Podcast: ST Engineering’s Tan on Airbus narrowbody freighters

Jeff Lee
Hello and welcome to this episode of cargo facts connect, the podcast of cargo facts, the newsletter of record for the air cargo and freighter aircraft industries for over 40 years. I’m Jeff Lee, editor of cargo facts and it’s Friday, the 6th of October. This week, I’m joined by Boon Keng Tan, svp, gm and head of aircraft and freighter leasing at ST Engineering in Singapore, the only lessor to have both the A321 and A320 freighter types in service.

Jeff Lee
Hey BK, thank you for joining me. How’s it going?

Boon Keng Tan
Thanks, Jeff. I’m fine. Thanks for having me here.

Jeff Lee
Sure. So your st engineering, of course, is working with Temasek, the Singapore owned investment company. And you’ve set up the JV called Juniper aviation investments. And you’ve delivered about four or 5 A321 freighters on lease you’ve gone more in the pipeline, is that right?

Boon Keng Tan
That’s correct.

Jeff Lee
So what’s the overall strategy and the background behind Juniper aviation investments? And how is how is St. Engineering kind of executing on that vision?

Boon Keng Tan
Okay, so maybe let me speak a bit more about our JV juniper. We started this JV in 2021. With the objective to grow to a US dollar 600 million worth of narrowbody freighters. We started this JV with two key objectives. Right. Firstly, is sustainability. So why are we doing this? I think the JV wanted to support the changeover of the current version narrowbody freighter to a new gen narrowbody freighter such that, you know, by changing over the carbon footprint will be smaller or lesser. So that was that’s going to help the aviation industry and as far as well, so that’s the key objective. The second objective is really, we’re trying to tap on the fast growing ecommerce trend that everybody is anticipating. So from freighters, this definitely will help, you know, to facilitate the move of if traitor trend where you know, we have people’s buying behavior that will change over time. So these are the two key reasons why we set up this JV at a time. And we plan to grow this portfolio to about 20 to 25 aircraft eventually did with that 600 million investment overall, to date. We are almost halfway there. All right, half of them on these. The other half is still in progress. We will continue to invest. And we will continue to grow this portfolio as we speak. And we are really great to have good lessons with us and able to support them in their air cargo, growth stories and aspirations.

Jeff Lee
So all Freighter, right?

Boon Keng Tan
That’s, right?

Jeff Lee
All narrowbody freighters, more specifically, all Airbus 320 or 321 freighters?

Boon Keng Tan
That’s correct. As of now, I think the plan is to invest in A321s and 320s. We will not rule out seven three eight. But I believe we need to build up a base of Airbus narrowbody freighters first, before we consider any Boeing narrowbody freighters.

Jeff Lee
Right, well, and there are a lot more than 737 800 freighters around right now compared to the 320s and 321s. But yeah, speaking of the A321, and you were talking about how, you know the E commerce market is changing and so on. But of course, more generally, the freighter market, of course, is different from last year, maybe from earlier this year even. So for the A321, specifically, what’s the state of the demand for that aircraft for that freighter type?

Boon Keng Tan
So I think as everybody knows, EFW conversion slots are fully booked until 2026. And that speaks for itself when it comes to demand for this platform. Alright, so it’s it’s very active and still healthy. Today, I would say at the modification sites we have, alright, the conversion work are still ongoing nose to tail. So it’s busy out there. And we have added the Tianjin haite as the additional competition site to support this demand. So I have my a321 there as the prototype to support haite so that they can pick it up and learn the conversion techniques from us. So overall, I feel that the A321 demand is still there. The the owners and the lessors are preparing themselves for for this market. And essentially, essentially, I feel that the 757 freighter is the impetus for this move because there are more than 100 aircraft or 100 757 today are more than 30 years old. So, it’s about time for them to get some kind of replacement. I think. So in the next few years, I think A321 is still I would say the product that people is going after.

Jeff Lee
Yeah, I was gonna ask you about haite in Tianjin. Obviously, you just had the door cutting very recently. What was that like to? Well, first of all, why or what was primarily behind selecting that facility, and what was it like to be the kind of the launch customer for that facility?

Boon Keng Tan
Okay, so haite is selected by EFW, essentially, they look at their track records in terms of MRO, as well as the sheet metal modification experience, haite has been around for many years in China. So they do have the experience. So they check the box. For myself, I’m prepared to, to, you know, offer my aircraft as the prototype. In fact, to be fair, haite is my third aircraft that I sent as a prototype, I send the first one to Singapore A320 conversion, I send the second one to San Antonio as the first prototype. So through all the prototyping process, actually, we know and we can help the conversion houses how they can facilitate the process better together.

Jeff Lee
Right. Not many customers would be willing to send their have their aircraft serve as the prototype for for multiples sites, but But yeah, but you have and I think, well things are doing relatively well in Tianjin aren’t they,

Boon Keng Tan
Yeah, they’re doing well, I think they are on time right now based on the begin chart given to them. So they’re doing well. They’re doing well.

Jeff Lee
Good. Now on the A320. Yeah. How different is that? And then what’s the situation there?

Boon Keng Tan
So we launched this program last year, the aircraft is flying well, by the operator in India. They do have contracts to fly electronic parts from Hanoi to Delhi. And they also do some flights within Southeast Asia. We have gotten some operating datas and it shows very good performance in terms of potential fuel savings if you fly long haul using this platform. This is a unique narrowbody freighter, the A320 is able to carry 21 tonnes and has got 160 cubic meters of space, if both upper deck and lower deck are being fully containerized. So if you look at this platform, is a good candidate for E commerce going forward to tap on the fast growing ecommerce trend for operators who wants to do e commerce business and general cargo business. So we feel that this platform certainly will have some kind of potential going forward as E commerce start to pick up.

Jeff Lee
How receptive are your potential customers do you think are they kind of just waiting to see more come into service before they they kind of take that next step?

Boon Keng Tan
That’s correct. We have customers inquiries, asking us about 320. Reason being these are the customers that have been flying 321s. At this juncture. They are looking at some kind of complementing product. And I think 320 can work well for them. The reason is very, very straightforward. If they have a contract that’s flying, for larger tonnage, they can use 321. If they have smaller contract, there’s only 18 or 19 tonnes, they can always utilize 320 to fly so by having 320 and 321 in their fleet. It will certainly help them as a good feeder operator supporting the larger Xpress carriers flying into the hubs.

Jeff Lee
Now the feedstock situation is tight for both the A321 and the 737 800. But from your perspective, I mean, how’s it looking and the engines as well, which that’s one major challenge as well. Right.

Boon Keng Tan
So, so the feedstock situation, obviously is very tight. I mean, my fellow lessors in the space can also attest to it. And it is very clear, post COVID air travel has resumed, or the airlines wants to have available aircraft for passenger flights. So, for us in this space handling with freighters. We have our own feedstock that’s coming out from our passenger leases. So we can utilize them as we go along. And we are continuing to look for suitable feedstock for the market when this aircraft is off lease from the various lessors. So there are some plans that we have looking into all this for the airframe side. And for the engine side. Similarly, we have our own engine leasing business in our business. So our engine leasing business will have some available engines when they’re off lease. So we can tap on the engine leasing side of business to complement what we need to have, when we do P2F.

Jeff Lee
The the aircraft that you have on passenger leases. Are you seeing those operators? Request extensions or renewals for passenger service?

Boon Keng Tan
Yes, that’s correct. I do have some customers actually asking for extension while they’re waiting for the orders to come in. So we need to strategize. So some we extend some we don’t for commercial purposes. But in this situation, I feel that once the new gen production by the OEMs, you know, more or less stabilized, the feedstock situation will return to normal.

Jeff Lee
Well when do you think that will be?

Boon Keng Tan
Looking at the supply chain and all this manpower? You know, improvements probably in the 18 to 24 months? Hopefully

Jeff Lee
That, yeah, potentially is a long time. But in the meantime, you will be I guess you’ll be competing with all the other lessors trying to find suitable feedstock candidates for freighter conversion.

Boon Keng Tan
That’s correct. Yeah. it’s competitive.

Jeff Lee
Well, thank you. I guess we’ll continue to look for more of your Airbus narrowbody freighters to come out of conversion and join either existing or new operators of that type. And we have seen quite a few new operators already this year, but who knows what new conversion line you’ll inaugurate next. And we’ll see you soon. Maybe we’ll see you in Singapore cargo facts Asia next year.

Boon Keng Tan
Sure. No problem.

Jeff Lee
Thanks again, BK.

Boon Keng Tan
All right. Thanks, Jeff.

Jeff Lee
That was BK Tan, svp, gm and head of aircraft and freighter leasing at ST Engineering. And that’s it for today. For more multimedia coverage like this search cargo facts connect on iTunes and Spotify and visit cargo facts.com. Thank you very much for tuning in, and join us again next time.