Freighter aircraft leasing: Portfolios full of narrowbodies – part II

Yesterday we began our annual analysis of freighter aircraft leasing with an overview of the lessors involved in freighter aircraft leasing. You can read part I here. Today in part II, we look at the leased freighter fleet by carrier.

Turning now an analysis of the fleets of carriers that lease freighter aircraft begins to shed some light on lessor participation in the air cargo market. As can be seen in the chart at right, almost 100 carriers have operational leases on 495 freighter aircraft.

As previously mentioned, approximately 30% of the global freighter fleet is leased, and this varies slightly by aircraft size category. A higher proportion of narrowbody and medium widebody freighters – about 32% for each size category – are leased, compared to just 28% for large widebody freighters.

Since we last did an analysis of freighter aircraft leasing in August 2017, there have been a few other notable trends. On the narrowbody side, carriers leased an additional thirty-five 737-400Fs, increasing the number of leased narrowbodies in operation by 21%.

Although the absolute number of medium widebodies on-lease did not change much since last year (down three units), the continued ramp-up of Amazon’s dedicated freighter network, operated by Air Transport Services Group and Atlas Air Worldwide Holdings, Inc., has had a notable impact on the medium widebody portfolios of lessors. A total of ten 767-300BDSFs and three 767-300BCFs were added to lessor portfolios in the past year.

Cargo Aircraft Management (CAM) the leasing subsidiary of Air Transport Services Group (ATSG) and the largest lessor of 767Fs sees significant growth potential ahead for operational leases of the medium widebody aircraft. ATSG estimates that 85% of its projected 80 aircraft fleet will be dry leased by year-end, as the company looks to dry lease nine additional aircraft in 2H18. CAM expects to add a total of ten 767Fs to its portfolio in 2018, and between six and ten in 2019.

Looking ahead, there is a consensus that lessors will continue to increase their participation in the narrowbody freighter space for a number of reasons.

First, in the interim period before 737NG feedstock prices come down, freighter-converted 737-400Fs will continue to be leased in large numbers, as robust carrier demand for the size category persists.

Vx Capital, the largest lessor of 737-400Fs, has already converted and leased more than twenty of the type and continues to expand its portfolio of -400Fs. This October, Vx Capital will take redelivery of its 22nd AEI-converted 737-400SF.

Other lessors, meanwhile, remain engaged in the 737-400F market. Canada-based Avmax recently acquired four ex-Alaska 737-400 combis and has inducted one aircraft (25099) for conversion to full-freighter configuration by PEMCO at its Tampa MRO. Avmax is considering the full-freighter option for the remaining three aircraft as well.

Second, even while elevated feedstock prices put 737 NG acquisitions out of reach for many carriers, airlines that can justify the cost of adding a next-generation freighter through higher utilization will do so in large numbers, on lease. This is because, initially, lessors that already possess large portfolios of 737 NGs and A320/321-family passenger jets will be most active in this space.

Across the complete range of next-generation narrowbody conversion programs, lessors dominate the order books. This certainly rings true of the first two conversion programs to receive STCs, and for upcoming programs as well. As previously mentioned, in April of this year, West Atlantic Airlines took redelivery of the first 737-800BCF on lease from GECAS, which, in turn, put the aircraft into service for FedEx in the integrator’s European network. GECAS has thirty-four more firm orders and options for fifteen additional 737-800BCF conversions with Boeing, and up to twenty 737-800F conversions with Aeronautical Engineers, Inc. Similarly, the launch customer for Bedek’s 737 NG freighter-conversion program was Spectre Air Capital, with a firm order for fifteen 737-700 and -800 conversions.

Orderbooks for upcoming A320/321 family conversion programs are also dominated by lessors. In October 2017, Luxembourg-based lessor Vallair became the launch customer for 321 Precision Conversions’ (a JV of ATSG and Precision) A321-200 PCF program. The lessor has since doubled down on its commitment to the A321 with a launch order for A321 conversions from EFW, the joint venture of ST Aerospace Engineering and Airbus.

As redeliveries increase, let the leasing begin.