Freighter aircraft leasing part II: E-commerce behind growing leasing market

Last week, we began our two-part annual analysis of the increasingly complex world of freighter aircraft leasing. In part I , we started with an overview of how the freighter fleet belonging to lessors has evolved since our analysis a year ago. In part II, we consider the leased fleet by carrier, and how year-over-year shifts indicate the way e-commerce is changing freighter operations. Turning to the carrier's with leased freighters, the chart at right shows around 400 leased freighter aircraft are in active service with approximately ninety carriers. There has been an interesting shift in the proportions occupied by the different size categories since August 2018, with narrowbodies falling from 40% to 36%, medium widebodies almost stable at 31% and large widebodies growing from 30% to about 33%. Looking within each of the size categories, we notice a few things. In the case of narrowbodies, the 737-800F is now very much part of the picture, with thirteen already added to GECAS ’ portfolio. After Boeing ’s 737-800BCF was certified in April 2018, conversions have slowly ramped up and eleven have now been redelivered. Aeronautical Engineers, Inc. ( AEI ) obtained the supplemental type certificate (STC) for its 737-800SF program in February 2019 and has now redelivered the first two aircraft, both in service with Ethiopian Airlines on lease from GECAS. GECAS is clearly confident in the 737-800F, as the largest customer by far for the -800BCF, with thirty-four left on firm order and GECAS also has outstanding orders and options for twenty more. The lessor also has outstanding orders and options for eighteen more -800SF conversions from AEI. With Amazon’s recent commitment at the Paris Air Show to fifteen more 737-800BCFs from GECAS for a total of twenty, Cargo Facts wouldn’t be surprised to see GECAS firming up more of its options or even signing a top-up order for more conversions like it did at the show, given the appetite for the type. One thing we should point out about the 737s flying for Amazon is that, while they are being leased by Amazon from GECAS, the e-tailer has contracted Atlas Air subsidiary Southern Air to operate them on a CMI basis. This is different from Amazon’s 767F fleet, which is dry leased from Atlas and ATSG , and handed back to affiliate carriers of Atlas and ATSG for CMI operations. While GECAS appears to be removing older 737-300Fs and -400Fs from its portfolio in favor of the -800F, others still see a demand for the -800’s predecessor. Vx Capital Partners , which specializes in offering converted 737-400Fs and is already the largest lessor of the type, has continued to add more since last August and almost doubled its overall portfolio, which now consists of around forty -400Fs. Toward the end of last year, Vx launched the first asset-backed security to consist entirely of narrowbody freighters, in a deal involving two 737-300SFs and thirty-three 737-400SFs as collateral for a principal amount of approximately $190 million. With the emergence of 737 NG conversions, perhaps it wasn’t too surprising when US-based Spectre Cargo Solutions announced this January that it had, through its Irish affiliate NGF Genesis Limited, closed the first round of a long-term senior debt facility led by Erste Bank. Spectre said the debt facility would be used to refinance seven converted 737-700 and -800 freighters, on lease to multiple operators. On the widebody front, the number of leased MD-11Fs and converted 747-400Fs has dropped. There have been a couple of noteworthy deals involving widebodies so far this year. In January, Cargolux closed its first Japanese Operating Lease with Call Option (JOLCO) on a 747-400F. A JOLCO is attractive because it carries tax advantages for investors and could result in lower lease rates for the carrier. Cargolux told Cargo Facts that it was using this as a refinancing mechanism so as to better match its liabilities with its assets on the balance sheet. Cargolux owns twenty-four of its thirty 747Fs. The carrier added that, when it took delivery of its fourteen 747-8Fs, it used a lot of Export-Import Bank financing but the JOLCO offers a way for Cargolux to diversify its financing portfolio, so it is looking to pursue what other opportunities there are in this market. Elsewhere, DAE Capital, the leasing arm of Dubai Aerospace Enterprise, recently entered into a purchase-and-leaseback deal with Russia-based Volga-Dnepr Group for three production 777Fs the group has on order with Boeing, with AirBridgeCargo slated to be the operator in 2020. Despite political and economic uncertainties around the world, the leasing market for freighter aircraft remains robust, particularly when it comes to narrowbody conversions. The 737-800BCF and 737-800SF programs are both picking up steam, with Boeing even saying it is looking to possibly ramp up conversion capacity to address growing demand. At the same time, Elbe Flugzeugwerke ( EFW ), the joint venture between Airbus and ST Aerospace Engineering, and 321 Precision Conversions , the joint venture between Precision Aircraft Solutions and ATSG, are both busy with the conversions of their first A321s. Luxembourg-based Vallair is the launch customer for both products and plans to start offering the A321P2F and the A321PCF for lease in the first quarter of 2020. In the months ahead, it’s going to be a busy time for the conversion houses, OEMs, lessors and lessees, and Cargo Facts looks forward to covering these redeliveries as they begin.

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