Tight capacity awakens stored freighters, but for how long?

During the final days of 2019, two 747-400BDSFs (27062 and 27174) touched down at Marana (MZJ) and a third followed in early 2020 (24833). Another 747-400BCF (26557) arrived for storage at Lleida-Alguaire (ILD) in Spain in February 2020, joining a growing collection of dormant freighter-converted 747s around the world. Precautions taken to impart these four Atlas Air freighters with resistance to corrosion and other damage during a potentially lengthy stay turned out to be unnecessary as soon after, the COVID-19 pandemic turned the air cargo market on its head, creating unprecedented demand for widebody freighter lift. While thousands of passenger aircraft progressively made their way to major storage locations around the world, the opposite was happening to large widebody freighters. Quietly, several freighter aircraft — mostly 747s — had begun to wake up from hibernation and, with the necessary checks complete, took off into much quieter skies. More 747s have snapped back into action in the months since, but for how long will they be pulling all-nighters? For the following analysis, we include aircraft placed in storage before May 1, 2020, and those that entered service before May 31, 2021, when Cargo Facts recorded at least twenty-five aircraft leaving storage and rejoining the active in-service fleet worldwide. Almost all of these aircraft are widebodies. In total, fifteen 747s have reentered service, including a production 747-200F (22545), three production -400Fs and eleven converted 747-400s. Apart from Atlas Air, with its two 747-400BCFs and two 747-400BDSFs, other notable carriers that have reactivated multiple aircraft include National Airlines and Moldova-based Aerotranscargo. In the second half of 2020, National brought back three ex-Cathay Pacific 747-400BCFs that had been parked since 2013; Aerotranscargo has added a -400BCF and two -400BDSFs to its all-747 fleet, and has a second BCF that has completed maintenance but has not yet entered service. The reactivations also include a single 777F (35606) that was parked in Leipzig (LEJ) by Atlas Air affiliate Titan Aviation Holdings to await placement from May 2019 to April 2020, when it finally left LEJ and joined the Southern Air fleet. We note that, even as older conversions took to the skies again, two ex-Saudia 747-8Fs (37562 and 37563) remained firmly on the ground all throughout the pandemic. Fleet plans on schedule for all-cargo carriers For operators with sizable widebody freighter fleets and without reactivation candidates in storage — like those Atlas Air and others had access to — there has been less desire to acquire or lease the additional used capacity that was idled. This has been the case for scheduled all-cargo carriers in particular. “A lot of capacity that was parked in the desert has been brought back into service,” Richard Forson, CEO of Cargolux, told Cargo Facts. While Cargolux has kept its fleet stable during the period and has no immediate plans to bring on additional capacity, Forson expects other carriers to continue adding whatever becomes available. Referring to the high-octane market dynamic, he said “it's still going to be attracting people to bring any freighter they can get their hands on, however old it is, back into the market.” Whereas Cargolux operates most of its freighter fleet in scheduled service, much of the large widebody capacity brought out of storage has been flying for the major integrators and, in some cases, freight forwarders. Based on historical patterns, carriers operating older aircraft on short-term contracts “are going to drop out very early when the market goes down, because they will not be able to sustain themselves anymore,” Forson said. Cargolux’s peers in the scheduled all-cargo segment have also made few changes to their fleets during the period. The Volga-Dnepr Group, which has up to eight 777Fs on firm order with Boeing through its affiliates, has not adjusted delivery timelines or made changes to its fleet during this period. Silk Way West Airlines had no freighters on order prior to the pandemic, but earlier this year inked an order for five 777Fs that will start arriving in 2023. Time will tell how much of the current widebody main-deck capacity will exit the market as swiftly as it entered. No rest for the medium widebody In the medium widebody segment, defined as freighters with usable payloads of 40 to 80 tonnes, there have been fewer reactivations. Even before the pandemic-inflicted capacity crunch, an insignificant number of aircraft in this size category were parked. The exceptions were a few Cargo Aircraft Management-owned 767-200BDSFs that the company leased to Malaysia-based Raya Airways, Mexico-based MasAir and Kenya-based Astral Aviation. The express carriers that control the majority of the medium-widebody fleet have met demand surges throughout the past year by delaying retirements for older aircraft. While they are not net additions or reactivations, FedEx did adjust the retirement timelines for the MD-10-10Fs and A310-300Fs it had planned to remove from service in 2020. DHL Express also moved to delay the retirements of some older 767-200BDSFs operating in the Americas and Middle East, which new-build 767-300Fs were meant to replace. “In terms of capacity, we’ve added and inserted additional aircraft with deferred retirements,” said Geoff Kehr, senior vice president of air at DHL Express, during a panel discussion at Cargo Facts EMEA. “We’ve had to do a whole plethora of actions to create the capacity to serve the world.” Will today’s buzz push older narrowbodies into a deep sleep? The narrowbody segment may have seen the fewest reactivations of all, with only around two 757Fs and 737Fs each, but at the same time, the size category appears set to grow substantially in the months ahead. Analysis from Cargo Facts Consulting estimates that 2021 will see about 100 narrowbody freighters redelivered , including older types such as 737 Classics and newer types such as 737NG and A320-family freighters. For 2022, early redelivery forecasts show “similar numbers,” according to CFC. At least half of these redeliveries will be for lessors, which for 737s include GECAS, Aero Capital Solutions, BlackRock, BBAM, GA Telesis, AviaAM Leasing and Macquarie AirFinance. For A321s, the lessors include Vallair, ST Engineering, GTLK Europe and at least one or two that are currently unidentified but will be placing A321Fs with IndiGo and Azul, for example. As for carriers, those taking direct redelivery of their own narrowbody conversions include ASL Aviation Holdings; Texel Air, which announced a second 737-800BCF in June 2021; Cargo Air; Allied Air; Qantas; and Titan Airways. While the fundamentals of the market remain healthy, and a significant portion of the active fleet is coming due for replacement during the next few years, some are doubtful the market can absorb all the incoming capacity without a correction to lease rates. “I’m worried about overcapacity,” Olga Razzhivina, director of aircraft appraisal firm Oriel, told Cargo Facts. “Many nonspecialist players are getting into the market for other reasons, such as inflated book values.” However, the opportunity to retire older equipment serves as a safeguard against overcapacity, according to CFC. Of the 770 active narrowbody freighters, and eighty stored narrowbodies, “thirty are older 727s, DC-9s and 737-200s,” according to CFC Managing Director Frederic Horst. Many older 737 Classics and 757s will be due for replacement in the coming years as well. Were lease rates for newer types to fall, “We could see more than 140 or so retirements, we expect, in the next five years,” said Horst. Wake-up call for pax revival With travel restrictions still in place for many key markets and trade lanes, much long-haul capacity has yet to return; a missed summer travel season will likely delay the return of meaningful volumes of bellyhold space on long-haul routes until at least next summer, according to Razzhivina. Even as bellyhold capacity on passenger flights remains significantly lower then normal, air cargo demand has largely recovered to the pre-pandemic levels seen in 2019. Airfreight volumes originating in the Asia-Pacific region were up 8% in May 2021 compared to the same month in 2019, according to data from consultancy WorldACD. On a global basis, total passenger seats remained 41.3% lower in May 2021, compared to May 2019, according to OAG. Scarce capacity continues to demand a premium as revenue collected for shipments ex-Asia was more than doubled from May 2019, increasing by 125%. Dollar rates for cargo originating in other regions have fallen from historic highs, but across the board remain up by between 24% in North America and 108% in Asia Pacific. “We don't see really that much normalization recovery this year,” Kehr said. “I think it's really going to be summer season 2022.” Given the many unknowns with regard to vaccines and variants, and the fluid nature of travel restrictions, it is almost impossible to predict a timeline for the return of belly capacity to 2019 levels — or the potential return to the desert boneyards by some of the older freighters now in the sky. But at least this seems clear: The importance of access to main-deck capacity can hardly be overstated. “In 2021, if any freight airline or freight component of any of the combination carriers doesn't make a healthy profit, then there is something seriously wrong with their organization,” said Cargolux’s Forson. This story originally appeared in the July 2021 issue of Cargo Facts . Cargo Facts Symposium, taking place LIVE October 25-27 at the Wynn Las Vegas, is the essential event for stakeholders in the air cargo industry. Learn more and register at www.cargofactssymposium.com .

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