From the Cockpit with ACS’ Watson

Aero Capital Solutions (ACS) first entered the 737NG freighter market in 2020, when it began sending 737-800s for conversion with Aeronautical Engineers Inc. (AEI). Since then, ACS has topped up its orderbook multiple times to a total of forty slots, firmly establishing itself as the largest known customer of the 737-800SF program. But the lessor is now also making a move into the Airbus side of the narrowbody conversion segment, starting off with a sale, conversion and leaseback deal with SmartLynx, which recently took delivery of its fourth A321F. [caption id="attachment_417704" align="alignright" width="500"] ACS Chief Commercial Officer Dan Watson. (Photo/Aero Capital Solutions)[/caption] Cargo Facts sat down with ACS Chief Commercial Officer Dan Watson to discuss the company’s philosophy and strategy when it comes to narrowbody freighters. What follows is an edited version of the conversation. Cargo Facts : How long has ACS been evaluating A321 freighters, and why are you moving into that market now? Dan Watson: I think it goes right back to the original impetus for us to move into the freighter space. Because we specialize in mid-life and end-of-life aircraft, that’s always been an option for us. And at the time that we launched our 737-800SF program, I think what was clear was that the -800 was just a more mature product. So the turnaround times on the conversions were already better established, not to mention the market acceptance. Certainly, the feedstock availability was better, and we had access to slots where we could be a meaningful player. Until we were able to move into a position where we had established our internal team that manages the conversions and supports the customers, it really felt like we needed to focus on one of the platforms. But now that we’ve climbed that mountain of a well-established process, we’ve ramped up our team and have a dedicated team that manages our freighters. We’ve got good relationships with the MROs established and it’s been a much easier challenge for us to incorporate the A321. CF : You’re starting with four units, but how large a position do you think you’ll take on the A321F? DW: We’d like to continue to grow from that base and probably will look to announce some further investment into this space sometime in the next three to six months. But it’s somewhat subject to slot availability. We are also monitoring the additional STC developments that are happening on the A321. It’s one of the reasons why we’re happy that the first four aircraft are split between the currently certified STC providers, so that we can actually gauge some customer feedback and understand the efficiencies of each of the configurations and where there’s a benefit to the operator. In the long term, it’s about the operator benefits — that’s really what counts. CF : You’ve previously been happy converting your 737-800s speculatively. Would you also be as comfortable doing that with further A321 acquisitions and conversions? DW: I think that has been more a function of both feedstock availability and approved STC slot availability. Just the demand is exceeding the supply to the point where it’s not necessary to do it on spec with the A321Fs at this point in time, as we’ve done here with SmartLynx, whereby you already have an operator that’s willing well in advance of the conversion to commit to the lease. On the 737-800F, I think the market feedback we’ve received is that the operators are able to be a little more patient on making the commitment to an aircraft. And the good news is, from our standpoint as an investor, we haven’t seen any whitetails and we’ve been able to place aircraft well in advance of finalizing the conversion. So I think we are comfortable. We just don’t see the need to do so right now. I think it would be well down the road before we’ll have to make a decision like that. But I think our confidence level in the long-term demand for new-generation narrowbody freighters is still very strong. CF : Is ACS looking at converting any other types? DW: For now, I think it will be narrowbodies for the foreseeable future, but we’ll continue to monitor the other adjacent markets. I can’t imagine we’ll be progressing into regional conversions. There are already a number of players that are significant investors in the widebody segment too, and I don’t know that we bring the same benefits for our operator customers on the widebodies. One of the reasons for why I think we’re so successful on the narrowbodies is that we are able to provide them with a unique solution in terms of engine pairings with the aircraft, with the ability to manage an asset that we really know deeply because we’ve got a large portfolio already in our leasing platform. This Q&A originally appeared in the October 2022 issue of Cargo Facts.

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