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Low cargo demand and three new freighter types have dampened demand for conversions. But the integrators are still interested, finds Martin Roebuck

The glut of passenger Boeing 747-400s is such that $36 million or so in loose change would buy you a second-hand aircraft, some 10% less than a year ago, according to consultancy Ascend.


Asian carriers in particular are replacing their 747s with Boeing 777s, 747-8s and Airbus A380s in the search for fuel efficiency. All-cargo carriers historically have snapped up passenger airlines’ cast-offs, despite the fuel penalty and increased maintenance requirement that comes with an older aircraft. This has brought steady business for passenger-to-freighter (P2F) conversions, but a flat air freight market and the ready availability of used factory-built freighters has reduced the appetite for them.


“There is a trickle-down effect as passenger carriers pension off older aircraft. But the number of 747 conversions is modest considering the feedstock that’s currently available,” says Alan Hedge, research director of Air Cargo Management Group (ACMG) and author of a new report on the widebody freighter market.


The fact that Jade Cargo’s “almost new” freighter fleet has yet to be picked up is a sure sign of the present supply-demand imbalance and helps explain the low level of conversion activity, Hedge believes. The final collapse of Shenzhen-based Jade in June put three owned and three leased 747-400ERFs on the market. Uni-top Airlines was rumoured to be taking three, which are effectively owned by the Chinese government. Southern Air is said to be interested in one, but there could be problems in taking the aircraft out of China, while Amentum has two more on the market.


Even allowing for shareholders’ extended efforts to restructure Jade, the aircraft have been “down for a long time now,” Hedge says. The liquidation of Grandstar Cargo, the Sinotrans-Korean Air joint venture, released a further 747-400, while Air France Cargo is also shedding one.


It was the introduction of three new factory-built freighters in the last three years (the 747-8F, 777F and Airbus A330-200F) and the robust freighter order backlog, set against the continuing weakness of the market, that prompted ACMG to carry out its research.


The current global widebody freighter fleet currently numbers 1,646, accounting for 91% by capacity of the total freighter market. As of May 2012, 213 new-build widebody freighters were on order, equivalent to 21% of the existing fleet. All these aircraft, except possibly some FedEx Boeing 767s, will be delivered in the next five years, Hedge says.


Even at pre-2000 growth rates of 5 to 8%, it would be difficult to absorb this influx of capacity. The sharp decrease since then suggests to Hedge that it’s time to reappraise manufacturers’ upbeat 20-year forecasts. Taking what he now considers an optimistic scenario of 5% growth, there will be a freighter “capacity overhang” of 9% by 2016. The demise of all-cargo operators, the exit of some combination airlines from the maindeck freighter business and the retirement of younger aircraft means that perfectly serviceable MD-11Fs and 747Fs will become available and P2F conversion activity will decline.


Paul Newrick, president and managing director of Guggenheim Aviation Partners, says: “We do foresee a return to healthy annual growth rates, but not at double the rate of GDP growth as we have seen in the past. A degree of caution therefore needs to be maintained in basing investment decisions on OEM forecasts in particular.


“We have a record order backlog for new freighters and, with the 777-200LRF, 747-8F and A330-200F proving themselves in service, it seems unlikely there will be significant cancellations. Even if there were some, manufacturers would be unlikely to adjust their production rates, and would continue to market the aircraft aggressively.”


The permanent removal of some dedicated freighters from service, 747-200s and DC10-30Fs in particular, will reduce the immediate supply but may not in itself stimulate demand for conversions. “While it may be tempting to say the higher fuel and maintenance costs may be offset by lower acquisition cost, favouring the converted aircraft, the prospect of a shorter working life may not justify the capital cost of conversion,” Newrick says.


“The dynamics of the market for older freighters have changed materially since the last generation of conversions such as 747-200s and MD-11s, with many countries now imposing calendar age restrictions on aircraft importation.

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