100 narrowbody redeliveries expected in 2021

The narrowbody freighter conversion market is currently extremely strong. At this rate, Cargo Facts Consulting expects to see around 100 redeliveries in 2021, with potentially similar numbers in 2022, when we may see around sixty 737NG redeliveries, plus at least ten A321P2Fs. These numbers are much higher than those we have seen in previous years, and are inconsistent with what we predicted in our latest 20-year fleet forecast , published in April: about forty additions and just under thirty retirements per year.

Is the market overheating? What are we missing?

Figure 1 below provides an overview of narrowbody aircraft conversions from 2000 to 2022. In the last decade, the normal re-delivery rate was about forty to fifty per year, with 2019 and 2020 at the low end of that range. The average age at conversion has increased somewhat to around twenty to twenty-one years. Figure 1 - Narrowbody conversions 2000-2022 with average age at conversion

Conversion activity in previous years was held back by lack of feedstock — thanks to the Max grounding — as well as lack of conversion programs. With the certification of the 321 Precision program for the A321, there are now four active 737NG and two active A321 programs. With additional MRO facilities being added, conversion capacity is not likely to be a constraint, at least in the medium term.

Figure 2 below provides an overview of the status of various conversion programs for narrowbodies, and for medium and large widebodies. Additional Airbus narrowbody programs are in various stages of development and expected to come online in the next few years. Figure 2 - Active and planned passenger-freighter conversion programs

Estimating the current narrowbody backlog is an inexact science due to the unclear status of options and a multitude of unannounced orders. Based on publicly available information, the current 737NG backlog stands at about ninety-two firm orders and about sixteen A321s. There are around sixty NGs currently in operation and a handful of A321s.

The striking thing about the NG backlog is the dominance of leasing companies among the outstanding orders. While customers have been found for some units, these orders are largely speculative. While most of these known orders are for Boeing and AEI conversions, the actual IAI backlog is more opaque. Of these units, about twenty-six will be redelivered during the next half of this year, and fifty-six in 2022. The breakdown is as follows: GECAS (28); KV Aviation/ASL (14); Aero Capital Solutions (13); BlackRock (7); BBAM (5), GA Telesis (5), AviaAM Leasing (5); Macquarie AirFinance (4); Texel Air (3); JP Lease (2), Aircraft Finance Germany (2); and Vx Capital (1), Cargo Air (1), KF Aerospace (1) and Allied Air (1). While activity in the A321 space has been somewhat tepid, it is gaining momentum. Titan, Azul, Indigo and Qantas will be each receiving two units. Startup Global Crossing Airlines has signed a letter of intent for ten units with Vallair and five with ST. Perhaps in a sign that the market needs a bit of boost to get started, ST Engineering last month announced the setup of a narrowbody freighter leasing joint venture. Smartlynx is also expected to receive an additional unit and has stated that it expects its A321P2F fleet to grow substantially.

Does the level of underlying cargo demand justify all these extra orders? Only partially.

None of the large integrators that traditionally account for 90% of narrowbody freighter demand have made any earth-shattering fleet-planning announcements. In Europe, FedEx is conducting an orderly transition from older 737-400 to 737-800 capacity together with its prime subcontractor ASL. DHL has been peppering its network across the world with 737NGs, and has also recently taken on a Smartlynx A321. UPS is not seeing a lot of change on the narrowbody side. SF is more focused on medium widebody growth. Amazon has been adding 737-800 capacity in Europe, but most of its fleet growth has been with the 767.

On the e-commerce side, Jd.com is still in the process of setting up its own airline and we have seen Mercado Libre also commit to capacity. Some combination carriers have been adding narrowbody capacity, but these kinds of airlines don't move the needle much.

Low retirement levels — a feature of the business since at least 2017 — provide a kind of safety valve. There are about 770 active and about eighty stored aircraft, constituting about 9% of the fleet. Of those, about thirty are older 727s, DC-9s and 737-200s. The remainder is a mix of 737 classics, NGs and 757s, many of which are stored for maintenance reasons.

Figure 3 below provides an overview of the current age profile of the narrowbody fleet. About 14% are older than thirty-five years and 22% are between thirty and thirty-five years. The remaining two-thirds are probably too young to warrant retirement, given that narrowbody utilization tends to be quite low. Figure 3 - Narrowbody fleet age distribution

Even though NGs trump classics for fuel burn and maintenance costs, the low lease rates or capital costs, particularly of the 737-400, will make these attractive for operators, considering that the expected lease terms on NGs tend to be in the range of seven to ten years. That is not attractive for operators who may only have a commitment from their express customers of two to three years. But if lease rates and terms on NGs come down, this could change and we could see the more than 140 or so retirements we expect in the next five years. But will this make lessors happy?

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