[The following feature first appeared in the December issue of Cargo Facts, published early December.]
Eight months into the COVID-19 pandemic that has crippled passenger aviation, there is light at the end of the tunnel. The first regulator-approved inoculations against the virus are being prepared for injection in early December. As the threat of the virus fades, passengers are expected to return to the skies that, in recent months, have been dominated by freighters and passenger aircraft carrying only cargo.
Despite the brighter skies ahead for leisure and business travel, many passenger airframes will be left redundant in the wake of the virus. Not only is feedstock plentiful by modern standards, new conversion programs certified in the past year have further augmented the number of active conversion programs. With the coexistence of next-generation and previous-generation programs, it appears to be a buyer’s market.
In response to heightened demand for freighter aircraft, several programs have already seen, or will soon see, output increases. Thanks to orders from Amazon and DHL, Boeing announced in September it would add a second 767-300BCF conversion line in Singapore (QPG), expected to begin by the end of November. And Israel Aerospace Industries (IAI) has also set up a second 767 conversion line at the Mexicana MRO Services facility in Mexico City (MEX). IAI, which now has a total of eight 767 lines, told Cargo Facts it is sold out on slots until the latter half of 2022.
Growth in the 737-800 conversion market has been similarly impressive, with all three available programs adding conversion capacity.
Aeronautical Engineers Inc. (AEI) announced in August the selection of HAECO Xiamen as another site for its 737-800SF conversions, with an initial line beginning in January 2021 and a second to follow in April. HAECO Xiamen will join the KF Aerospace facility in Kelowna (YLW) in starting 737-800SF conversions for AEI in 2021.
In September, Boeing announced it would add a second 737-800BCF line at Guangzhou Aircraft Maintenance Engineering Company (GAMECO), which recently completed its first aircraft in November. Boeing already has six 737 conversion lines in China, between GAMECO, Taikoo (Shandong) Aircraft Engineering Company Ltd. (STAECO) in Jinan (TNA), and Boeing Shanghai Aviation Services (BSAS) in Shanghai (PVG).
As for IAI, a new 737-800BDSF line has now been added at the Mexicana facility, with the induction of the first aircraft in late July.
Meanwhile, Elbe Flugzeugwerke (EFW) told Cargo Facts it is practically sold out of A321 conversion slots to the end of 2022, and plans to have six lines by the middle of next year, with three in Singapore, two in Guangzhou and one in Mobile, Ala.
Will it last?
Although long-term prospects remain positive, most conversion houses do not expect sustained high-level conversion rates.
“I think we’re looking at a couple-year bubble,” said Bob Convey, SVP of sales and marketing at AEI. The downturn in passenger aviation as a result of the pandemic “has flooded the market with airplanes,” he said. Strong demand for e-commerce in recent months, paired with the lower availability of belly capacity, in turn, has precipitated the “perfect storm” for freighter demand, and conversions.
Feedstock prices, particularly for older narrowbody types, have room to fall further. Although aircraft appraisers expect steep declines in values for out-of-production aircraft, the current market does not immediately reflect that reality. “There are a lot of asset owners looking to convert with [inflated] book values, and no place to put units.”
But in EFW’s view, the situation has “totally changed” for models like the A320ceo and A330ceo families. “The world is upside down in terms of feedstock, and you can get it for very reasonable prices now,” said Wolfgang Schmid, vice president of sales and marketing for Airbus freighter conversions at EFW. “If you don’t find the chance now, you may never find it.”
One slight shift EFW has recently observed is an increase in interest in the A330-200P2F. While current orders and redeliveries show a preference for the -300 — with just three -200 frames completed for EgyptAir and no known orders at this point — Schmid said the level of interest is now more or less equal between the two aircraft, possibly driven by attractive feedstock and the longer range of the -200.
As the 737 MAX returns to service next year, operators will continue releasing 737NGs. For the next few years, “conversion is part of the solution,” Convey said.
For Schmid, the current surge in conversion activity could last longer than expected — at least two or three years — primarily because of feedstock availability, but also due to the need to replace freighters such as MD-10s and A300s, or older 737s and 767s.
“There are a lot of old aircraft around, and I think if you want to replace it, why not now?” Schmid said. “This is a good opportunity.”
While bullish about the near-term onslaught and long-term growth drivers for freighter conversions, aircraft converters are also mindful of the macroeconomic weaknesses that could be left in the pandemic’s wake. Even with a vaccine, “there is still a lot of damage to the economy,” Convey said. If left unchecked, a recession could stymie trade, “and we’re directly linked to trade.”
Who’s who and who’s new
Model 321 Precision Conversions AEI Boeing C3 EFW IAI PEMCO Precision Aircraft Solutions Sine Draco ST Engineering 737-300
As the chart above shows, there are currently eighteen active conversion programs for six major Airbus and Boeing aircraft model families, and eleven model variants. At least five other programs have been announced, indicated by an asterisk.
Looking first at the newer narrowbody types, 2020 saw the certification of the first single-aisle conversion program for an Airbus aircraft. EFW received Supplemental Type Certificates (STCs) from EASA and the FAA for its A321-200P2F and redelivered the first aircraft to launch customer Vallair. The maiden A321P2F (835, ex-Onur Air) is now with launch operator Qantas and flying between Australia’s major cities for Australia Post.
A second A321-200 program, developed by 321 Precision Conversions, has been performing flight tests on its conformity aircraft (891, ex-Air Mediterranee). An STC from the FAA is expected shortly, after which, the aircraft will be redelivered to launch customer Vallair, and placed on lease with SmartLynx Malta.
Two additional conversion STCs were issued for 737NG variants this year. In early April, IAI had its 737-800BDSF certified by the FAA, after which the first two aircraft (30498, ex-Transaero Airlines, and 28619, ex-Pegasus) were ferried to Greensboro (GSO), the operating base of iAero Airways, which then began flying the pair on a CMI basis for DHL.
The other 737NG program greenlighted in 2020 is PEMCO’s 737-700 FlexCombi, approved in July. The first aircraft (30293, an ex-Yakutia) was redelivered to Bahrain-based Texel Air. The carrier acquired a second aircraft (34170, ex-Transavia) in October and has now sent it to PEMCO’s Tampa (TPA) facility ahead of induction.
On the widebody front, medium-widebody conversions dominate the segment. Although IAI maintains it has an active 747-400 conversion program and that additional orders could surface, the airframe has not been converted since 2018. The conformity 777 for IAI’s 777-300ERSF program (32789, ex-Emirates) arrived in Tel Aviv (TLV) in June, but is currently in San Bernardino (SBD). In October, GECAS, the launch customer for the 777-300ERSF program, announced Kalitta Air as the launch operator. Kalitta plans to take at least three of the type.
A second passenger-to-freighter conversion program for the 777-300ER is on the way. Wichita State University’s National Institute for Aviation Research (NIAR) will lead a public-private partnership with Sequoia Conversions and other partners that aims to develop and certify a 777-300ER conversion program, the university announced in October.
Here is an alphabetical overview of the STC holders for major jet freighter conversions, including both active and in-development programs.
Aeronautical Engineers Inc. (AEI)
AEI has redelivered five 737 conversions year to date, consisting of one 737-800SF and four 737-400SFs. Close to redelivery are another two -800SFs, two -400SFs and a -300SF.
With fifteen aircraft currently in the works, AEI expects record redeliveries of thirty to thirty-five aircraft next year, including 737s and conversions of MD-80s and CRJ 200s.
Around nineteen 737-800BCFs have been redelivered by Boeing this year, with possibly a couple more to come in December. The planemaker declined to disclose its redelivery or projected numbers.
As for the 767-300BCF program, none have been redelivered by Boeing so far, but one aircraft (30847, ex-Titan Airways) previously expected in November is due to be handed over to SF Airlines in December.
C Cubed Aerospace
U.S.-based C Cubed is developing passenger-to-freighter conversion programs for the A320-200 and A321-200 with engineering partner Structural Integrity Engineering (SIE). C Cubed inducted the conformity A320 airframe (1523, ex-Sky Airline) for conversion at FMS in Kansas City (MCI) in September 2019. C Cubed told Cargo Facts that work on the A321-200 will begin once an STC for the A320-200 has been issued.
Elbe Flugzeugwerke (EFW)
EFW has completed and redelivered three aircraft so far in 2020: two A330-300P2Fs (777, ex-China Eastern, and 781, ex-Shanghai Airlines) in May and August, respectively; and the first A321P2F (835, ex-Onur Air).
One more A330-300P2F (1124, ex-Hong Kong Airlines) and two more A321P2Fs are expected to be redelivered before the end of the year. Unit 1124 will be for DHL, while the two A321s (1238 and 1250) are both ex-Thomas Cook units destined for Titan Airways.
In 2021, EFW expects to redeliver around eight A330s and four A321s, with ten and eleven being inducted, respectively. The A321P2F program, for which touch labor is currently only carried out at the ST Engineering facility in Singapore, will benefit from additional conversion lines in 2021, according to EFW.
EFW also plans to begin working on its prototype A320P2F next year.
Israel Aerospace Industries (IAI)
Although IAI declined to provide specific numbers, Cargo Facts believes the company has redelivered ten 767-300BDSFs, two 767-200BDSFs, two 737-800BDSFs and one 737-700BDSF as of Nov. 30.
December could see the redelivery of up to two or three more 767-300BDSFs and one more 737-800BDSF.
IAI told Cargo Facts it expects the prototype 777-300ERSF aircraft to return to TLV from SBD in early 2021, and metal will be cut around May.
An Air Transport Services Group subsidiary since 2017, PEMCO holds STCs for the conversion of 737 Classics and, as of this year, the 737-700 FlexCombi. Future plans include the development of a full-freighter variant 737-700F.
As of late November, PEMCO had six aircraft in conversion, including a mix of 737 Classics, and a single 737-700 that is being converted to FlexCombi configuration.
Next year, PEMCO expects a further eight conversions and is in the process of closing deals for the conversion of additional 737-300s, PEMCO told Cargo Facts.
Precision Aircraft Solutions/321 Precision Conversions
U.S.-based Precision Aircraft Solutions is known for the 757-200PCF conversion program it developed in 2001. Although tight feedstock reduced the number of 757 conversions it completed from seventeen in 2018, to eleven in 2019, a rebound is expected in 2021. A total of ten or eleven redeliveries are expected by the end of 2020, with 2021 redeliveries expected to grow to about sixteen.
Recent retirements of late-vintage 757s will propel conversion of the airframe into 2022, according to Brian McCarthy, vice president marketing and sales of Precision.
321 Precision Conversions, a joint venture with Air Transport Services Group, is also in the late stages of developing Precision’s successor.
Sine Draco Aviation Development
Sine Draco, which has operations in China and the United States, is developing its first passenger-to-freighter conversion program, the A321-200SDF. Earlier this year, Sine Draco acquired what would become the conformity aircraft for the program (963, ex-AtlasGlobal). In early 2021, the company plans to induct aircraft at Ascent Aviation Services’ Tucson (TUS) MRO facility, where touch labor will be performed.
Accounting for touch labor, engineering and flight tests, Sine Draco is targeting a supplemental type certificate (STC) from the FAA in late 2021 or early 2022.
Aside from performing 767 conversions for Boeing, ST also holds its own STC for freighter-converted 757s. The company recently completed the first Combi-to-freighter conversion of a 757-200 (25622) and redelivered the aircraft to ASL Airlines.
ST declined to comment on its 757 program.