Weekly Wrap: Macquarie and LATAM notch up new conversion orders

With passenger aviation still far from recovery, idled aircraft are ripe for conversion, and the air cargo market is hungry for more freighters. Orders for passenger-to-freighter conversions continue to surge, although not all of them stem entirely from the pandemic. In this Cargo Facts Weekly Wrap for the week of March 5, Charles Kauffman and Jeff Lee look at some of this week’s top conversion orders from LATAM Cargo and Macquarie AirFinance, which placed orders with Boeing and Aeronautical Engineers, Inc. Their discussion also takes a look at the A320-200P2F, and why the program is so relatively late to the game, with EFW only inducting the conformity aircraft this week , before turning to Lufthansa Cargo’s 2020 results. A transcript is available below. This transcript has been generated by software and is being presented as is. Some transcription errors may remain. Charles Kauffman Hi, everyone and welcome to this episode of cargo facts connect the newsletter of record for the air cargo and freighter aircraft industries for over 40 years. I'm Charles Kauffman, Senior Editor of cargo facts. And this is our weekly Wrap for what's happening in the industry this week. Before we begin, I'd like to thank our sponsors and advertisers and grant international AI c cubed aerospace, VFW and IPR conversions. I'm pleased to be joined this week by Jeff Lee, Associate Editor. It is March 5 2021. And here are the biggest news items from our editorial team this week, starting with a story from Latin America. Jeff, you very recently interviewed Andres Bianchi, the CEO of LATAM Cargo, who unveiled major expansion plans for their for your fleet. This tells me that despite the parent group's bankruptcy and restructuring, which began last year, cargo remains a focus for LATAM, which is the region's largest player. Can you tell us what they have planned? And, you know, I'm curious to what extent is this bullish stance on the freighter fleet reflect a pessimistic view on the recovery trajectory for passenger travel in the region? Jeff Lee This order, yes, is pretty significant thing we'll take four 767 300Ers from the passenger fleet, and they will convert them with Boeing into 767 300BCFs. And they also have options for more than versions. And it's interesting to note that these frames, passenger frames aren't actually that old, I think, the oldest being around 15 years old. And so they will end up being younger freighters than the production 767 freighters. And in terms of the timing, they expect to take the first BCF late this year, and the rest going all the way to next summer. undress also told me that he thinks it's likely that they will exercise those at least some of those four options. Charles Kauffman And that is that is a pretty significant expansion. Is it your sense that this order was premeditated? Or is it a direct response to the capacity crunch that we're seeing in today's market? It was induced by the pandemic itself. Jeff Lee I mean, generally the Latin American market is on the passenger side is expected to be quite slow to recover. And if we look at Chile, for example, yes, they are slightly ahead in terms of vaccinations, but overall the rollout is going to be slower than other regions. And that ham itself I think, is predicting take until 2023 or even 20 for the market to be where it was in 2019. But I mean, even before the pandemic in Latin America had its own challenges and economic weaknesses. So I don't think this this order was necessarily a direct response to the pandemic. And I think they undress told me that this plan has been in the works for, you know, a couple of years. And yes, that pandemic allowed them to accelerate those plans. You know, with passenger aircraft being freed up for example, that was just one factor. And but the these plans are based on longer term demand trends. And, of course, they're already the largest cargo carrier in Latin America and the largest airline group in Latin America, but Long term trends such as flower flowers from Colombia and increased north south trade and, you know, also they also want to expand their transatlantic operations. So, I mean, there are various factors that, that the positive about and aren't necessarily affected by a pandemic. Charles Kauffman Right, there's certainly a lot to process there. Moving on, we continue to see new lessors getting involved with narrowbody freighter conversions, it seems like every week we have we have a new story. Jeff, what are the updates this week? Jeff Lee Well, this week, McQuarrie islands headquartered in McQuarrie finance announced an agreement with AI to convert for 737 800. And it's interesting because they the latest to join the list of lessors to move into 737-800. Free to conversions. And it's, it's remarkable over the past 12 months, we've seen at least I think five to seven lessors doing this, and that, you know, not all of them, necessarily have to have customers lined up for these conversions. So but of course, it's probably not that surprising considering the over weakness in the passenger market. And, you know, the ages of some of these 737-800s hundreds, and I think we will be probably be seeing more this year. But, you know, on the Airbus narrowbodies side, e Fw also inducted the conformity aircraft for the A320 P2F program, which is kind of exciting. Now, what do you think? What do you think of this sword that this conversion? You know, is it a another kind of speculative conversion on the part of the customer? Charles Kauffman Oh, that's it. That's a good question. We do not or I should say, EFW has not formally revealed the identity of the launch customer. I think if we take if we take a step back, there's an awareness of the demand for narrowbody freighters. And so maybe the what we call the order we refer to it as a speculative order. But most of the launch orders we've seen for some of these new programs have been placed by lessors or investment companies without an operator necessarily lined up. That being said, upon redelivery, the program is certified. Most of these aircraft have swiftly gone into service. So I would expect the same for the A320 that EFW has just started converting. And yes, if I had to guess, I would say that a less or investment group is certainly behind that conformity aircraft. Jeff Lee Right. And I mean, we've been looking through some feedstock ages, you know, this week or two. And there's on the, you know, for a 320s certainly there there are, you know, the vast number of them that could be, you know, conventionally considered suitable for conversion. But doesn't this seem on the W this part? Doesn't this does seem a bit late. Charles Kauffman Yeah, certainly based on airframe age characteristics. It is a bit late. I would also mention though, that this is not the ventures first go out of a 320 P2F program. So back in 2007, I believe it was Airbus, EFW and a few different partners actually. initially launched the or conversion programs for the A 320 and 21. That first go, didn't turn out to be successful into some issues. As we've seen though, EFW has certified and redelivered its first a 321 200 p two EPS so you know there's this next round is off to a much better start. Jeff Lee And what's different this time around? Charles Kauffman Yeah, so that first program again, a different mix of partners was involved but with the with the a 320 200. The issue related to the location of the angle of attack sensor on the aircraft. And so just over the course of the design for conversion of that that caused problems. I believe the workaround solution this time around involves repositioning the sensor. And of course, Airbus is a partner on this project. So that is a possibility for the conversion. If we look beyond conversions there, there wasn't too much news on the production freighter front, but we've tons of cargo major combination carrier obviously reported its 2020 results this week. How much did the carrier raking last year during the pandemic? And what might this mean for its freighter operation? Jeff Lee So of course, it's no surprise that those with freighters, you know, made a an impressive amount of money. And you know, from Lufthansa Cargo, they actually reported a historic adjusted EBIT of 772 million euros. And, I mean, that was just remarkable. But that wasn't obviously wasn't enough to offset the overall loss on you know, on the group, and that loss was a staggering $8 billion this year, last year. So but it there was one aspect of this of the announcement that came out that was particularly interesting for us, because they said that they will be expecting a new triple seven, this fall. And I so I asked them and so except it wasn't it, it isn't new in triple seven for insight in terms of an extended it's a new addition to the fleet, but it's not a new triple seven and newly built Drupal seven because it will be released. And, you know, we would, it's interesting to think about where this news, triple seven, for instance, might be coming from. And I think we had a few ideas but and digging further into their annual report, they also have what appears to be a purchase option for a triple seven. And I asked and asked Lufthansa and they told me that this is a purchase option for one of the Aero Logic frames. That is least that is currently least. So it's you know, there are things happening there on the on the production Drupal seven front and front of tons. And that's particularly important because they will be removing all of their Md 11 freighters. You know, by this fall, and there are three of them left currently. So by the end of this year, they will have finally transitions of that, or triple seven, three to three. Charles Kauffman And if we go back to that least triple seven trader that you mentioned, and if you had to guess, where's that aircraft coming from? Jeff Lee I would guess possibly an Emirates frame that I that we believe is coming off nice around August and so that timeframe does kind of fit. We'll see. Charles Kauffman Indeed, we will be looking ahead to next week. Jeff, what's on tap? Jeff Lee Well, we're continuing to look at some new entrants to freighters and, you know, some of the fruits of the changes in the Asia Pacific region. And of course, it's unbelievable, but it's March 2021, which means it's a full year since the onset of the pandemic. So that's Yeah, we'll be also looking at changes and developments on that front. Charles Kauffman It is hard to believe one year already at this point. That about does it for this week. To those of you listening thank you for joining us today and on cargo Facts. For more multimedia content like this, check out cargo packs, comm and search Cargo Facts Connect on iTunes and Spotify. Thank you Jeff. Thanks Subscribe to Cargo Facts Connect on iTunes or Spotify , or download the episode on Transistor . 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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