Kenya signed an agreement with AEI for two firm 737-300 P-to-F conversions, plus two options, with touch labor on the two firm conversions to be done at the Boeing Shanghai Aviation Services facility at Shanghai’s Pudong Airport. The aircraft (29088 and 29750) will come from Kenya’s existing passenger fleet. The first unit (29088) is to be inducted at the beginning of November, with redelivery scheduled for February 2013.
While the conversions are obviously important to both Kenya Airways and AEI, in many ways the big news here is that Boeing Shanghai is now officially in the conversion business. Boeing Shanghai Aviation Services is something of an anomaly among Chinese aviation joint ventures, in that it is majority owned by a foreign company. When it was formed as an MRO in 2007, Boeing took a 60% stake, while the remaining 40% was split between the Shanghai Airport Authority and Shanghai Airlines. Typically, China limits individual foreign companies to a maximum holding of 25% in joint ventures, with the total foreign ownership capped at 49%. Cargo Facts believes, but has not been able to confirm, that one of the reasons Boeing was allowed to hold a majority interest was the expectation that the facility would become a center for passenger-to-freighter conversions — something China was very keen on.
Boeing’s original intent regarding conversions appears to have been to set the Shanghai facility up as an alternate 767-300BCF conversion center, either supplementing or replacing ST Aero. But demand for 767-300BCF conversions dried up before any could be done in Shanghai. By partnering with AEI to do 737 P-to-F conversions, Boeing Shanghai will gain not only revenue, but will keep the PRC government happy.
Of course, the conversion window for 737 classics will not stay open forever, and the question then becomes: What conversions will come next at Boeing Shanghai? The obvious candidates are the 777 (which Boeing would presumably do on its own), and the 737 NG (which we expect Boeing would license to an outside conversion house).