use of the MD-80F is carrying oil pipes that are too long to go through a cargo door. A conversion is possible whereby the tail cone opens to allow straight-in loading of oil pipes.
Airbus has been unable to create an economically feasible conversion for the A320/A321. Once again, feedstock and residual values are important inhibitors. But more challenging is where to put the cargo door.
The A320 Family’s fly-by-wire system runs right where the forward cargo door would be placed. Rerouting these systems, while technologically feasible, is costly and time consuming. Putting the cargo door aft of the wing in the A320 creates logistical loading issues; this position is more feasible in the A321, but stress issues arise for any aft-door configuration, according to one P2F company that’s looked at this.
Airbus and Russia’s Irkut entered into a joint venture many years ago to pursue an A320P2F program but the FBW technical and cost issues killed the program in 2011. Strong demand for used A320s in the passenger market was cited as the reason but we’re told the technical and cost issues were the real reason. Nonetheless, Airbus cargo affiliate EFW continues to pursue the prospect today, according to our Market Intelligence. The technological issues haven’t gone away. Whether increasing A320 feedstock will lower RVs to such an extent as to offset the expensive technological solutions remains to be seen whether Airbus can truly offer an economical P2F prospect remains to be seen.
We believe 737 P2Fs will continue to have an almost monopolistic market share. The MD-80 will conceivably be a niche conversion, replacing piston-era cargo airplanes in places like Alaska. The oil pipeline market opens a potential market as well. But we don’t’ truly think the A320/321 conversion is a near-term prospect.
Update, Sept. 29: A company called PacAvi last week announced an A320P2F program, joining with AerCap subsidiary AeroTurbine. Several years ago, AerCap–now the second largest lessor in the world after acquisition of International Lease Finance Corp. this year–attempted an A320P2F conversion program but abandoned it for the reasons listed above. PacAvi didn’t explain how it will overcome these issues. The specifications are here.
Our Market Intelligence suggests that EFW and ST Aerospace may soon announce a P2F program. This means the Airbus IP and licensing will be available to this group. PacAvi indicated that it does not believe it needs the IP, but can accomplish a P2F program on its own.