Changing used passenger-planes to freighters is a booming enterprise, however overcapacity looms.
By MC01, a frequent commenter on WOLF STREET:
Air freight has been scorching over the previous few years. Simply to provide an instance AirBridgeCargo, the wholly-owned subsidiary of Russia’s Volga-Dnepr Group set as much as function Western-made plane, has seen its quantity develop from 340,000 tons in 2013 to 700,000 tons in 2017, and that is in spite of all the things politics might throw its method.
In response to the IATA (Worldwide Air Transport Affiliation), items despatched by air cargo quantity to lower than 1% of worldwide commerce quantity, however account for an enormous 35% of worth. It estimates that in 2018 air freighters will transfer US $6.2 trillion of products, or 7.four% of world GDP.
Items shipped by air freight vary from climate-controlled containers crammed with medicine and vaccines produced in India for the European market to younger giraffes raised in South Africa for Asian zoos.
And this enterprise is predicted to develop, rather a lot. Over the subsequent 20 years, the worldwide marketplace for freight plane is often estimated to run in the 2,000 to 2,500 models to switch plane at the finish of their life cycle and to fulfill new demand (this can be optimistic for causes I’ll clarify in a second).
This demand can’t be met by new plane alone. Boeing, which dominates the marketplace for new freighters, manufactures simply 36 767-300F per yr, and that’s after doubling earlier manufacturing because of ebullient demand.
And these new freighters are very costly. The 767-300F lists for $212 million, whereas the bigger and extra succesful 777F and 747-8F are far costlier.
That’s the place the conversion of much more quite a few passenger plane comes in, and can grow to be increasingly more necessary.
Passenger plane are sometimes lively for 25 years after their first revenue-generating flight. However in line with the 2017 IBA White Paper, there’s robust proof that is contracting. Sometimes, the first proprietor, whether or not airline or leasing firm, will withdraw the plane from service after 10-12 years and reassess its worth.
Typically the plane is just put again into service after midlife upkeep. However nowadays, that is much less and fewer the case. Airways and leasing corporations that may afford to purchase the newest, most gasoline environment friendly, and least maintenance-intensive plane will do that initially alternative.
Extra typically, the plane are despatched to “aircraft graveyards” corresponding to these in the Mojave Desert in California, Tarbes-Pau in France, or Luqa in Malta to await their destiny. Often the plane are at first put up on the market “as is,” which in the air-transport business often means stripping them of their earlier house owners’ livery and sealing them towards the parts and particularly bugs.
If a purchaser is just not discovered after a sure time (often about six months), the house owners will once more rethink their choices.
The primary choice is to have the plane “cocooned,” which means ready for long-term storage, hoping that sooner or later a purchaser for the plane “as is” will materialize. This isn’t precisely a lovely choice: as a consequence of excessive plane costs, it means having lot of capital sitting idly for an unknown size of time.
The second choice is to interrupt up the plane for spares. That is a pretty choice if the house owners know there’s little or no, if any, marketplace for used plane comparable to theirs. That is the destiny that earlier this yr befell the first two Airbus A380s to enter business service, after their earlier house owners couldn’t discover a purchaser.
The third choice is to listing the plane as out there for a freighter conversion, which lately is an more and more engaging choice.
The price of a used passenger plane varies massively, and principally relies upon on three elements.
- How a lot life the airframe has left in it. The nearer an plane is to 25 years, the much less time it has left to pay its house owners again and make them a revenue.
- How fuel-efficient and maintenance-intensive the plane is.
- Availability of crews licensed to fly the sort. No level shopping for an affordable jetliner if there are solely a handful of crews licensed to fly the sort commercially; and coaching new crew members prices a small fortune.
As a measure of comparability, a 13-14 years previous Boeing 737-800, considered one of the workhorses of no-frills airways corresponding to Ryanair, will set you again $19 million. Boeing continues to be taking orders for the 737-800 and lists it at round $100 million, with the actual worth various in line with cabin configuration and order measurement. Too good to be true?
Nicely, no. And sure. Your used 737-800 has at the most 12 years to pay itself again and whereas discovering a licensed crew just isn’t an enormous concern, upkeep could also be, at the least if you wish to hold flying in markets comparable to Europe and the US, whose aviation authorities have stringent necessities for upkeep of growing older business plane.
A late manufacturing (1999-2000) 737-300 might be had for beneath $four million and a barely later (2001-2002) 767-200ER for about $10 million. There’s an enormous marketplace for used airliners on the market.
Changing an airliner right into a freighter is a much more difficult and costly endeavor than merely stripping it of passenger seats, bathrooms, and galleys and slicing a big door in its aspect (picture by way of Precision Plane Options):
The plane wants in depth structural modification, a lot it wants a brand new airworthiness certificates to function. And since high-level upkeep is routinely carried out throughout the conversion, typically critical points, corresponding to corrosion or fatigue cracks, could also be found.
Conversions are often developed by the plane producer in cooperation with the companies that may bodily perform the conversion itself: Airbus and Boeing are operating at full capability and haven’t any manufacturing capability left to hold out the conversions. Amongst the companies finishing up freighter conversions are:
- IAI, Israel (working underneath the Bedek model)
- Precision Plane Options, Portland, Oregon
- ST Engineering, Singapore.
As designing and certifying a conversion is time-consuming and costly, it is just executed if there’s an sufficient “feeder stock,” which means a adequate variety of plane on the market with sufficient life left in their airframes to justify the funding.
To offer an instance of the latter, the final freighter conversion of a Boeing 747-400 was carried out in 2017 by IAI for Asiana Cargo of Korea and almost certainly will probably be the final one ever carried out: The youngest 747-400s in passenger service at the moment are 13 years previous, which means they’ve comparatively little time left in their airframes to pay their house owners again, not to mention flip a revenue.
The worth of a conversion relies upon on the plane itself. For instance, changing a 757-200, a favourite of air freighter corporations corresponding to DHL, prices about $5.zero million, whereas changing a 737-400 is $2.eight million.
To date, these “Old Generation” or “Legacy” plane have dominated the air freighter market, however over the final 5 years numerous effort has gone into designing and certifying conversions for “New Generation” plane, resembling the 737-800 and a number of other members of the ubiquitous Airbus A320 household. The Boeing plane value $four million to transform, the Airbus will set you again $5 million.
Finishing up a conversion sometimes takes three to 4 months. However overruns appear to turn out to be extra widespread today. That is all the time the plane will spend in items inside a hangar as an alternative of in the air producing income, which means there’s a further value for the house owners, often estimated at round $1 million. If upkeep turns up some nasty surprises, the additional prices can climb all the approach as much as $2.5 million.
Up to now freighter corporations, particularly these working on the Asian market, have overwhelmingly relied on smaller, cheaper plane, the so referred to as “narrowbodies” (with six or fewer passengers abreast in a typical passenger configuration). These embrace the Boeing 737, but in addition a plethora of smaller regional airliners reminiscent of the ATR 72, Embraer Brasilia, and the Saab 340. Whereas less expensive to accumulate and to transform into freighters, these narrowbodies lack the flexibility of “widebodies” reminiscent of McDonnel-Douglas MD11, the Airbus A330, and the Boeing 777.
The speed of widebodies to narrowbodies is predicted to vary radically over the subsequent couple of many years in favor of widebodies, thanks in half to elevated availability of feeder inventory as airways substitute their plane with newer, extra gasoline environment friendly and fewer maintenance-intensive varieties.
ST Engineering has began to market a freighter conversion for the Airbus A330 widebody. It lists these conversions at $15-16 million every, some huge cash for a freighter conversion.
Of word, whereas the passenger model of the A330 is widespread and far favored by airways, the purpose-built freighter model has been a dismal gross sales fiasco for Airbus, failing to even scratch at Boeing’s supremacy in the purpose-built freighter phase.
On the different aspect of the spectrum, Boeing is presently working with IAI to design and certify a freighter conversion for the 777. The aim-built freighter variant has up to now bought extraordinarily properly, particularly contemplating the monster price ticket, properly north of the $300 million mark, however demand is way outstripping provide so a freighter conversion makes loads of sense.
There’s additionally one other hidden motive behind this choice: Every 777 transformed right into a freighter is one much less 777 on the used jetliner market, which means greater possibilities for Boeing to promote extra new plane and get some money from the conversion royalties as properly. A win-win state of affairs in brief.
Enthusiasm for freighter conversions is so ebullient proper now there are already some in the business brazenly speaking about “Next Generation” conversions, which means the conversion of the newest era of passenger plane similar to the Boeing 737 MAX, which first entered revenue-generating service in Might 2017.
However such enthusiasm could also be extreme: Whereas there’s already a small marketplace for used Subsequent Era plane – see the Airbus A321neo planes owned by the just lately deceased Primera Air of Denmark and now parked in Luqa – it’s lower than insignificant in comparison with the monumental feeder inventory of New Era plane that’s turning into out there at more and more reasonably priced costs. For instance, Ryanair has 450 Boeing 737-800 in service that shall be changed with 737 MAX beginning subsequent yr. This massive variety of 737-800s coming on the used market is sure to strain New Era used costs over the subsequent three to 4 years.
Whereas air freight shouldn’t be as cyclical as trucking, it has been affected by overcapacity for some time. And in spite of every little thing, that overcapacity just isn’t going away.
Out there Freight Tonne Kilometer (AFTK) is a parameter of journey for “empty” freighters on common. It’s calculated month-to-month by multiplying kilometers traveled by complete obtainable carrying capability in tonnes, then by subtracting common efficient load. The upper AFTK is, the much less income producing payload plane are carrying on common whereas flying round the world.
Publish-2008, AFTK bottomed at 41% in early 2016 and has since been steadily creeping up. It now stands at 46%. It means overcapacity is growing, not by leaps and bounds like one would have in a recession, a brutal affair which is often over shortly, however in a gentle trend as new capability steadily outpaces demand. That’s sure to trigger critical issues ahead of anyone likes. By MC01, a frequent commenter on WOLF STREET
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