Overheard at Cargo Facts Symposium Part II: A bright future for 737 NG conversions
SAN DIEGO – Yesterday, we started our two-part coverage of our annual “Overheard at Cargo Facts Symposium” review. You can revisit that story here. Today, in part II we take a look at what’s happening in the conversion market and what’s ahead for e-commerce.
Think 737 Classic conversions are over? Not so fast! Despite a consensus among panelists that conversions of 737 Classics are entering their “sunset years,” operator appetites for classic conversions haven’t dried up just yet. At least one carrier in mainland China is rumored to be considering up to six additional 737-300 P-to-F conversions.
Is there a market for 737-700 conversions? While 737-800 passenger-to-freighter conversions have taken off this year, several attendees raised the question of whether the 737-700 is an appealing conversion candidate outside of niche operations. During this year’s pre-conference workshop on Air Cargo Fundamentals, Jason Berry, Managing Director, Cargo, Alaska Airlines – whose airline recently took redelivery of three freighter-converted 737-700Fs – said that some conversion houses passed on the chance to convert the freighters because there is less widespread appeal for the -700 among the NG freighters due to its smaller size. Alaska opted for the -700s, however, because the smaller size compared to the -800 allows the freighter to serve smaller airports with shorter runways Alaska’s network. Alaska has eleven 737-700s remaining in its passenger fleet, should the carrier decide to convert additional aircraft. Berry said that for future conversions, Alaska will also consider the -800 variant.
During the discussion on narrowbody conversions, an audience question prompted panelists to share their thoughts on the -700. Robert Convey, Senior Vice President Sales and Marketing, with Aeronautical Engineers, Inc. (AEI), said AEI passed on the -700 conversion program when Alaska was shopping around “because it’s a very small market, but not no market.” Meanwhile, Gary Warner, President, Precision Aircraft Solutions and 321 Precision Conversions, said timing for -700 conversions already hit its peak a couple of years ago, but that there could still be fifty or more conversions of the type in the years ahead: “I still think there’s definitely a window for that plane and the various programs will do well.”
The future of 777 conversions. On the widebody conversion side, appraisers during a panel discussion said freighter-converted 777-200ERs offer the best value proposition, but a live poll of the audience indicated most market participants believe 777-300ERs are the best candidates for conversion. Rafi Matalon, Vice President, Marketing, IAI Bedek Aviation Group, concurred during a discussion on the future of widebody freighters.
Matalon noted “the principle for converted aircraft is to give the operator the same value he can get for a new aircraft, so if you can take a 777-300 and get more value in a conversion, it makes sense to convert it.” He also sees promise in potential conversions of the -200, given an abundance of feedstock for both types, but prices don’t yet make sense for conversion and will need to continue falling over the next four to six years. According to Matalon, IAI-Bedek is still looking for relevant customers and waiting for internal approvals for a program. However, such a program seems bound to launch soon, as Boeing forecasts 500 widebody conversions will be needed over the next twenty years.
E-commerce is disrupting entire markets, not just logistics. It’s no secret that Amazon has been a major catalyst in the move toward e-commerce, causing logistics companies to rethink supply chains in the 21st-century climate. However, it was not until the development of Amazon’s own logistics services branch, Amazon Fulfillment, that the Seattle-based e-tail giant became a competitor for all companies throughout the supply chain. During a panel discussion, Mike Berger, Chief Commercial Officer of Air Transport Services Group (ATSG), said that Amazon now accounts for about 25% of its business. “Amazon has made us a much better player in the e-commerce space,” he said, echoing a sentiment felt by logistics companies of the age of e-commerce.
Meanwhile, John Hill, President and Chief Commercial Officer, Pilot Freight Services, noted that “Amazon is not just a disruptor on the carrier side, they’re a disruptor in the market, period,” adding that doing business with Amazon can evoke mixed reactions among other clients, who are “happy we do business with Amazon because they have to know they’re high quality,” but also often consider Amazon a major competitor.
