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Getting ready for new-gen freighters

The freighter conversions market is at full throttle and as Ian Putzger finds, in increasing cases, leasing is becoming a more viable option

Anew generation of freighters is entering the market. Following the delivery of the first batch of converted B737-700s to Alaska Airlines, the first B737-800 cargo aircraft was poised to enter service in April for freighter operator West Atlantic, which flies under contract for FedEx in Europe. West Atlantic is taking altogether four 737-800BCFs, all of them converted by Boeing and leased from GE Capital Aviation Services (GECAS).


The leasing firm is also the launch customer for the 737-800 conversion programme of Aeronautical Engineers Inc (AEI), which is on course to deliver its first unit in June. In January, GECAS announced that the first two aircraft from that programme will be leased to Ethiopian Airlines.


The 737-800 freighter marks a step up from the 737-400 cargo version. It has a payload of 23.5 tonnes and a range of over 2,100 nautical miles and it has 12 main deck positions to accommodate 11 full-height containers and one half-width ULD.


Bedek Aviation and Pemco opted to convert the smaller 737-700 freighter, but the bulk of the activity is expected to be on the 737-800. Grégoire Lebigot, President and CEO of Vallair, reckons that the latter will garner 75% of the orders for 737NG freighters. At this point demand for 737-800 conversions is still rather slow, according to Bob Convey, Vice President of Sales and Marketing at AEI. At this point the price tag is still too high for most potential takers, he thinks.


“Now it’s about $20 million for a converted plane. I think it needs to be closer to $15 million,” he comments.


While the price tag is still relatively high, the -800 offers an extra container compared with the 737-400, it is more fuel-efficient and requires less maintenance, notes Richard Greener, Senior Vice President and Manager of the Cargo Aircraft Group at GECAS.


The residual value of conversion candidates is kept aloft by ongoing demand for 737-800s in passenger service. “People can still make money with the plane in the passenger business,” remarks Convey.


Greener confirms that feedstock is tight for the time being. He points to low fuel prices and delays with new engines that prompt passenger carriers to hang on to their -800s longer than anticipated. He reckons that supplies will be tight for approximately 18-24 months.


GECAS has a large contingent of 737-800s, so it does not face acquisition costs of conversion candidates. “Leasing companies that have the -800 have the advantage. Still, they have to justify the conversion internally. It costs $3-5 million to convert plus the heavy check,” says Convey. He expects the programme to get into full swing by 2020 or 2021.


For the anticipated slow interval between the slowdown of the 737-400 programme and the ramping up of the -800, AEI has embarked on CRJ200 conversions. For now, however, the -400 activity continues strong. In early April the fifth -400 of a contract with Kalitta was inducted, scheduled to be delivered by early July. Brazilian passenger carrier Azul signed a lease for two 747-300 freighters in mid April to support the rapid growth of its cargo business.


“We see people convert stuff that a few years ago they would have passed on,” reports Convey. AEI reconfigured 23 737-400s last year, and is on course to complete 18 this year and 15 in 2019.


Vallair, which broadened its scope from its original MRO focus to other elements like leasing and conversions, is still busy turning 737-400s into all-cargo configuration. Nevertheless, it has already started acquiring -800s in preparation for a shift to the newer type.


“We will be progressively switching to the -800 and the A321. We are considering the -700 as well,” says Lebigot. >>


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