Aircraft conversions signal shifting demand trends
November 28, 2024
By all indications, global air cargo capacity has ramped up significantly but conversions are now levelling off and the freighter segment appears to show mixed signals.
Aviation analysts at Cirium have seen both capacity and traffic up by about 11% and 6% respectively, year over year with cargo demand and supply moving to a more balanced level today. With business activity surging, demand appears to be surpassing last year’s figures, largely driven by the e-commerce sector which continues to accelerate.
Looking at actual flight activity in the tracked fleet, Cirium data reveals that the widebody fleet has grown by about 10% over 2019 levels and around 50% for narrowbodies.
“This suggests a little overcapacity of actual metal, and particularly in the narrowbody sector, in both absolute size and also fleet size and its share growth as well,” commented Daniel Hall, senior valuation consultant at Cirium Ascend during a recent webinar on the freighter market.
Belly capacity from the passenger fleet also continues to rise triggered by the return of twin-aisle passenger jets and as Hall suggests, the typical rule is a 50/50 split between airliner belly cargo capacity and dedicated freighter aircraft.
However, the Cirium data indicates that capacity on transpacific and Europe to Asia passenger flights remains below 2019 levels, particularly in the China to the US market, where scheduled passenger flights are actually operating at about one third of the pre 2020 capacity. This significant decline impacts the capacity belly cargo is providing.
Oversupply on narrowbody conversions
Conversions have been a hot topic throughout the pandemic as cargo uplift outpaced passenger demand. However, observers are now seeing a shift and a gradual decline from the peak period citing capacity on some programmes and feedstock issues on others.
The A320 and A321s are the two newest narrowbody aircraft gaining momentum in the conversion market with EFW and 321 Aircraft Precision being the two main programmes in progress. Also, C Cubed is believed to be developing conversions for the A320 and A321.
A fourth programme from Sine Draco seems to have gone under the radar in the last few years, observers Chris Seymour, head of market analysis at Cirium Ascend. “I suppose one could argue that, perhaps four programmes is slightly too many even for the A321,” he highlighted.
In other programmes AEI is still converting some MD-80s and regional jets in relatively small numbers. “We have also seen ARJ21’s converted by COMAC which is slightly unusual considering it’s a relatively young aircraft,” noted Seymour.
For the 737 classics, data shows a fleet size of a little over 300 aircraft today with one-third of the fleet parked. Interestingly, the fleet is split across many airlines with just five operators with a sizeable fleet of over five to 10 units each. However, Cirium’s fleet analyser database has recorded 13 retirements so far this year.
“The 737 classics are typically retiring about 10 to 15 years after their conversion. So, when looking at the data, we can conclude that there is going to be a wave of further retirements or simply aircraft that will not be returning out of storage,” said Hall.
The presents opportunities for the 737NGs and specifically the -800 with its far larger fleet size and has clearly dominated narrowbody conversions lately on three key platforms with AEI, Boeing and IAI.
However, signs of an oversupply scenario are also playing out on the -800s with many still parked. “We’re currently seeing at least 30 or 35 [-800s] that we would term as lessor idle inventory and some of these aircraft for a significant amount of time as well,” stated Hall.
The E-jet freighter is the newest conversion to enter the regional market but as Seymour hints; traditionally, regional jet freighters have not been as successful in the market, so it might be tough for Embraer to break into. “It depends to a great degree if they can get some big customers signing up to develop new regional freighter networks,” he stated.
New certifications can be challenging in any market segment and Hall acknowledged Embraer’s efforts in getting the E-Jet freighter certified. “It is very difficult to break into a new segment because you have to almost make a market or take a share from other categories. It will have some challenges of course, but the feedstock is there and its at a good value,” he said.
Widebody converts get younger
In the medium-sized widebody sector the industry is seeing the momentum shift from the 767 to the A330, especially the -300 high gross weight variant. Cirium has noticed an increasing appetite for younger widebody conversions in contrast to the 767 where feedstock is almost depleted – the fleet with less than 15 years of age is actually just 24 units.
There are still relatively large numbers of 767s in passenger service with Delta and United albeit much older fleets. However, those airlines will likely keep them in service for some time due to delays in receiving new widebodies from Boeing and Airbus.
In terms of market values on a 15-year-old A330, Cirium sees the type softening – “There was some of oversupply of A330s in the market, and we were seeing an impact on market values and market lease rates,” remarked Hall.
Also, there is steady developments on the larger 777 conversions, but an interesting discussion is how long the 777-200LRF will sustain its values considering all the other converted 777s coming in.
“It’s been a very strong asset [777-200LRF] and it is still picking up orders,” Hall indicated, and he reckons it will take some time before there is an impact from other conversions.
There are several 777 conversions racing towards certification, but Hall believes that in reality, not until their fleet sizes grow and become sizable, will it then [potentially] create an impact in the 777 market.
“In any case, there are operators of the -200LRF, which, frankly, require and wish to stay with a factory build freighter, so it’s not as if the market will suddenly shift to the conversion,” Hall stated.
