Narrowbody fleet analysis: a changing of the guard

[vc_row][vc_column][vc_column_text] A full year dominated by the COVID-19 pandemic has thrust cargo squarely into the spotlight, and the precipitous decline in international passenger flights and belly capacity due to travel restrictions has raised the profile of freighters as the only game in town. But narrowbody freighters aren’t as sought after in all regions and markets. With the majority of the fleet in service on domestic or short-haul routes with or on behalf of integrators and express, much of this demand was not affected by the drop in passenger belly capacity. “It's misleading when people say that due to COVID-19 all the freighters are doing great,” said Andrey Andreev, deputy CEO of CargoLogic Germany, which operates three 737-400SFs but recently told Cargo Facts it will expand to six by the end of 2021. “The parcels for integrators had been flying before or with overnight flights, so the disappearance of the widebody passenger planes had zero impact on the 737 European express business, the segment which we are in. Yes, there is more demand for e-commerce...but you definitely cannot compare [the increase in demand for 737 freighter flights] with trans-Atlantic or Asia - Pacific to Europe flights.” Lessors in the 737 Classic space continue to see stable demand, but the fallout in passenger belly capacity has not necessitated dramatic fleet growth for most carriers operating in the segment. “Only one of our lessees has indicated that they’ve had a really nice pickup,” said Sam Thornton, principal of Automatic LLC, which leases more than a dozen 737 Classic freighters to operators in North America, South America and Europe. That is not to say that the narrowbody fleet has not grown. In fact, over the last twelve months, the number of narrowbody freighters in service has increased more than in any year since at least 2016. As of mid-March 2021, eighty-seven carriers or carrier groups worldwide operated a total of 762 narrowbody freighters, a growth of about 7.5% compared to March 2020. By way of comparison, last year’s total saw year- over -year growth of 5.5%. The table below shows the narrowbody freighter aircraft in service as of mid-March 2021. For these purposes, n ote that we have consolidated the list by grouping together carriers that belong to, or are affiliates of, the same group ; t hese have been marked with an asterisk. Click on each column header to sort by ascending or descending order.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_separator color="sky"][/vc_column][/vc_row][vc_row full_width="stretch_row_content" vc_row_background=""][vc_column][/vc_column][/vc_row][vc_row][vc_column][vc_separator color="sky"][/vc_column][/vc_row][vc_row][vc_column][vc_column_text] The most significant change to highlight is that, for the first time in at least the last five years, the driver of narrowbody fleet growth was not the 737-400F. Instead it was the 737-800F that led the way, heralding the beginning of what is likely a long-term trend, particularly as -400 feedstock wanes and more -800s are released from passenger service. The other major development is the first appearance of the A321-200F on our list. With one conversion program certified and a second imminent, output will gradually ramp up as the year progresses. As always, this analysis strives to be as accurate a tally as possible but inevitably may contain omissions or errors, for a number of reasons. Our definition of “ narrowbody freighter” does not include 707Fs, DC-8F s , combi aircraft, or regional freighters like ATRs and CRJs, but it does include Quick Change aircraft that are in freighter configuration, DC-9Fs and MD-80Fs. Quick-changing fleet From mid-March 2020 to mid-March 2021, the in-service 737-800 freighter fleet more than doubled in size, growing from just twenty units last year, to fifty-one today. With multiple conversion programs now available for the 737NGs, and the first A321-200P2F program redelivering freighters, the composition of the narrowbody fleet is changing — and quickly. The 737-800F now comprises about 7% of the total in-service narrowbody fleet, becoming only the fourth type platform with more than 5% of the fleet. In 2020, at least thirty-five 737-800s were inducted for conversion by Boeing, Aeronautical Engineers Inc. (AEI) and Israel Aerospace Industries (IAI). Given the starts of additional -800 conversion lines at the STAECO, GAMECO, HAECO Xiamen, KF Aerospace and Mexicana MRO Services facilities in the last twelve months, with at least one or two more to be added this year, we expect redeliveries in 2021 to be well above 2020. There are now more than fifteen 737-800 conversion lines: seven at Boeing, between six and eight at AEI and between three and five at IAI. [caption id="attachment_415714" align="alignright" width="560"] Automatic LLC leased two 737-400Fs to Poste Air Cargo in early 2021. (Photo/Automatic LLC)[/caption] Even with dozens of 737-800s heading through freighter conversion over the next twelve months, interest in the previous generation hasn’t fully dried up. “The 737-800Fs are up and comers and it's going to take a few years for the shift to change,” said Thornton. “Part of that has to do with -800 prices dropping further so the least rates come down,” he said. A source at a Chinese carrier without 737-800Fs in its fleet told Cargo Facts it continues to evaluate 737NG and A321 freighters but, given the low utilization of its existing narrowbody fleet, found that new-technology aircraft provided little in the way of savings at current acquisition costs. Demand for 737 Classic freighters has persisted, even with the new types available. The active 737-400F contingent grew by sixteen units, slightly increasing its share from 20% to 21%. A net of three 737-300Fs were added to the fleet, leaving its share of the overall narrowbody fleet unchanged at 16%. Carriers based in the Asia-Pacific region added to their fleets a net of nine 737-800Fs since mid-March 2021. Operators based in mainland China accounted for the majority of redeliveries, with China Postal Airlines adding three of the type and China Central Longhao Airlines adding two. Time will tell the extent to which operators can absorb the volume of 737-800Fs coming out of conversion. So far, there are few recent conversions that have been idle for more than a few weeks, and recent leasing agreements indicate emerging sources of demand. Ethiopian Airlines took a 737-800SF on lease from GA Telesis in March and expects another later this year, and Air Incheon added a Blackrock-owned 737-800SF in February. Although the absolute number of 757-200Fs in service increased from 311 to 315, the platform’s share of the narrowbody freighter fleet dropped three percentage points to 41%. Precision Aircraft Solutions, currently the only STC holder actively converting 757-200s, expects steady conversions over the next few years now that viable feedstock is being released. “We just went from no feedstock, to plenty of feedstock,” said VP Marketing and Sales Brian McCarthy, noting recent retirements at TUI, Air Astana, American Airlines and Icelandair. After redelivering eleven units in 2019, Precision redelivered seventeen 757-200PCFs in 2020 and expects to increase output this year. “We have basically brought our supply chain back up to speed. We're going to redeliver roughly eighteen to nineteen airplanes this year,” McCarthy said. [caption id="attachment_415715" align="alignleft" width="560"] Redeliveries of A321-200Fs will accelerate as the year progresses. (Photo/Titan Airways)[/caption] The ageing 727-200F fleet continued to shrink, from thirty-two units last year to twenty-eight today. Operators that had previously maintained larger 727-200F fleets are replacing the aircraft with a variety of newer equipment. Asia Pacific Airlines has replaced its 727-200Fs with 757-200PCFs, while other carriers, such as Lineas Aereas Suramericanas , have opted for 737 Classics and eventually 737-800s, and in the case of USA Jet Airlines, which retired a 727-200F last year, new MD-80F conversions. Further diversification of the fleet is expected, particularly as redeliveries of freighter-converted A321-200Fs accelerate. EFW has redelivered two of the type, and 321 Precision Conversions, the joint venture of ATSG and Precision Aircraft Solutions, expects an STC from the FAA for its program during the first half of this year, after which it will redeliver the first frame (891, ex-Air Mediterranee ) to Vallair , which will then lease it to SmartLynx Malta. Mapping out renewal Looking at the distribution of narrowbody freighters by region, there were only subtle shifts in distribution of the narrowbody fleet by region. However, on a type-by-type basis, distribution by region begins to reflect the influence of broader fleet modernization and development plans that are underway. Approximately 45% of all 737-800Fs are now based in North America, up from 25% in 2020, reflecting the continued growth of Amazon Air’s 737-800BCF fleet in the United States. As of mid-March, twelve of the type were operated by Sun Country Airlines on behalf of Amazon, while Southern Air operated eight. iAero Airways also added the 737-800 platform and operates a trio of 737-800BDSFs on behalf of DHL Express. The region North America saw its share of the total 737-400F fleet increase. U.S.-based operators Northern Air Cargo and Kalitta Charters II each grew their 737-400F fleets by a unit, while Mesa Airlines added its first two 737s when it began 737-400F CMI operations for DHL in the second half of 2020. Although TUM AeroCarga was the only Mexico-based operator to increase the net size of its 737-400F fleet with the addition of two aircraft, Mexico’s other narrowbody operators have plans to expand. Estafeta is in the process of adding a 737-400F, and Aeronaves TSM has placed orders for seven 737-400SF conversions with AEI but has also acquired two PEMCO-converted 737-400Fs. TUM, for its part, expects to add at least three more 737 freighters, according to a recent application for a foreign air carrier permit. Cargo Facts believes two of those could be 737 -400Fs. In Europe, Italy-based Poste Air Cargo added a net of two 737-400Fs, completing the modernization of a fleet previously built around the 737-300QC. ASL-affiliated carriers also added a net of two 737-400Fs, and Cargo Air added one. As carriers in China take delivery of newer freighters, the share of 737-300Fs domiciled in the Asia-Pacific region is declining. Currently, 54% of the 737-300F fleet is based in the Asia-Pacific region , down three percentage points from last year, reflecting retirements at China Central Longhao Airlines, China Postal Airlines, HNA-affiliate carriers and YTO Cargo Airlines. Not all retirements are destined to become scrap or waste away in the desert. Two 737-300Fs previously operated by YTO Cargo Airlines joined D.R.C.-based Serve Air in late 2020. South Africa-based Star Air Cargo also picked up a 737-300F previously flown by China Postal Airlines. Older Classics are also in vogue with carriers based in Southeast Asia. Indonesia-based Rimbun Air added its first jet freighter at the end of February, with the arrival of a 1993-vintage 737-300F reviously operated by China Postal Airlines. Airmark Aviation affiliate My Indo Airlines, which added its first 737-400F in 2019, currently has two 737-300Fs and a 737-400F and told Cargo Facts that it plans to add another -300F or -400 later this year. Ultimately, the changing of the guard and the broader transition to newer narrowbody freighters is inevitable, regardless of apprehensions on the part of operators and lessors. “Back in the early 90s when we had that feeling about 727s and the Classics were coming, it was this big daunting thing — these engines are so expensive, and this is such a brand-new airplane — yet here we are, and it’s going to happen ,” said Thornton, who note d that Automatic won't rush to convert -800s just yet. “I just don’t know if it’s going to happen as quick as everybody who’s ordering conversions thinks.” This story originally appeared in the April 2021 issue of Cargo Facts . Cargo Facts Asia, taking place April 20-21 as a virtual experience, is the event for exploring opportunity in the Asia-Pacific region. The event continues to bring together the best, brightest, and most innovative executives in the global air cargo industry. Learn more and register at www.cargofactsasia.com . 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Narrowbody fleet analysis: a changing of the guard

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