Conversions to account for two thirds of new freighter additions

This is the third of three posts on the future freighter fleet based on the 2019 Freighter Forecast, published by Cargo Facts Consulting. The first focused on the key numbers of the forecast and last week’s post on the aircraft types that are likely to dominate each freighter segment. This week’s post looks at conversions and feedstock.

A large part of the world’s freighter aircraft fleet is comprised of converted passenger aircraft. Across all categories, Cargo Facts Consulting predicts that conversions will account for over two-thirds of all aircraft added over the next 20 years.

Demand for new aircraft in the narrowbody segment is likely to be met entirely by conversions, while in the medium-to-large and large-widebody segments the share is predicted to total 50% and 20%, respectively. In the turboprop segment, almost 80% of future fleet requirements are forecast to be met by converted passenger aircraft.

The demand for passenger-to-freighter conversions is driven by aircraft characteristics and operating economics relative to production models. This includes key items such as payload, range, volume, fuel burn and capital costs. Conversions dominate in segments where capital costs are the most important decision factor or where there are no production freighter options available.

While there is uncertainty about the future of two out of four production freighter options currently available in the widebody segment, Cargo Facts Consulting predicts that there will nonetheless be factory built freighter options available going forward (see last week’s post for more detail on which aircraft types). The narrowbody segment has no production freighter options. Thanks to FedEx’ 2017 launch order for an ATR 72-600F, there is a large cargo door production freighter available in the feeder segment that would also normally consist entirely of conversions.

The availability is passenger aircraft suitable for conversion at the right price and the existence of certified freighter conversion programs for the aircraft type are key factors in determining P-to-F opportunities. Aircraft tend to become ripe for conversion when in the 16-20 year as well as to a degree within the 21-25 year age brackets.

• In the narrowbody segment, the feedstock for the existing dominant types (737-300/400 and 757-200) is declining while the 737 NG and A320/A321 feedstock is increasing.
• In the medium widebody segment, the 767-300ER feedstock is declining, while both A330-200 and A330-300 aircraft within the typical conversion age bracket are increasing.
• For the two most likely 777 conversion candidates feedstock of the 777-200ER will peak in three years’ time which is about the same time as the 777-300ER starts to come of age. Currently, there are no 777-300ER passenger aircraft within the 16-20 year age bracket.
• Among feeders, the number of ATR 72, Dash 8-Q400 and CRJ variants are increasing while the remaining stock of ATR-42 under 25 years are declining. The Dash 8-Q300 stock will peak in three years time.

In the short term, the narrowbody conversion market has been experiencing significant disruption. The delivery of the first tranche of 737 NG conversions coincided with the grounding of the entire 737 MAX fleet since March 13. Even before this, feedstock prices were high leading to significantly different build costs and lease rates on NG vs Classic 737s. What we have noticed is that passenger airlines have been extending some leases on existing aircraft by 1-2 years in preparation of a longer delay. This in turn has removed aircraft scheduled for introduction into conversion and increased interest in 737-400s or even MD80 conversions.

This year’s Forecast contains a section analyzing passenger to freighter feedstock trends for different aircraft types with active or potential conversion programs: 737-300/400, 737-700/800/900, A320/A321, 757-200/300, 767-300ER, A330-200/300, 777-200ER/300ER, and ATR 42/72, Bombardier Dash 8-Q300/Q400 and CRJ200/700s. A feedstock analytical tool that supplements the forecast report allows users to visualize how the number of aircraft available in the 15-20 and 20-25 year age brackets changes every year for the next 15 years.

See www.cfcinsights.com for more information.