HOTR: Shakeout of P2F companies coming

By the Leeham News Team

May 3, 2022, © Leeham News: A shakeout in the number of passenger-to-freighter conversion companies is coming, say industry stakeholders.

The conversion industry has seen a number of new lines and new entrants emerge as demand for air freight exploded during the COVID pandemic. But the long-term demand won’t sustain these new entrants, said members of a panel in April at the Aviation Week MRO Americas conference.

There are now four companies offering Airbus A320 conversions: EFW, which is partly owned by Airbus; Precision Conversions; CCC (known as C Cubed); and Sino Draco. Some have yet to produce a converted A320 and EFW has multiple lines.

There are four companies offering Boeing 777 conversions: IAI Bedek, the first to market; Mammoth Freighters, the only one offering 777-200LR conversions; Kansas Modification Center; and Eastern Airlines. The latter is converting 777 passenger aircraft without cutting a big cargo door into the airplane, essentially maintaining the “Preighter” approach used by several airlines during the pandemic. The termination of the Boeing 747-8F production and aging 747-400Fs will boost 777 P2F sales, panelists said.

Boeing partnered with third parties to convert 737-800s. AEI is an independent 737 conversion company. It also converts Boeing MD-80s and Bombardier CRJs. The latter two programs were not commercial successes, admits Bob Convey, SVP of Sales and Marketing. AEI will only recover its costs for the CRJ-200 P2F. Only about 30 MD-80s were converted. Odd-sized containers make the CRJ and MD-80 less desirable than 737s and A320s, he said.

Many companies are “late to the party” and will fail, Convey said.

Embraer’s challenge

Convey also said Embraer’s announced program to convert used E-190s and E-195s into freighters will be a commercial failure for the same reason—an odd-size fuselage and incompatible cargo containers. Embraer sees a potential market of 700 over 10 years but Convey physically gave a thumbs down response to his view of the program. Verbally, he was more succinct: “Horse pucky. We looked at it, but with an odd cross section, we couldn’t find a customer. Lessors are driving Embraer, and that’s not a reason to do a program.”

The CRJ competes with the ATR in the regional market. The E-Jet competes with the 737 and A320, he said. Embraer needs FedEx as a customer, but so far hasn’t received an order.

Boeing moves 55 777Xs to iffy ASC 606 status

Boeing last week moved 55 orders for the 777X from firm to iffy under the accounting rule ASC 606. But this doesn’t necessarily mean the orders are truly at risk. All the orders fall between now and 2025, the new target date for certification and delivery. Accordingly, the orders must be renegotiated with the customers. Under the accounting rules, these must move to ASC 606 until definitive contract changes are agreed upon.  While Boeing may face some tough negotiations, none of these airlines—except Cathay Pacific—can be assessed as financially in distress.

The 2022 year isn’t even five months old, and Boeing already took or announced $2.24bn in charges.

Another $1.5bn for Abnormal Production Costs for the 777X also were announced but will apply following the first quarter.

 

 

13 Comments on “HOTR: Shakeout of P2F companies coming

  1. The A321P2F might be the natural successor to the 757P2F. The A330-300P2F has an advantage that its body diameter and cargo hold is sized around the LD3’s. The 767 need special “chopped” LD3’s. Still FedEx and UPS has lots of them. As airlines swap A330’s to 787/A350/A330neo there will be a supply of mainly RR powered ones. RR might be tempted to increase engine service revenues and milk too much money from the fleet as they did on the RB211-535E4’s on the 757’s.

    • FedEx – UPS and pretty much all other F ops in the world went with 767.

      Keep in mind an optimal 777 can is also taller than the MD-11 can.

      It all depends on your setup as to what works or does not.

      For smaller aircraft there is no standardization, max nix on cants, a lot of hit is pallets or pancakes. Its not like you can put a 767 can on an ATR F.

    • 55, apologies for the confusion. As per Boeing’s 10Q filing, the ASC606 count on the 777X is now 110.

  2. Having been around Freighters a long time, I cant see all the guys getting into the conversion business being viable. A 767 freighter without a bulk cargo door on the main deck is going to be severely limited by its turn around time. DHL made some older aircraft work that way for a while, but I believe they are all gone now. I have faith in IAI/Bedek, they are rock solid. Conversion economics in the USA gets iffy due to the required labor rates needed to make it work. The health of the feedstock is critical to US converters as corrrosion control and crack chasing can get really expensive here VS at an Asian location. It will be interesting to see who is left standing

    • Thanks for that. Yes I would consider the condition of the feedstock and the amount of remedial work required once the interiors are striped clean can throw out any schedules

      • The right term would be Feedstock Availability.

        An F type of any sort without the big door is like the Proverbial Bore Hog with Mamories

  3. Boeing is increasing the 777F production to 3 a month – work on the backlog and replaces the low rate 777X that is stopped

  4. Mammoth isn’t the only one planning 777-200LR conversions. IAI is also planning on doing that, as a follow-up to their 777-300ER conversions. That’s unless something’s changed lately. About a year ago, they announced a partnership for a South Korean conversion site, which would convert “six B777-300ER and B777-200LR per year, starting in 2024″…

    • I believe Singapore has a tech conversion center in Alabama or down in that neck of the woods.

      757s last I knew but ………………..

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