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SAN DIEGO — The widebody conversion market may face constraints as production delays at aircraft manufacturers hinder the release of feedstock, according to industry leaders on the cargo panel at the International Society of Transport Aircraft Trading (ISTAT) Americas 2023 conference in San Diego this week.
There is pent-up demand for retaining large widebody aircraft in the passenger market because of a shortage of capacity and that is likely to last for at least three to four years, Hani Kuzbari, co-chief executive at Novus Aviation Capital, said.
“If you recall, at the beginning of the pandemic, everybody was predicting a massive influx of 777-300ERs to go for conversion,” Kuzbari said. “The reality is that aircraft type is very much required in passenger use for years to come, because of the issues around new deliveries on the passenger side. The feedstock will not be as available, so the capacity is going to be an issue, but at the same time I think the risk of oversupply of capacity is a few years down the road. So clearly it’s positive for the next couple of years.”
Kuzbari added that another factor is the production rate for Boeing’s 777F, which is at about two a month, while new programs are not expected to start delivering until the second half of the decade.
Multiple production and conversion types such as the 767F, 747F and A300F are rapidly approaching — or have already reached — their respective end-of-life cycles, Fortune Aviation Services Principal Stephen Fortune said.
Atlas Air Executive Vice President and Chief Commercial Officer Michael Steen said that nearly 120 of the more than 600 older, widebody freighters are expected to retire within the next five to ten years, and he believes all of the current widebody freighter conversion programs in the making are not enough to make up the difference in lift capacity.
Kuzbari agreed, saying that almost 15% of the fleet is over thirty-five years of age and there is “significant replacement that is required.”
A good problem to have
Although the next generation of 777 freighters, A330Fs and the A350 factory-built freighter program will serve as replacements, there will be a void left by the end of production of the 747-8F, Steen said.
“We will have a gap in the market with nose-loading capacity and that’s a pity,” he said. “That’s something that we as an industry need to figure out.”
The shortage in widebody feedstock could be a good problem to have as older freighters are removed from service.
“The average growth in the market is somewhere around 2.5%. The International Air Transport Association (IATA) forecasts are close to 4%, and Boeing and Airbus were saying 4.5%,” Steen said. “But let’s say that the truth is somewhere in the middle. Then we can very clearly see that we’re going to get into a similar position as we saw during the pandemic.”
Proactively building supply
Air Transport Services Group (ATSG) President and Chief Executive Rich Corrado confirmed the need to increase supply to support demand.
“This year, we’re going to lease twenty airplanes,” Corrado said. “That’s five more than we’ve ever done before.”
With ATSG leasing six A321-200PCFs and fourteen 767-300Fs this year, Corrado reflected on why the group will dispatch so many freighters when the market appears to be regressing — at least in some areas.
“If you look at where these airplanes go, these midsize freighters tend to go into networks and those networks are powered by e-commerce,” he said. “E-commerce is growing faster outside this country than it is inside and when you look at where our airplanes are going, 80% of them are going into Europe and into the Far East and Africa.”
Long-term confidence in the industry
With the year under way and many unknowns still looming, the industry leaders remain confident in the market’s ability to rebound with expected growth in demand based on commitments for current and future freighters.
“We’re going to produce twenty this year and they’ve all got deposits down when they come out of conversion and agreements signed to take those aircraft,” Corrado said. “We’re going to produce over twenty in 2024 and I think there are only two or three that are in negotiation.”
Corrado also said ATSG currently has thirty A330F conversion slots that extend all the way out to 2028 and at least twenty of those slots are under agreement with deposits down.
From a widebody lessor’s perspective, Kuzbari is confident the market will be sustainable going forward now that original equipment manufacturers (OEMs), lessors and financiers have recommitted support to the industry.
“The ultimate demand is there and if it’s not the initial customer, it will be another customer utilizing the aircraft,” he said. “If you look at the last decade, the cargo market was somehow neglected by pretty much everyone, whether you start from the OEMs to even lessors and financiers. It was almost toxic to talk about freighters and now everybody’s coming back.”
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