Production freighter orders disappear in 2017

Today we begin a two-part summary of the production freighter market in 2017 with an overview of orders and deliveries, our thoughts on why orders have all but disappeared, and when they might return.

2017 was the best year in a long time for the air freight industry. Full-year data is not yet available, but we expect that when the final numbers are tallied, we will see an increase in worldwide air cargo traffic of close to 10% over 2016, which, in turn, was up over 4% over 2015.

However, despite the growth in 2017, and optimism about demand in 2018, carriers worldwide ordered far fewer production freighters than their average over the last six years. As shown in the charts , there was a net total of just ten orders for the production freighters offered by Boeing and Airbus, compared to a six-year average of twenty-six. Likewise, the total of thirty-one deliveries was a drop from the average of forty-two.

So, given the demand growth of the last two years, why haven’t we seen a corresponding increase in orders for new freighters? There are several reasons:

• First, there was far too much capacity in the system when demand started increasing. Some of the increased demand has been accommodated on aircraft already in operation, whether on freighters or in the bellies of widebody passenger jets.

• Where existing capacity is insufficient, parked freighters can be reactivated. We saw quite a few 747-400Fs/ERFs come back into service in the second half of 2017, but the trend was mainly limited to production freighters – Boeing- and Bedek-converted 747-400s are mostly staying in the desert.

• Some carriers, particularly those based in Asia, turned to the ACMI market. For example, in 2017 Atlas Air Worldwide Holdings placed two 747-8Fs with Cathay Pacific, three 747-400Fs with Hong Kong Air Cargo, and one 747-400F each with Asiana and Suparna Airlines.

• Going forward, some of the increased demand will be accommodated by freighters currently on order, but not yet delivered. But this on-order capacity is less than it seems – partly because close to 70% of the production freighter backlog is destined for FedEx and UPS, and partly because it will be balanced by the retirement of older freighters.

But, even allowing for the inevitable decline in demand growth in 2018, we are close to the point at which available capacity, and capacity in the current backlog, will no longer be sufficient. The most desirable older parked freighters have already come out of the desert, useful space in the bellies of passenger aircraft is full, and the fleets of Atlas and other ACMI lessors like Air Transport Services Group are fully, or almost fully, committed.

Carriers and lessors, having been burned in the past by ordering too many freighters when times were good, are understandably reluctant to commit to new orders now. But if the current environment of strong, and increasing, demand continues much longer, orders will have to rebound.

Tomorrow we will continue this analysis with a look at each of the four production jet freighters currently on offer, the carriers that ordered or took delivery of them, and the current state of the manufacturers’ backlogs for each type.

Those interested in learning more about the future of the production freighter market should join us at Cargo Facts Asia in Shanghai, 23-25 April at the Mandarin Oriental Pudong. This year’s event will feature the launch of our parent Air Cargo Management Group’s Twenty-Year Freighter Forecast, followed by a session devoted exclusively to the widebody freighter market. To view this year’s exciting agenda, or to register, visit www.cargofactsasia.com.