YTO is launch customer for Boeing’s 737-800BCF

YTO Express Airlines is the first customer to sign up for Boeing's 737-800BCF, but Boeing needs more orders to justify formal launch of the program.
YTO Express Airlines is the first customer to sign up for Boeing’s 737-800BCF, but Boeing needs more orders to justify formal launch of the program.

Hangzhou YTO Express Airlines, the recently formed air arm of Shanghai-based YTO Express, signed a launch customer agreement (LCA) with Boeing for fifteen 737-800BCF passenger-to-freighter conversions.

Yu Weijiao, President of YTO Express and Stanley A. Deal, Senior Vice President of Boeing Commercial Airplanes signed the agreement at a ceremony during Chinese President Xi Jinping’s visit to Boeing’s facilities in the Seattle area last week.

But what, exactly, did they sign?

We ask, because, while YTO may have agreed to be a launch customer for the 737-800BCF, Boeing has not yet formally launched the 737-800BCF program. Boeing’s Board has given its sales force “authority to offer” 737-800 P-to-F conversions, but any customer who signs an LCA before the formal launch of the program, does so on the understanding that there may never be a program. So, yes, the LCA is a firm order, but a firm order for an aircraft that may or may not fly.

This is not to say Boeing’s 737-800BCF program is unlikely to ever produce a freighter-converted 737-800, but rather that the Board will have set some minimum number of conversion orders as a requirement for launch, and until the sales force secures signed orders for that many, work on the first conversion will not start.

This diagram shows the pallet positions available on AEI’s competing 737-800F. Like Boeing’s BCF, the AEI design allows for eleven full size pallets, with a smaller twelfth position aft.

Engineering is a different story. Boeing has already put substantial engineering effort into the 737-800BCF, and is ready to start cutting metal the day the Board says “Go.” However, until then, the only formally launched 737NG P-to-F programs remain the 737-800 conversion offered by Aeronautical Engineers, Inc, with GECAS as the launch customer; and the 737-700 conversion offered by Bedek Aviation Group with Alaska Airlines as launch customer.

We will come back to the 737-800BCF, but first, a look at YTO Express.

YTO was founded in 2000, and has grown dramatically ever since, to the point that its 180,000 employees delivered over 1.5 billion packages to more than 2,300 Chinese cities and towns in 2014. Like competitor SF Express, YTO’s move from ground delivery to air was originally made using belly space on China’s passenger airlines, and capacity chartered or leased from narrowbody freighter operators such as Donghai Airlines or Yangtze River Express. But, just as SF Express did in 2009, YTO has now created its own air arm: Hangzhou YTO Express Airlines.

The carrier received its AOC in mid-2014, and at the end of June this year acquired two 737-300Fs from Donghai Airlines. It has also said it will lease a third 737-300F from Yangtze River Express.

But there is more involved here than just the rapid growth of another Chinese express company. Four months ago, in May 2015, e-commerce giant Alibaba took a stake in YTO Express. And, while YTO’s 1.5 billion packages per year may be impressive, Alibaba is operating on an entirely different level. The Alibaba-led Cainiao network is currently handling in excess of 12 billion packages (air and ground) annually, and is desperate for air capacity. No surprise, then, that YTO Express Airlines is knocking on Boeing’s door.

Of course, given Boeing’s desire to gather enough orders to launch the 737-800BCF conversion program, Boeing may well have been knocking on YTO’s door. Either way, manufacturers and conversion houses often offer substantial discounts to launch customers, so whether it was Boeing or YTO doing the knocking, the deal was ripe for the doing.

But discounted or not, the price of putting a freighter-converted 737-800 on the ramp will be considerably higher than what YTO would have paid for a 737-400F, so why go for the -800?

All other things being equal, a carrier or lessor could weigh these advantages against the use to which the freighter would be put and decide whether they justified the considerable extra cost of acquiring and converting a 737-800. But all other things are not equal. The pool of available 737-400s is rapidly shrinking, and those that are available are becoming less and less conversion-worthy.

Yes, there are still some 737-400s in good enough condition to make conversion worthwhile. But fewer every month, and, increasingly, the available 737-400s are either too old or too worn out to make them attractive to a freighter operator.

The 737-800, on the other hand, is just now approaching the prime period for conversion, with the first unit entering service seventeen years ago. Older units are now beginning to come out of passenger service, and with the 737MAX about to enter service, the price of used 737-800s will soon begin to fall. And whereas Boeing built only 475 737-400s, the manufacturer has already delivered over 3,700 737-800s, and has orders for over 1,100 more. So availability will not be a problem for a long, long time.

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