As 737 NG conversions get off the ground, will MAX groundings limit feedstock?

[caption id="attachment_16405" align="alignright" width="450"] Touch labor for PEMCO's first 737-700 flex-combi is complete, and the flex-combi and full-freighter variants are awaiting their STC.[/caption] Early 2019 has seen passenger-to-freighter conversion programs launched years earlier for 737 NG aircraft finally complete conversions and receive certifications. First, in February, Aeronautical Engineers, Inc., received STC certification for its 737-800SF, which was redelivered this month to Ethiopian Airlines, on lease from GECAS. Israel-based Bedek Aviation Group also commenced test flights for its 737-800BDSF this month, with certification expected by June, and PEMCO Conversions also expects imminent certification for its 737-700 full-freighter and flex-combi conversions. What was not expected to coincide with the launch of all of these programs were two tragic crashes of Boeing’s wildly popular 737 MAX 8, followed by the subsequent grounding of nearly all of the 376 MAX aircraft that had so far been delivered. With most deliveries of the 4,634 unfulfilled orders now on hold at least until Boeing is able to deploy a software update planned to begin next month, many passenger carriers are scrambling to replace MAX capacity across their networks, which in some cases, means keeping older 737 NGs in service in place of the MAX. As we suspected might be the case when federal aviation authorities across the world made the decision to ground 737 MAX aircraft , at least a few carriers have chosen to continue operating 737-800s, either while the groundings remain in effect or longer-term. Although many of the known 737 NGs remaining in service with those carriers are newer models unlikely to be suitable for conversion feedstock for some time, the domino effect across the wider feedstock supply chain may remain tight, at least in the near-term. Lessors and carriers have so far been hesitant to comment on the wider impact of the groundings, but early reports indicate that 737-800s are remaining in-service with carriers that had earlier committed to MAX operations. One such example is Norwegian Air, which operates more than 110 737-800 aircraft and had ordered 110 737 MAX aircraft from Boeing. The carrier has so far taken delivery of eighteen, with ninety-two still on-order, and was considering the sale of at least six of its 737-800s. However, earlier this week, Norwegian announced that following the MAX groundings, it would delay the potential sale, while also utilizing 787s on high-volume routes and preparing to ACMI lease aircraft to fill remaining capacity gaps. Although the aircraft operating for Norwegian are too young to make suitable feedstock, once sold, the displaced aircraft currently operating for other carriers would be older and potentially suitable for passenger-to-freighter conversion. The Neos-operated 737-800 currently on-lease to Samoa Airways is an example of an older -800 that may remain in passenger service due to the grounding. Samoa Airways had planned to take delivery of a MAX 9 leased from US-based Air Lease, but the French publication Air Journal reported that Samoa’s Prime Minister announced the domestic carrier will instead seek another 737-800 once its lease with Neos expires. While those seven -800s will not have much of an impact on their own, news from China could have a much greater effect on feedstock availability. According to Reuters , the Civil Aviation Administration of China (CAAC) has suspended certification for the 737 MAX 8. China was also one of the first countries to ground the MAX following the second crash, and many of the already delivered aircraft were operating for Chinese carriers including China Eastern Airlines, China Southern, and Xiamen Airlines. Those three carriers alone operate nearly 500 737 NGs. Meanwhile, this week, Airbus signed an agreement with China Aviation Supplies Holding Co. during Chinese President Xi Jinping’s visit to France for 290 aircraft from the A320 family, a direct competitor with the 737 MAX. It's difficult to say at this point if the Airbus order will have any long-term impact on the success of the MAX in China as Chinese carriers have historically been large customers for both Airbus and Boeing narrowbody aircraft. Last year, Boeing began commenced operations at its 737 Completion and Delivery Center in Zhoushan, China to accelerate deliveries of the MAX family of aircraft to Chinese carriers. Regardless of the long-term success of the MAX, the groundings may end up being a big stumbling block in the way for carriers and lessors waiting for a steady supply of economical 737 NG feedstock over the next few years. Those interested in learning more about narrowbody freighter conversions are invited to join us at Cargo Facts Asia 2019, to be held 15-17 at the Langham Shanghai. For more information, or to register, visit www.cargofactsasia.com .

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