CFS: Big birds and plenty of pallets

A transcript is available below. This transcript has been generated by software and is being presented as is. Some transcription errors may remain. Darren Hulst Hi, Darren Halston, the Vice President of commercial marketing at Boeing and our team, among other things, looks at demand for the freighter market in the medium and long term. And soon in the next few weeks, we'll be putting out our 2020 additional the world Air Cargo forecast. But in addition to that, obviously, we support all the sales of freighter aircraft, including conversions around the world.Ted Lytle Good afternoon, Ted Lytle, Chief Strategy Officer at Western global airlines. A little background on Western. We're relatively young, you know, six years old, and we play in the ACM and full service charter market.Rafi Matalon Hi, my name is the last few months alone and the EDP marketing or furbishing group out of Israel aerospace industry in the last 40 years. We developed this disease for all type of Boeing platforms with the narrow, narrow way. It was the narrow body mid size and the wide body. And we're looking for the future with a with a new program, which is the triple seven, the between.Michael Steen Yes, good afternoon, everybody. Michael Steen here, I'm the chief Commercial Officer for the Atlas Air Group. And the president ceo of tight inebriation leasing. So as a group, we're the largest outsourcer in the aviation space. And certainly when it comes to light body traders with a large or large fleet 47 or 48 of those aircraft in some trouble the triple seven. So this is a space that we are we are very active in and I was looking forward to the discussion here. There's there's nothing.Jeff Lee Thank you. So I'll just start with the 747 dash eight, which is the one that was officially ending in 2022. So with that ending, where does that leave the very large freighters segment? I mean, with we have so many 7474 hundreds and debates flying around at the moment, and they will continue to do so. But where does that leave operators like the western global you know, both of you have a lot of 7476. But both of you have significant important feats. So maybe Michael, I can start with you. What are your thoughts?Michael Steen Sure, Jeff, it's a great question. First of all, looking at three to the map of leaders at the moment is critical. interface. snaps are about 35% of the total value of goods being transported in normal times. And arguably now it's even more important than that. And for that reason the market traders are playing an increasingly important role for low error rates. Just to set the backdrop here we have lost about 50% of the total airfreight or at least so the 5% of that 50% share with all the pasture that was being beamed down and no recovery in sight within the next several years. Not recovering from the snow. So the demand for widebody freighters has certainly increased, not only increase going going for the current fleet operators that's not offering certainly the dash aids their younger crowd. So there is at least 25 years of life left in that bathroom if you like. And similarly, there is still a lot of younger generation symbols are important production aircraft out in the market. And they will continue to fly in the next 15 to 20 years well. However, the the decision to terminate the production possibilities of the document in the market, I would argue that there's definitely a requirement for replacement of the dash in some shape or form. And important for importance right industry is of course choices. And there isn't a cookie cutter solution where one size fits all. So a triple seven production fader isn't the replacement for some magic, even though it's fantastic aircraft. Neither is a triple seven covered around. So it's important to look at what the next generation of Raiders will be as we move into 2030s. Yeah, I agree with with Michael, you know, we're Western we're bullish on the long haul market demand. You know, we were bullish before what's transpired over the last eight months globally and we're bullish after that goes away. We'd already doubled our seven fortunately prior to the pandemic. We have our next seven for coming out of conformity next week. But you know, you look at what's going on in the global economy you look at under in emerging markets, for Western Latin America, Africa, Southeast Asia is Mia had a lot of focus there. It's not just the seven for us, it's also of course, and then the 11 is operated by to the largest carriers in this space. But then you also look at what's going on in the global economy with the movement of the global food supply chain, right perishables that demands, some long call, capacity, health care, high value, as Michael spoke to, and then e commerce, of course, the surge in e commerce. So from our standpoint, as I said, we're very bullish on these long haul, you know, wide body aircraft.Jeff Lee Yeah. Darren, perhaps you can chime in with Boeing's perspective on this.Darren Hulst Sure. You know, I think I think both Michael and Ted made good points about the market today and the role that some 47. And I agree, in some sense with Michael about the fact that there are certain things you can't replace about the seven four sevens capability. And he also makes a great point about the fact that the fleet is pretty young, and there's a lot of capability in it for future generations. I also think, you know, the complement to that fleet is an airplane, in the triple seven freighter that offers operating costs about 25% lower than the 747 dash eight. So what you get is same range capability, in some cases a little bit better, with a lot more efficiency in terms of where the aircraft are operated around the world. Obviously, no, no nose door. But again, there's a sizable fleet of 747 flying around and to fit some of those nice rolls. And so I think there's a combination of, you know, the 747 fleet, and the triple sevens coming up that help, you know, support the needs of the large freighter market. And I also, you know, want to reiterate, regardless of when production ends on the 747 our commitment to our customers doesn't end there, and will continue to support the fleet for decades after the last 747 freighter rolls off the line. And so our commitment to the customers but also to the space doesn't end with 747. Jeff Lee Right. And Rafi I mean, I believe is still offering a version, the samples haven't been 400 Rafi Matalon Yeah, actually, it was, I think a decision of our top management to keep live the conversion line last to conversion of 747 Asiana and since there you know, I say before the COVID it was some interest, but they full decision to keep it but they I can say you know that from January we have so many interest or the seven for seven which is amazing, you know, a talking about bonded seats with the SEC for to convert from combi to full cargo and passenger in cargo and like why children very soon we signed the contract a full conversion of the 7% but there is a lot of interest about a car Asia North America a since there is no any converted editable freighter in the market. You know, all the available Erica from the desert where we count and the demand of them allocates its causes disinterest on the on the surface of and happy that we have this conversation. We have only one convulsion line, a pull the 747 Jeff Lee analgesia I mean, understand the vehicle of interest, especially with the three frames that KLM recently retired. So, how do you manage that conversion capacity with all the 767 activity that you have going on right now? I mean, you're either very busy 767 Rafi Matalon Yeah, correct. We are running right now supervision lines. Tie in Israel for the 767 and an additional two conversion line in Mexico in our remote side. It was only one but we increase it based on the influence of COVID. A big company we are not a small company as you know very well. We have a strong engineering forces and we have already the experience In the last 40 years, you know, we work a lot with the remote side, I must emphasize, you know, when we said the remote side, it's it's I know, we have subcontract the doing the touch label, but the responsibility the agreement, it's an agreement, no any contract between the customer to the to the site, say the MRO. So we have a large experience. And as per the demand, we develop more convulsions line in the in the remote side. And we're looking forward to the triple seven, you know, Jeff Lee Darren, there's a question from the audience to kind of relate to questions. are the only two options from our phrases going forward, going to be the triple seven production freezer and the converted triple seven 300? yard? SF? What other options are there in the meantime? And do you have any plans to expand your conversion product line? And possibly a triple seven next return? Darren Hulst So that's a good question. I think, you know, in the near term, the focus is on the triple seven production freighter, despite the fact that, you know, obviously, the triple seven been in the market for a relatively long period of time, the triple seven freighter just in the last three years, we've gotten 77 orders. So more than three effective aircraft per month, I would, I would say, you know, in terms of how you think about this over the last couple of years, and that's just a function of its capability, its flexibility in the market. That being said, you know, with the triple seven x really our focus on the passenger side in the near term, you know, initially, and right now, our focus is on flight test and moving the aircraft through certification. But we'll continue to talk to customers the market, and try to understand the needs and the freighter space for a freighter variant of that of that program. And then, you know, again, we continue to talk to customers about other options, or other potential, maybe complimentary products that would provide capabilities that fit our customers’ needs got in between those spaces, maybe in the immediate large space, based on on the economics based on the capabilities, and you know, all the things that it takes to make a successful product. Jeff Lee Yeah, but obviously, we also have at least a couple of arenas developing, you know, a replacement for these very large freezers. Is it Do you think it's still worth looking into the characteristics that that operators are looking for in a potential successor to the 747? And is it worth developing this kind of aircraft? Darren Hulst You say, success for successor for the 747? You mean, 130 140 ton aircraft? Jeff Lee Yeah, it's a very large, Darren Hulst very large. And, you know, again, I don't want to ever rule that out in terms of, you know, working with our customers around an aircraft that's the market might need. I just think, right now, the capabilities of what the triple seven offers plus the existing available fleet of 747 400 and dash eight, right now, I think that's, that's where our headset is, but we'll continue to explore, you know, where the market heads in the next two decades. If I could, if I could just add, Jeffrey to that, you know, from a Western global perspective, yeah, we're looking at the end lemons and 90 ton aircraft, our southern boards are 105 to 110 ton. The triple seven converted the packs to get like, like what Rafi is mentioned. You know, I don't know, if there's an STC yet that's been put out on that yet. And we don't know what the payload would be. That would be, you know, that's something that would be of interest to you, you know, to Western global. To kind of bridge that gap for wherever you are now to where we're, we're planning on going. Rafi Matalon Yeah, I would like to add, you know, regarding the, we believe you know, that a wide body segment would believe by by the cheapest seven, that's for sure. You know, 747 so we have the, I don't know if it will be additional 10 or something like this convergence of the 747. But the by i by two by three years of foils. The triple seven, we start to climb and lead the wide body segment. Nobody be others. No, I'm not talking about the MD 11. I don't see any, any other competitive platform wide body can join to this And they do question actually the competitive crafty about the reality how beats around 100 to 220,000 pounds, which is very close to the production Phaeton by the thousand pounds. And but the folio May the volume since its industrial production president that's 200. So there is a difference between 20 to 25%. And today with the economics, which is very a gross, talk about the cold lead and etc. So I think it's a it's a good solution for the, for the general cargo and for for the e commerce. So the combination of, you know, talking for the Express 767 A. So this is say, I think it's a lot of advantage to the to the competitor, and comparing to the price of production, the writer, but we support we as I we support going to continue to manufacture the production freighter that will sell hundreds. And we will live side by side together, you know, with the conversion. Michael Steen Yes, I would like to jump in and add to this as well, because I think it's important that we distinguish between, okay, where the aircraft is going to be deployed. Because as I said earlier, there is no one size fits all. They're all fantastic aircraft over simple design platform in the triple seven production freezer, roughly. And we're very interested in seeing what the triple seven feature that will look like when it comes out on May 23. From what the timeline is important is of course, a look at the networks that can be backed up and operated and what kind of profile they will have are really loaded on board and who they going to operate for right. Now they're there to say if you're lucky enough to operating across the Pacific at the moment, the absolute best performing aircraft no comparison in itself was ever Nashik. Why? Because you can capitalize on the log aircraft and higher payload and photo by by by 400. Because there's a lower ownership costs. So it's a really broad spectrum to look at as an investor in aircraft and say, Well, what is it that we're going to invest in? How do we pull it out? And when a customer so we operate for? So optionality is absolutely critical. And scale is going to be critical. But I think that this is now talking three to four years out at best. In the meantime, we are in Libya, the pandemic that's going on, and an absolute shortage of available supply. And that is a trickier challenge that we have animals here now that I think all of us are trying to manage. And of course, if you have that capacity available today, it's it's always beneficial because you can support your customers. Jeff Lee And Michael has a question for you actually do? Do you think 777ERSFs will eventually replace your old 746. And then you're actively looking to increase your large or small freighter fleet? Michael Steen There are three questions there, we'll take them one by one. So first of all, we're looking at increasing our fleet. For sure we’ve grown us as a group, whether it's in our operating side of our business or in our leasing portfolio, we are indeed looking at expanding because the amount demanded. So that's the key driver. As I said earlier, there is a lot of life left in 747 platform, the dash 8s for sure, and the majority of the 747-400s as well. And here we are looking beyond 10 years. So that is something we have to take into consideration. I think a lot of things will happen a lot of developments will be there in the space. Of course in the period of time, the 777 production freighter is not a one to one replacement to the 747 400. But that goes back to what Darren mentioned, if there is no optionality in the future, there is only a portable singular platform whether it's 777-X, which is what's even further out on the converter freighter. Now that is something that the industry need to look at the 777 production freighter is a fantastic aircraft, that's why we invested in the asset we will continue to look at more for sure over time as our customer service environment. But I dare to say that the industry needs we need a large aircraft strong profile on 777-10 is phenomenal because you can learn so many different operating segments with different types of freight and the nose lorries for example not only used for outside pieces it's used for speed of loading and unloading. Because you can use both doors at the same time and that increase Of course efficiency and particularly in an environment like this, when you need to turn around aircraft quite quickly, then justify recall it right the third part of your question was regarding the Different aircraft types, but I think we get into that later on is wrong? And the answer is, of course, yes, there will be growth in the mid-size freighter segments, and narrowbodies as well. Jeff Lee Yeah. And Ted is a similar question for actually for both Michael and Ted, since you operate some for some phrases, how do you balance the, you know, the risk reward calculation, you know, around heavy maintenance. And I know Boeing adjusted the, the forecast for retirement timelines in your in your commercial market. So have Atlas and Wesson global, adjusting your own timelines for how long you'll be operating in the 747s. Michael Steen Now, first of all, I think it's important what Darren mentioned earlier, and that is a Boeing they're committed to supporting the three platforms that we have, we wish to create some boring, there are excellent, and other engine manufacturers, of course, as well. And that's important, because collaboration across the supply chain here is critical in order to keep the supply chain alive. And it's more important today than it ever has been, I would argue. So we take that into account. Obviously, having scale is important in order to, let's say, manage your maintenance costs, for example, because our customers are the managers, and also very important to the planning maintenance such that you can get optimal utilization out of out of the fleet. Obviously, there is going to be escalating costs for maintaining aircrafts as the ages, it goes without saying it's important for us to try to match up as best we can. Ted Lytle I'll just add to that, that, you know, we've looked at Western global, we're probably one of the most vertically integrated airlines. Got our own tomorrow, we have our own simulators, we have our own engine repair shop. And as of last week, I'll just note that you're now employee-owned. So as far yeah, both the 747 and the MD 11. We've made the investments in parts in people. And so the way we look at it is now this is investment for the long term, you look at the of the MD-11, for example, I think the limited validity on that is 40,000 cycles. So we've got another, you know, 15 to 20 years on that airframe. And similar to the 747. So, you know, from our supplier standpoint, we've invested for the long term in these wide bodies. And as I said at the beginning, you know, we went out and doubled our sim for fleet at the beginning of the year before, you know, any of any of the pandemic it started to really expand across the globe. And we feel that, you know, after hopefully, they'll be soon it subsides, you know, we're going to continue with the strategy and be opportunistic, in, in the assets we purchased. We own all our aircraft. So that's, that's the approach we're taking. Rafi Matalon Yeah, but then I have a question for you. Do you think that you will operate a semi full circle to coming 50? New? Ted Lytle Yeah, you know, I think that Yeah, we I think right now that the track we're on Yeah, that we're, we're headed in that direction, both with the seven for me of 11. That's, that's the plan. And as new opportunities come up, you know, I'm sure we'll be talking with you and some others about replacements. Like I said, we'd love to see the details on the triple seven conversion. But for us, you know, it all comes down to, to price right, so we'll see how that plays out Michael Steen We will continue to operate in the 747 as well for the next fifteen years, there will be some older aircraft, some of that converting nothing we still have in our fleet of making them out and up here from time left to the production traders, they are like nothing, which are our key jobs. Rafi Matalon You know Michael, the 747 will continue flying for 15 years, okay. But you know very well, you know, to maintain 747 in age of 50 years, it costs a lot of money. So I don't think that well went to this direction of a you know, to increase the expenses, the main expenses, the air copies aging, and the you going inside of the aging process with CPCP inspection and etc. So, me personally, I don't think but you know, the 747 it's an excellent platform. But I think you look for the long term in the coming 20 years. I think that you preserve production or the unbelted industrial do. We need this issue of the market. Michael Steen Very curious to learn more. Jeff Lee Actually just staying on the topic of triple sevens and versions of Boeing and I changed your views when it comes to offering another triple seven conversion program based on the smaller, triple seven 200. I mean, the feedstock situation for that frame is now quite different. And we have potentially have the 777-200LR coming into the picture as well. So down and, you know, as bone change his perspective on this, Darren Hulst I don't think we ever change our perspective. I mean, the perspective is always if the if there's a market for it, and if there's a business case for it, you know, we're obviously interested in that segment of the market. And, and you're right, some things obviously have changed in the last couple of years in terms of feedstock in terms of other parts of the equation. But what's interesting is, you know, as we've watched the market in this crazy upside down year, some of the more successful, you know, airlines that are not in the decade for your space. So I mean, I'm accepting, you know, Atlas there, and it's unbelievable year, the airlines that operate both passenger and freighter aircraft and part of their fleet, some of them have actually been able to make a profit, albeit a very small one, to offset the losses on the on the passenger side. And with what we're seeing is, they're doing it with new dedicated freighters. It's the triple seven, in some cases, some four, seven eighth graders, but, you know, the conversion market is still interesting in terms of everything has to be just right, I think Michael made a great point about, you need to be able to deploy the asset in a lot of different spaces, a lot of different environments. And the beauty of the production freighters. Like the triple seven is, we were seeing airlines, you know, operating long haul operating them high frequency and getting the value out of the, you know, the new aircraft capability. And so, I think there's a balance between the, you know, aging aircraft feedstock, you know, on ramp price versus, you know, how it how it lives in the lifecycle of an airliner, so I think we're open, but still interested to see how that works. Jeff Lee And Rafi no thoughts on a potential conversion based on the triple seven 200? Rafi Matalon No, well, not in this realm. Okay, in this direction, we develop right all day, that's the DL. We believe this is delta multi, a multi platform for a wide body 747 and the MD-11. We do think that that the -200 has some alternative in the market. So this is the reason that right now we focus on industrial, I'm saying, when we do compare it to go to production, I say buy prices, you know, it's one set of a new price, and you lose, the only thing that you lose, it's around 20,000 pounds. And the you gain 25% more in volume. So people will make the calculation, owners of assets, a leasing populace, you know that they are becoming to age of 16 or 18. And then to take decision what to do with the platform to go to another cycle of, of a passenger contract. So they have to invest a lot of money on the inhale. So I think this is the trade off. And for those, say, operators, owners of the platform, and to continue doing money for the coming five years, I think it's an excellent solution. And by the way, it's working in the last 40 years, you know, look the conversion market. Jeff Lee And I was going to say, you're very busy already with the 777-300, the 767 and the 737 NGs. Darren, you were talking about the triple seven production printer and the operators that come the operator. We have seen many of these combination carriers actually reducing the size of the road feeds and you know, just cutting down on expenditure. Do you think in the short term, many of these will they still be in a financial position to invest further in the production people suddenly free to or will they kind of turn to low cost alternatives like the 777-300 version Darren Hulst I mean, I guess I come back to what I just said, You know, I think, you know, you told us not to look at all the options, but the airlines and you know, whether we're talking about alien DNA or time airlines, they've looked at, you know, how, how important the cargo segment of their business event and it really sort of bolsters the case for having that as a strategic element of, you know, the overall airline business. And what's kind of underpinning that is really the success of their production. So not a lot of conversion. And that portfolio, I'm not saying that there wouldn't be in the future, but it does change some of the calculus between how those aircraft can be deployed in the longer term. So I think, I think the question is still open. But I think we're, I guess, encouraged by how much success of these carriers to add, despite the challenges I'm passing Rafi Matalon in Jeff, I would like to add something a, you know, this company, I say, the airlines and mostly the passenger airlines face it problem, that all the fleet say 80% of the fleet was rounded, you know, for the passenger. And part of them, they use it as an alternative freighter for boxes in the main deck and etc. But we feel it, you know, in the last six, seven years, based on the interest of customers, which are airlines that approached us, they didn't has a, you know, a freight sales on their head in the past, and they move to the passenger, and they found that they should reduce the risk in such situation, which is can be very common, you know, and instead of the lack of would be grounded, you know, all the fleet. So they can use 10% or 15% as a as a convertible of a freighter and have some income, you know, otherwise it's zero. So, we face it a lot of interest from airlines, not only from cargo, I'm not talking about pure cargo airlines. And this is interest, you know, that they will they will divide it, you know, they share the risk between the passenger and the in the freight, because the freighter continue flying such a virus in the future. Because nobody predicted, you know, this risk, Jeff Lee I think was actually a great example. Ted Lytle Um, you know, when, I think one of the things I heard was, you know, trade Trump's tourism, and you look right now, we're doing this, no, virtually, but goods have to move, right. So you can have the thing make the for freighters that move a limited product, but, you know, I think part of the success that happened with that was due to where prices were right. But as fuel increases, you know, ones that are gonna be carrying the goods and moving trade, globally, e commerce really are going to be the wide body freighters. Now, just going back to your question as well, I'm looking at right now. So 75% of the passenger fleet is grounded. The question there is, how quickly is that going to come back? What needs to happen for that capacity to come back? Well, first of all, we need to get a vaccine in place that is widely distributed, and that is likely going to take some time. We need to get the demand back on the passenger aircraft as well on people being confident without the need to listen on the restrictions that are faster force and unilateral and low bases. And we need to get some harmonization around that as well. That's going to take a long period of time, probably 10s of thousands of aircraft owners and now 15 to 18,000 aircraft that are grounded. Getting those back in the air is going to be an undertaking from just a logistical perspective and a maintenance perspective, you need to train pilots to get current again. But the very important thing that we haven't talked about is of course, well, what's going to happen to two companies, in the meantime, risk capitalized and withstand this massive challenge that we're facing around us. What impact is that can have on economic viability, particularly on passengers actually to question well, who are now the customers of those new production traders for the converter traders? You have to be able to pay for the African answer is what's happening to the financing markets now as well. There there is a strong argument of course that investing in freighters is something that has a lifespan of more than vaulted within three to 30 years within the current environment and the outlook for the next 10 years. Who would argue that's all there so very low rescue. So our target customers now for the OEMs and for the conversion companies and for the lessor like buy Titan for example. Now the company carriers could be because they're gonna get a turnkey solution? Or is it going to be other entities like e commerce platforms or direct shippers? Maybe in some cases? Well, that's where I think that we'll see a tremendous change now in the industry. And I think the next six to 12 months, it's going to be very telling as far as how that landscape is gonna shake itself in the national reviews. Jeff Lee And we've seen, well, in particular, one major e commerce platform, moving to require its own aircraft, which is a major step for them. And for the industry as well. There's also a question from the audience about the end of the ANC as a passenger aircraft to address the any innovative pushes to create a conversion program that might provide a solution to an otherwise lack of options. We'd like to tackle that maybe, Darrin? Darren Hulst I mean, I don't really have a whole lot to say on that. I think the market sort of decided where the a 3d fit on the passenger side, and it was, you know, it required a lot of density in terms of traffic. And the reason was, because it costs a lot to operate. And the challenge is almost, you know, multiplied on the freighter side, because unless you're carrying very light cargo, very light, it doesn't have the density, you need to fill the volume the aircraft has, which, you know, inevitably cost money to operate. And so I personally don't see how that fits in the system. You know, and maybe since I sound bias that I let other people, you know, I answer more about it. But I just feel like that's a challenging equation. I think the market spoke on the on the cargo side of it as well, I think initially there was an interest, but that that quickly dissipated. So I don't I don't see that being a replacement, or a or an opportunity. Push for conversion. Michael Steen Don't really create, I agree with the previous speakers, like, if there was a market for that. Already, we have to remember that whenever you create a new commercial line up to get scale, right, so there's a certain amount of orders that we replace them. In this case, we'll have to reconfigure the structure of the aircraft as well strengthen for us, etc. I don't think it would be financially viable. Rafi Matalon And I'm quite sure that they'll buy things different Jeff Lee units needed for organic. Let's move on to the 767. That is, of course, still hugely popular in its production unconverted variants. And both Boeing and I have increased the output capacity, but it's with the current feedstock situation, how many friends do you estimate that are out there that could be easily converted? Roughly? I think, you know, in the coming three, three or four years it will be around I'm thinking about globally, about 100 I don't think that we have enough feedstock. And this is the reason that we are thinking, you know, for the next platform, which we're going to a to develop a fall for this niche, you know, in the moment that the feedstock will be zero because the 767 It's a great aircraft, you know, we see from the orders, we see it from the performances, and even aircraft in the age of 1991 you can see that they are flying in, in Amazon or even Atlas, maybe they have a they have some platform in this age. So it's I say, unfortunately, you know, I wish we have more 767 that we can convert it, you know, a feedstock, but this is this is life, you know, there is a hand and we should think about the mid size for another platform, which will be delvers. Michael Steen Yeah, I come into that job as well. I mean, first of all, we'd like to thank both Rocky and Darren here because I think we have half and half of our 39 aircraft that's converted by you respectively some great products but the 767 is a great aircraft and mid sized segment. It's a fantastic aircraft and into regional Express and e commerce networks in general a car without matter as well. I agree with Rafi that there was about probably 100 and hundred 120 aircraft that can still be converted because what's important to keep in mind here is obviously the age of the aircraft. There are a lot of young entrepreneurs themselves out there still going to be maintaining fashion operations. And there are some that are too old to be considered to, to convert as well. The choice of engine supplier is important. And they're so far most operators have favored the GDI engine to 60 to 80. And you have of course, a crab powered as well, there are more crab powered available. So the question there is for the customer who is going to use those aircraft at the end of today, which of those solutions are going to be the most suitable? What was interesting, and that is, of course, competition, and optionality and everything that we do as an industry. And you will be interesting to see how successful the A330-300 is going to be. It's obviously in the market. Now, as there are several of those passenger aircraft coming out of service as well. The feedstock price and on ramp cost is going to go down as well. And that's going to be healthy for our industry, if you see some competition between the 767 and the A330. Rafi Matalon Yeah, Mike, and I would like to end in about the age of the aircraft. The interest for the 767 it's not only no in North America, is nine in patient home on the VA flag El Cap in age of more than 20 or 25 fields. And we talk about the the market that is developed the China market, there's a lot of interest on 767, at least the one company that is has and there is a lot of interest from other those limitations, you know the CAC, they don't allow you not to bring articles about older than 20 years. So 21 years old, it's become a problem and obstacle, this issue of the age, the same in India or talking about the issue. North America so the issue I don't know about North America, but this is an issue and I agree with you that no people pay for this 767 the grant platform will be the retail industry handle. And this is the next target for our program, next program to develop, which will be the first sale, but can I will tell me, Michael Steen if I may have one thing to consider is obviously how the aircraft will be deployed, and how it's going to fit into the infrastructure of operators as well. And drink. Yes, the 330 is not in operation different than has some type of different characteristics doesn't necessarily fit into the infrastructure and tarmacs and buildings. So that's going to take some time for the companies, of course that adjust to that. And so that's why you see a bit of a delay here. Rafi Matalon But I don't think you know, the most important issue is there is no any limitation to develop in sdcs. You know, we can develop the Drupal seven for 10 years. But the question is the goal is not to develop an STC, the goal is to send it to the converted area. And I think right now the conversion of the three is not on the right time right now. But But it's okay. You know, the market is waiting for us Why? Jeff Lee And then what I'm just going to ask the 767. Do you think the demand for this will continue to be mainly driven by the package operators for the foreseeable future? Darren Hulst I mean, by and large, yes, because that's where the growth structurally is in the industry. You know, I mean, this year, we've gotten more than about 25 new orders and commitments. The backlog or the total commitments for the 767 converted freighters is over 70. Now, but you know, one thing also mentioned, and I think Rafi and Michel refer to this as well as the equation around utilization. And the one thing that I think the 767 conversion offers is the limit of validity on the aircraft can go as high as 180,000 flight hours. So you've got a lot of runway left, even with a medium to old age aircraft in terms of how long an aircraft can serve and express market fleets that were that have sort of, you know, a couple cycles a day for 567 hours of utilization. And that serves that segment of the market. Well, at the same time, you know, operators like FedEx and UPS are ordering new aircraft when they expressively because of what it does in terms of network flexibility. So, you know, I think the combination kind of works together. And so that's why I think that 767 stays in a relevant for a long period of time. Jeff Lee Yeah, Ted, is that medium segment, something that Western global is potentially interested in? Ted Lytle Ai right now, that's not part of our strategy. But of course, as we begin a relatively young company, as we expand and serve, you know, pretty diverse customer base, we look at their requirements, we feel that, you know, one of the benefits of Md 11 is it's good medium haul and long haul type aircraft. So it gives us, you know, flexibility in what we can operate from Shanghai direct to us via Anchorage, or 85 tons and 90 tons, then we can also operate it as domestically. That's why. And that's what we see. So, in the short term, I would say that we're staying the course with our Md 11 and seven tours and looking for opportunities to expand those fleets. But of course, if opportunities come and customers work with him on on any platform desire, Jeff Lee surgery expect with the MD 11. With that, what can we expect to see additional investments from you on that from and how do fuel prices and maintenance costs, play into that? analysis. Ted Lytle We have a you know, we have 711 attrition aircraft that we have for additional that, you know, still to conform, and they're already converted to the appear freighters. So we have opportunities to increase our Mt. 11 fleet by another, let's say 2020 25%. Look at Boeing and some of the suppliers out there, they're still manufacturing wearparts for tier one with Boeing and we may need assistance. They're providing customized, specialized parts. But there's also the opportunity through pmas and other So from our standpoint, again, with our vertically integrated approach to this, we have the ability to maintain costs. And you look at how we operate that in the 11 year it's a great north south aircraft. We operate in Latin America, Africa, but we can also operate transpacific transatlantic. So I think it gives us some flexibility right now that we need and in looking at the limit of validity on it, it's good for another 15 to 20 years. It's a Douglas Aircraft. We all know how Douglas built their aircraft. Jeff Lee Question from the audience. What is the panel predicts will be the impact on the market from Chinese ecommerce growth. So far, this has been restricted to small airframes, but inevitably, it will move to larger free to aircraft for long haul ops by the Chinese ecommerce companies themselves. Michael, you're nodding your head. Michael Steen Yeah, no, I think, first of all, if you look at e commerce in general is it's growing exponentially. We are seeing that, of course in the past couple of years, but even now during the pandemic is growing faster. That's also an analysis here that in the United States, for example, ecommerce has grown from 50% retail penetration to 30%, in a matter of three months, 90 days, it took us more than 10 years to get to 15% penetration in the first time. So I think it's inevitable that we will see more growth. As more and more consumers can get after the divorce on the platform. Back to the Chinese platform, while they are expanding globally, as well as Alibaba sure and are making investments. And I've done so in the past several years. We were at cable, as we announced here at some time ago to set up a direct connection between Hong Kong and China, mainland and Hong Kong, both into South America. And that is an evidence, of course on how these bathrooms are expanding on a global basis. And I think they'll be looking to large to both Amazon and Alibaba. But no, no. So others are looking at how to secure their supply chain as demand continues to grow on. Obviously, consumers are looking for shortened delivery time anywhere in the world. That is assemblages matching both on North South segments as well as crossing the respective water strike on the Pacific and transatlantic. So we will see more growth in that segment. And this is also driven by what I mentioned earlier, and that is the lack of capacity and the total supply chain. Many of these e commerce players that have been using passenger values, they have been using the postal systems. And the postal systems were predominantly using the double space when aircraft flying around as well. And that's not been displaced. And there's arguably not going to return for the next next several years. And that is a reason why now seeing an engine let's say increase the interest in securing that capacity and deploying their own solutions worldwide. Rafi Matalon But by the way, I don't think that the Chinese market is ready to accommodate the wide body you know to increase there are some 747 flying they're even converted by IAI. But I feel we should the we should wait to see where in this process to see how they a, you know, start the race with the with the mid size. I'm talking about the 767. I don't see them, you know, I'm telling you that's why they flew from the from the Chinese market. They're just Michael Steen dropping my comments here to just crushing where the Intercontinental operation I didn't suggest that we were looking at widebody aircraft flying domestically in China. So I agree with you on that one. But on an international basis, no doubt that e commerce no matter where it's originally originated from is wrong. Yeah, that's the key is into China. Maybe but you look at the Southeast Asia market. You look at what's going on in, you know, India subcontinent, Middle East Africa. And that's really where, yeah, exponential growth here, but you look at what's going on over in the emerging and underserved markets. That requires really, you know, more long haul type and wide body capacity. Jeff Lee Darren, did you want to add to that? Darren Hulst Well, I guess I would, I guess there's gonna take a bigger picture view of it and say, you know, what's interesting about the China market is how fast it's developed over the last, I don't know, 567 years, and how much runway is left? I mean, the US market with 727, and how the logistics networks developed in the 80s and early 90s. This is like that on basketball, right? So Chinese airlines are developing infrastructure, the network's The next step is to add scale, to add volume, because different than it's way different than the passenger network and how you want frequency you want to expand once you have a good network. You know, from a route perspective, from a logistics perspective, now, it's about filling in volume at the lowest cost. And so I think, in the next decade, and five and 10 years from now, we'll see that volume is adding through larger and larger equipment to really help these airlines leverage the vast potential powers of existing not just the domestic market, but in trade. Jeff Lee That's interesting. Perhaps if we are coming up to the end of our time, but there is a bounce a good question to sort of end on, based on the prospects of intercontinental business passenger demand being slower to recover, is it safe to assume that large white body free to demand will continue to be very strong for many years? Michael Steen decades aren't talking about? Shall we talk about? To summarize thriving? The answer is yes, we'll be talking about what it needs to take for the passenger side of the business to recover. And let's just remember that the normal times 50% of normal airfare is affording us your dollars and 50% of creditors 75% of that passive capacity is out of the market. And it will take time for that to bounce back. You know, it's interesting to see that even though we're in a recession, like environmental damage, we see demand increasing in certain segments. Asia, for example, it's your PMI index, or 50. euro the past couple of months, and you see absolute growth year over year of China in the United States, and that is not taking neither PPE equipment nor a vaccine. So there is definitely an increased demand in the marketplace for greater capacity. As we expect, that the return on that loss last year capacity is a tough time to fix that are returned back to the market demand will continue. Obviously, how do you satisfy that demand? Well, part of that is going to be satisfied in new capacity coming in. It will be interesting to hear Darren's view of the OEMs capability to produce aircraft because pandemic has also caused a big challenge, of course, for the manufacturers, by lack of orders and obviously reduced throughput and that has an impact of course if you're wanting to treat suppliers as well, and and to the capital markets financing these investments, I think the expectation there is that there is going to be a continued imbalance on the Intercontinental side sort of widebody crater side between supply and demand higher than available supply. Rafi Matalon Now, I would like to add something you know, we're talking here about the COVID and we are in the in this momentum of the of the COVID. But we have to think, Jeff, as you said for the coming 1015 years after this COVID will lay it We sit down, we will have the vaccine in the techwell. But we have to take in consideration, you know, the fuel prices and expensive operation of such a big Bell, you know, and I don't think that they were going to this direction, you know that it would be an open check, you know, to operate the classroom with the four engines and, and operators will look, you know, the competition the racing would be very wildly with I don't I'm not looking for this point, you know that we are inside of the Covidien, I'm talking about after another five, four or three years, you know, the competition will be very helpful. And they and I'm talking about the freight competition with the prices, and the will look, you know, how to decrease this expenses in order to be on track with in this competition. And the fuel? You know, I'm saying it's a big factor. And the engines, you know, to operate for Erica was a four engine or two engines big different. And then the maintenance, and that's we lit Finally, you know, the trend, what would be with the, with the white body for the future? Jeff Lee Yeah, actually, these reasons, you know, my final question, which is how, with all this capacity coming back into the market now, how sustainable is it? And is there a risk, we'll run into a similar situation just a couple of years ago with, you know, surplus capacity all over the place? Darren Hulst I mean, I don't think we will, I think what's interesting about the freight market in the past few months has been illustrated how flexible and convenient, you know, demand is there. So the greater operators, even passenger airlines flex capacity, by bringing aircraft out of storage by using passenger aircraft to serve the demand. And at the same point, you know, When, when, and if the equation changes, as the balance changes, again, now you've got an aircraft that you can easily put back into storage, because there's no really incremental cost to do so. And you've also got a new efficient aircraft to come replace aging fleet, which has been working extremely hard and probably will continue to be worked extremely hard for the near term and foreseeable future. So I don't see any sort of imbalance, I see normal forces holding Ted Lytle that novice add that I think, you know, it accelerated really what's happened last eight months, six months is really accelerated what was ultimately I think, inevitable. Instead, the trajectory of e commerce, the trajectory of global, you know, if you just look at this perishable food supply chain, all that is going to push towards the trader, and, you know, historically it would have been lower belly, but it's also given an opportunity really, for you look at some of the forwarders. And to consolidate, they're now out there, it gives them an opportunity to go on expand their business, because they're, they're going out in full charters that they can go out and sell to a wider customer base, they have 40 or 47 positions now that they can offer a customer when previously they were they were singularly focused really on lower belly space with one to five positions of capacity. So it's a it's a new era, and it's gonna, you know, some are gonna rise to the top. And it's going to be interesting to see how it plays out, I think especially over the next three to five years. Jeff Lee Yeah, and, of course, operators like Western global analysis should benefit from that, along with many others. So with that, we conclude this session. Thank you, all of you for your input and your insight. And to our attendees, I hope you enjoy day one of this year's Cargo Facts symposium. Thank you again to 321 precision conversions for sponsoring this panel. And please join us back here tomorrow at 11am Eastern for the narrowbody panel.

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