Listen: Earnings, more A321Fs and alternative fuel

In this week’s episode of the “Cargo Facts Connect” podcast, Cargo Facts Editor Jeff Lee and Associate Editors Andrew Crider and Robert Luke kick off the discussion with Universal Hydrogen’s first flight of its modified Dash 8-300, which features the addition of a hydrogen-powered engine to replace one of the conventional Pratt & Whitney turboprops. Luke provides a breakdown of recent earnings calls. Companies in the freighter industry reported drops in revenue without drops in optimism as the markets adjust to the new normal. Finally, Lee shares news about A321F conversions, with an additional site coming online at Sichuan Airlines’ own MRO and SmartLynx securing a new ACMI customer . Tune in for a discussion of these topics and more for the week ended March 3, 2023. A transcript is available below. This transcript has been generated by software and is being presented as is. Some transcription errors may remain. Andrew Crider Hello and welcome to this episode of cargo facts Connect, the podcast of cargo facts, the newsletter of record for the air cargo and freighter aircraft industries for over 40 years. I'm your host Andrew Crider, associate editor of cargo facts. Robert Luke And I'm your co host, Robert Luke, associate editor at cargo Facts. Jeff Lee And I'm Jeff Lee editor of cargo facts. Andrew Crider I want to begin today with breaking news and this world of sustainable aviation. Universal hydrogen successfully completed the first flight of their test dash eight, this aircraft would be a 1991 Vintage aircraft that previously served with American Eagle before being modified. Universal hydrogen modified one nacelle of their aircraft to be filled entirely with hydrogen and visually it appears that they've outfitted the aircraft with a new propeller as well. The flight was short and flew under a temporary experimental certificate from the FAA. However, the company boasted strong results and were very proud of their of their test. Universal hydrogen wants to eventually move on to modifying ATR type aircraft outfitting those aircraft with their hydrogen power. Now we are aware both the ATR and the dash eight that was test flown have STC mods for cargo variants. We haven't been able to connect with universal hydrogen yet to see if they wanted to modify aircraft themselves. But this is the second major hydrogen power news coming this year. Earlier in January, UK based zero Avia had a test flight of their electric hydrogen electric driven Dornier two two eight aircraft from UK's Cotswold airport, zero Avia was very explicit that they want to be modifying their aircraft for cargo flight. Hydrogen is one of many sustainable fuel platforms being researched for future market use today. And that brings me to Robert Luke, Robert, this was a big week for earnings. Robert Luke It was indeed Andrew It was indeed AerCap Lufthansa ATSG. They actually boasted strong earnings for their fourth quarter of 2022 during their recent quarterly earnings reports that were announced, and congratulations to those three companies for those successful revenue generated growth periods. They also were sharing the same, I'll call it universal language when it comes to what's going to happen going forward as we dive a little deeper into 2023. And, for the most part, they all echoed the same sentiments that there's really not too much concern. There is going to be some doubt some downturn here as we go forward, because obviously, we're getting back to a space of normalization, passenger belly space is picking up, inflation rates are actually subsiding. But we're rising fuel prices are increasing. And in addition to that, you know, China is still kind of slowly maneuvering itself back into a state of normalization after undergoing this COVID to restriction zone or timeframe. Rather, that really hindered a lot of the ability to generate movement of air freight from that region. You know, our good buddy, Guillermo Ochovo, of cargo facts consulting did point out that, you know, China is pretty much moving roughly 30% of the entire global distribution when it comes to e commerce. But since 2019, they decreased that output capacity by six percentage points due to the fact of these continued restrictions that were imposing their ability to operate normally under normal business circumstances. So that included and you know, China, we're glad you're back on on schedule here, but we need you to ramp it up, we need our air freight to continue moving, let's get let's get these birds in the air and kick some tires. But looking at the overall the overall plot and outlook from all three of these companies in particular, they're still building as if nothing's going to hinder them or make them cautious or even want to kind of like put on the brakes as ATSG mentioned that they're continuing forward with their a 330 conversion platform and they're going to be expecting to see some of those re deliver this year and they're continuing with their plans to continue building up on a 767 portfolio. They have most of those pretty much spoken for as far as clients and leasing arrangements and agreements that are already in place. AerCap also confirmed that they have a lot of their contracts in place. And they're very confident that you know, things are going to move forward pretty smoothly. They just, they just basically said, we have to weather the storm, it's not going to be as difficult as many originally forecasted, but they they look to see stronger growth in 2024, especially with E commerce, and particularly in the Asia Pacific region. And I need you guys to check out our feature that kind of dives into that a little bit deeper, that will be coming out pretty soon. But if you are focused on those areas, you know that that is a definite boom waiting to happen. That's a that's a that's an area that's ripe for the picking. As far as the harvest of E commerce growth and development is concerned, it's going to be a lot of fruit to pluck from that regional tree. So giving that pretty much strong feedback, confidence, positive reinforcement, I'm ready to go to do some more research as to who's going to be adding what aircraft and how many, and how soon are the some of the older aircraft going to be retiring because our, the Lufthansa earnings quarterly called earlier today, it was definitely mentioned that, you know, if anything should happen, if demand really does dwindle to the worst case scenario output many were afraid of when this was when this recession and inflation and all these other economic negative inputs, were factoring the growth of the market, they're not concerned that it's going to basically make everything go back to pre COVID levels, because there's so many older aircraft currently in operation that they'll just simply reattach start retiring those at a faster pace. And that will help balance the influx of renewed fleets with newer conversions, whether it's the the a 330s, that as eventually are pegged to replace the seven sixes, or the A 320. ones that have pegged the place to seven to replace the seven fives, or the 7378, hundreds, and possibly even a 320s. That make that are lined up to basically replace the 737 Classics. So from all of those angles, I think, you know, not just really boring you within undated numbers of how much they earned how much the the EBITDA was, as far as their returns are concerned. And what that cost per share was because you can definitely read about that the focus that we wanted to address is what is our air cargo, aircraft growth, production, operational efficiency look like going forward. And that's where we just want to stick to and everyone seems to be pretty confident that as long as they stay in their respective spaces, there's plenty of business to continue growing and the levels, they don't expect to actually go back to the pre COVID times where you know, things were really looking like doom and gloom and very dubious on the market outlook. So it gives a little bit more of a reassurance. And I think we also heard this in the actual cargo Facts EMEA Dubai conference where a lot of those sentiments was shared directly by the operators themselves. So again, it seems to be everybody's on the same page, everyone's you know, trusting what they're seeing in front of them granted, things can just happen at the drop of a dime. And we can go from very comfortable to Alright, what do we do, we might have to pull out the parachute and bail. But it doesn't look like that's what's happening right now. So we'll take it for what it's worth. And we'll continue to monitor the situation from over here at cargo Facts and see what happens next. Andrew Crider This brings me back to other airlines, which in October, announced drafts for their revenue. My understanding was we were seeing a lot of drops in in revenue. But airlines remain confident. Is there any case where you see a drop in revenue, and the airline is showing a lot of concern? Robert Luke Well, across the board, they had strong fourth quarter earnings, but they did identify that revenue was decreasing, as even IATA said a lot of those. A lot of the volume dropped by like between 14 to 16%, for the most part. So they were acknowledging that there was decreased. They weren't just saying everything's okay. They were just happy that they still were able to generate strong earnings for that particular quarter. And that is pretty much the general consensus, but they are they are monitoring. I mean, I don't want to sound like they're just ignoring what may be potentially alarming signs to pay pay attention to. But they were extremely confident that based on how things have been set up, based on how many of the older aircraft still, you know, are the majority of the aircraft operating from a freighter standpoint in the industry, that there's a way to create balance, if it does go to the worst case scenario, which many are still not expecting because, you know, even with the Ukraine and Russia conflict there causes a lot of constraints to be able to deliver in a timely manner. Because now capacities have to reroute their routes like Lufthansa mentioned. And that's while it's costly, it does also kind of, in a weird way, create a balance because they're not able to have over capacity, if that makes any sense. So looking at it from their perspective, they're just kind of happy that there's more of a even keel balance, then one extreme of rapid demand growth and increase versus we're struggling to just collect pennies every day, because everyone's trying to grab the same volume of air cargo that needs to be moved and shipped, you know. Andrew Crider So I think there, there was a lot of rumors of a bubble about to burst at cargo facts symposium in San Diego. Now, it sounds like there wasn't a double being burst more of just a leveling off at a different cruising altitude. Is that the case? Robert Luke That's what I'm getting. They don't expect it to reach the peaks that it was during the COVID era because obviously, a lot of factors generated that type of demand when you had ships that was stuck out in the ports couldn't get clearances to go through customs and continue to move at a normal pace. All the passenger airplanes was shut down. No one was flying, except for the cargo freighter. So now that you've got operations resuming back to a state of normalcy. Yeah, you're seeing things just level off, you know, and it's not like, okay, we're descending, were descending, were descending, were descending, and it's not stopping. They see it leveling, leveling off at a certain point. They do expect it to go down a little bit more, but they don't expect it to be like danger. We're going below crew safe cruising altitude, we need to start making in taking emergency precautions here. Andrew Crider Well, that's, that's all very interesting. And we'll be looking forward to your feature coming up. Well, I don't know about you, but it is Friday. So let's switch this conversation to something more fun. And by that I mean, the A 320 fun. Jeff, there was a couple of developments on that freighters. proliferation. Why don't you catch us up? Jeff Lee Yeah, it was. I was just gonna say. I know. Just last week, we talked about a new a321 conversion facility in China. And look this week again, here we are talking about yet another a321. Conversion facility in China. So and there's there's a slight connection between the two actually, because last week, we were talking about the E FW. Or EFW have been planning to launch a new line at the haite facility in Tianin. Now this time, it's 321 precision conversions. Who is going to start converting A321s at the SMECO facility in Chengdu and the connection there is that SMECO is a joint venture. And one of those partners is also Haite. But this one is also in partnership with the Sichuan Airlines Group. And that's also interesting because this means that Sichuan Airlines is also going to be taking a321 Freighters now, of course, Sichuan Airlines is already an Airbus operator and an Airbus Freighter operator because they have 3 A330 200 Production freighters that they were previously in operation with Qatar, by the way. And they will be getting their first A330 300 P two F very soon from CDB aviation. But they kind of hinted to us that they were looking at narrow body repairs as well, a couple of years back and so this I guess this deal was and this investment was or had been in the works for for some time. Because there was a huge push from the from Sichuan province actually to invest into heavy maintenance and freighter conversion work. And so they set up this company or this joint venture called Sichuan aviation industry development. And this is the customer that ordered the conversions from precision. But But of course, these things are going to be to end up in the Sichuan airlines fleet. And so the first one will enter that conversion line very very soon and probably get re delivered and start flying by the end of the year. We don't know how many They ordered. We know, it's more than one we know it's multiple. But you know, this, this kind of investment would suggest that it's not a small number. And they're probably looking to carry out conversions for other customers as well. So, yeah, the, again, new conversion site for the a321s in China. And, I mean, we were saying last week that, you know, now that China is opening back up, you know, people's confidence in China and their willingness to invest in in personnel and other resources and that send airplanes to the, into the country for conversion. I mean, all that's kind of coming back. So we'll Yeah, well, we'll see how many what else they do with this, but on the topic of A321s, on the operator side, something else that we picked up, just in the past few days is that smartlynx will finally be flying, its a321s for a customer that is not DHL. Because, as we reported, now, their first A321 that they will be flying for Sky Cana in the Dominican Republic has arrived. And this is interesting because Sky cana, generally both on the passenger and the freighter side, it's basically just using a lot of wet lease and charter capacity from other operators. But in this case, they are kind of testing out the A321 freighter type. And more interestingly, they are actually setting up their own cargo airline in Costa Rica, then they intend to start out with 737 Classic, a 400. But they are looking at other types to add to that aoc and the 321 is one of those types that they are looking at. So seeing as SmartLynx has all these A3201s. And they are an ACMI specialists, you know, that makes sense for them to try with just wet leasing two. So interestingly the the one that kind of triggered the, our reporting into this was one that was in Montpellier that was painted in Skycana and parent company logic paqs, colors. The one that arrived this week, hasn't been painted yet, Sky Cana tells me they will be sending it into the paint shop pretty soon. But they are also the same time when leasing 737 8 Hundreds from bluebird Nordic so yeah, there's growing their their cargo operations and doing that through wet lease arrangements, which is low, much lower risk and getting their own. But I guess the it, it seems to me that this is part of a broader deal with Avia Solutions Group, which owns both Bluebird, Nordic and SmartLynx. Because on the passenger side, actually, they are wet leasing Airbus aircraft from Avion Express, which is also part of the Avia solutions group. So yeah, it's pretty interesting to see these kinds of arrangements and who knows, maybe we'll see sky Cana becoming a 321, freighter operator themselves one day. Andrew Crider That's all very interesting, Jeff, I know the a321 just continues to be so prolific. And we saw a lot of news this week about the 321 and for 737 800. And you mentioned Sichuan in production in China, which is key and important. Which brings up just Asia as a region for growth. And if you're interested in Asia as a region for growth and that new conversion capacity, or new operators in China, look no further than cargo facts. Asia, the essential event for stakeholders in Asia, and it's going to take place in person, April 17 through 19th in Singapore, register today and take advantage of early bird pricing, which I heard was extended. Well, I want to turn back to Robert, because you'd noticed something that I think is very interesting. I want to share with our readers maybe something a little bit more casual and fun for the weekend. Robert, take us away. Robert Luke Well, you know as avid flight simulator gamers, Andrew, you and I, we just recently found out that the Antonov an 225 has just been released for the Microsoft Flight Simulator 2020. Okay, can we get a woop woop that everybody get excited? Whoa. That's what I'm talking about. So we're gonna have to definitely get that edition and plug it in and see if we can do a two ship formation, Andrew and I figure that big boy out and see if we can actually land and take it off. Jeff Lee Can I appeal to flight simulator to please add all the other freighter types that we talk about all the time? Robert Luke What would those be, Jeff? Elaborate a little bit further so they can get some some help. Jeff Lee Love to. Why not add the 321 freighter that we were just talking about? As well as the A330 P two F and while they're at it, why not add the A350 Freighter? I know that's not out yet. But surely surely they can do it. Robert Luke Well if that's going to be the case, they definitely have to add the triple seven 300 ER conversion type coming up and a triple seven dash eight our factory built from Boeing. Hey, if we're gonna go all the way this go to the finish line. Yeah, exactly. Andrew you do you have any any aircraft you'd like to recommend? Andrew Crider Oh, no. Any any additional freighters is a good addition. I'm personally really excited to see the An225 Jeff Lee SkyCourier by the way. Andrew Crider Yes we can we can name it. I'm just delighted to see Microsoft's involvement to help rebuild the miriah which is a certainly it's a dream. If you ever could could call it that. There'll be a long road ahead and I'm excited to see that backing for that product. Jeff Lee Its name literally is dream, so Andrew Crider That was my pun. Yeah, that was a that was that was the point and on that note where we teach Jeff what puns are, it is time. For more multimedia coverage like this search cargo facts connect on iTunes and Spotify and search cargo facts.com. Thank you very much for tuning in and join us again next time. Subscribe to Cargo Facts Connect on iTunes or Spotify , or download the episode on Transistor . Cargo Facts Asia, the essential event for stakeholders in Asia, will take place in person April 17-19 in Singapore. Register today to take advantage of early-bird pricing.

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