Engines amid Covid-19: green time for less green?

On numerous occasions last year, freighter redeliveries were delayed and test flights for new programs awaiting certifications were postponed. The culprit? The engines. Feedstock deemed suitable for conversion isn’t always equipped with engines that fit the needs of the cargo market, and the assets often trade separately. “Even weeks after converting the aircraft to freighter configuration, it sat idle at the MRO.” This was an oft-reported statement in Cargo Facts last year, but substitute “aircraft” with nearly any aircraft model with a current or in-development conversion program, and the statement would also have held true. Last year was particularly challenging for those in search of engines with adequate cycles remaining and not so few as to require a rebuild. While much of the difficulty is structural — passenger operators and OEMs employ increasingly sophisticated engine management programs aimed to wear down an engine before parting with it — the grounding of the 737 MAX last year further amplified the issue. Today, months into the COVID-19 pandemic, the MAX is still grounded but so, too, are thousands of other jets no longer needed as demand for passenger travel has decreased. Aircraft appraisers expect values to drop between 5% on the low end for in-production narrowbodies, and upward of 45% on the high end for out-of-production widebody aircraft. Demand for various engine types and their valuation curves are expected to respond as passenger aviation recovers. But are the days of engine-related headaches for freighter operators behind us? Cost and availability Although the sheer number of grounded jets is expected to pull down engine values, it remains less certain how the aircraft surplus will affect the availability of life limited parts (LLPs) and engines with green time remaining deemed suitable for use with cargo conversions. With lowered forecasts for jet demand over the next ten years, fewer engines are needed, and that will bring down values, according to recent reports from Avitas and other appraisers. However, this decline will not necessarily track airframe values as many passenger operators may look to cut costs and avoid costly engine overhauls by moving around engines until they cycle out. This will vary, depending on the size of the in-service fleet utilizing the power plant and the age characteristics of the engines. MTU Maintenance , which also has a trading arm that sources spare parts, told Cargo Facts that LLP availability for some engine types has increased during the crisis. LLP material for the CFM56-7B engines that power the 737-800s and the CFM56-5Bs that power some A321-200s, for example, is slightly more available today, compared to the months leading up to the crisis. Sources familiar with A330 engines, meanwhile, expect airframe values to decline but aren’t seeing a wholesale shift in the engine space. There aren’t yet “a lot of green time engines being moved around,” Pratt & Whitney told Cargo Facts . Shifting market share While the jet freighter segment has been, and still is, rather heavily skewed in favor of GE when it comes to engines, the market is beginning to diversify somewhat with the arrival of two new entrants: the A321F and the A330P2F. The table above shows the approximate distribution of engines by the three major manufacturers among production A330-200Fs, and production and converted 747-400Fs, 757Fs and 767Fs that are either in active service, or parked but could return to service. The 737 has not been included since all its various versions are exclusively powered by CFM International, GE’s joint venture with Safran. For the freighter types in question, GE engines power more than 450 aircraft and dominate the widebodies. In fact, more aircraft are equipped with GE engines than with Pratt & Whitney and Rolls-Royce combined. However, the picture is very different with A330 conversions. According to data from Ch-aviation, Rolls-Royce accounts for about 62.3% of all A330s; GE about 22.1%; and Pratt & Whitney roughly 15.6%. Rolls-Royce confirmed to Cargo Facts that it occupies a 63% market share of A330-200s and A330-300s. Pratt & Whitney, for its part, told Cargo Facts that the A330 had initially been more evenly split among all three engine types in the 1990s and through the early 2000s, but Rolls-Royce and GE became more aggressive from the late 2000s. This means that the proportion of early-vintage A330s between fifteen and twenty years old — the age range normally considered suitable for conversion — and equipped with Pratt engines is higher than the 15.6% the company occupies across the overall A330 fleet. Given the limited number of A330 conversions to date, it is too early to discuss market share or to make meaningful performance comparisons. So far, eight A330s have been completed and redelivered by Elbe Flugzeugwerke (EFW), the only company converting A330s into freighters. Of these, three A330-200P2Fs are with EgyptAir Cargo, which converted aircraft from its own fleet that were already equipped with Rolls-Royce engines (600, 610, 709). The other five are A330-300P2Fs belonging to DHL Express and powered by a mix of engines. While the first three aircraft (116, 127, 231) are older and equipped with PW4000-100s, EFW redelivered the first Trent-powered A330-300F (777, ex-China Eastern Airlines) — also the first high-gross-weight aircraft — in May, and recently followed with another (781, ex-Shanghai Airlines) in August. The next two A330-300s currently at EFW’s facility in Dresden (DRS) also have Rolls-Royce engines: the ten-year-old unit 1124 (ex-Hong Kong Airlines), inducted in March and the youngest A330 sent for conversion to date; and unit 713 (ex-AirAsia X), which represents the first A330 conversion for Monaco-based Stratos after the lessor and AirAsia X agreed to terminate a long-term lease as a result of the pandemic. New platforms, new engine options For the A321, operators have a choice of CFM International’s CFM56-5B or the V2500 from International Aero Engines, a consortium consisting of Pratt & Whitney, Pratt & Whitney Aero Engines International, Japanese Aero Engine Corporation and MTU Aero Engines. Pratt & Whitney noted IAE’s 60% market share in the A321 market and the potential pathways for the V2500 engine to power freighters through the various conversion programs. EFW’s program was certified by EASA in February and by the FAA at the end of July, and the first aircraft to ever be converted (835, ex-Onur Air), with an IAE engine under each wing, will soon be delivered to Qantas, on lease from Vallair. The following two aircraft (1238 and 1250, ex-Thomas Cook), both being leased to U.K.-based Titan Airways by BBAM by the end of the year, are CFM-powered. The next program expected to be certified is that of 321 Precision Conversions, which is also aiming to redeliver its first aircraft (891, ex-FlyCAA), fitted with CFM engines, to Vallair before the end of 2020. Slightly further behind is Sine Draco, which in February acquired its first aircraft (963, ex-AtlasGlobal), powered by the V2500. The company had previously told Cargo Facts it expected to begin flight tests in the U.S. in the second quarter of 2021. The fourth company to offer an A321 freighter is C Cubed, which plans to first certify its A320 conversion program. The conformity aircraft (1523, ex-Sky Airline), an IAE-powered frame inducted in September 2019, is currently in Kansas City (MCI). With these new entrants into the freighter market also come an enlarged customer pool. To that end, engine manufacturers have been developing more flexible maintenance solutions catering to cargo operators that do not typically require cycle levels as high as passenger airlines. Pratt & Whitney said these solutions may be more appealing to those with smaller fleets, given that some of the larger players have opted for fixed-price agreements and material solutions. Rolls-Royce, meanwhile, told Cargo Facts that it had been focusing on supporting the transition of aircraft between different operators and roles. In recognition of the importance of feedstock for cargo conversions, the company has developed tools to help operators find suitable sister ships with which to build their fleets by connecting them with the appropriate lessors or owners. But it isn’t just the manufacturers that are hoping to entice cargo operators with customized deals. MTU Maintenance told Cargo Facts it had been tailoring maintenance packages toward freighter operations and trying to secure LLPs for future needs — needs that are expected to increase with the growth of e-commerce and express flying. At this stage, it remains to be seen which type of engine solution operators will favor. And the market share winner among engine OEMs for the new conversion types — the A321 and A330 — is also undecided. The final verdict could depend in part on the frames and engines that don’t return to passenger service in the months to come. With the 737 MAX progressing toward service reentry, however, further disruption to the global narrowbody fleet could be on the horizon, even if orders for around four hundred 737 MAX aircraft have already been cancelled so far in 2020. While Cargo Facts Symposium 2020 will be presented as a virtual event, the unparalleled networking and continuing education opportunities remain, with the best and brightest minds addressing the most pressing industry issues for air cargo — including those around COVID-19. To register and for more information, visit www.cargofactssymposium.com .

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