Weekly Wrap: COVID-19 piques online shopping, freighter conversions

Charles Kauffman
Hi everyone and welcome to this episode of Cargo Facts Connect the podcast series of Cargo Facts, the newsletter of record of the air cargo and freighter aircraft industries for over 40 years. I’m Charles Kauffman, Senior Editor of cargo facts.

Jeff Lee
And I’m Jeff Lee, Associate Editor of effects.

Charles Kauffman
This is the weekly wrap for the week of November 13. Before we begin, I’d like to thank Cargo Facts subscribers and our sponsors AEI, Airborne Global Solutions, C Cubed Aerospace, IAI, Innovative Solutions and Support, Lodige Industries, Rostrum Leasing, and U.S. Cargo Systems. Remember, if you’re not already subscribed, we invite you to start your free trial today at www.cargofacts.com.

Looking at this week’s news, reassuring reports came out this week that COVID-19 vaccine candidates being developed by pharmaceutical companies like Pfizer and AstraZeneca are showing promising results in late stage trials and consumer gain regulatory approvals for emergency use. Pfizer’s initial distribution plans call for up to 20 daily cargo flights from the company’s production facilities located in Belgium and the United States. So that’s quite exciting news.

Jeff Lee
Meanwhile, COVID-19 cases continue to skyrocket in the US and elsewhere. So this vaccine could come at, you know, the perfect time. But that could also coincide with a peak season that is already surging from the ecommerce boom. Online Sales are set to break records this year as consumers continue to avoid the balls. And this week, Alibaba and other retailers in China presented the 1111 Singles Day shopping holiday. And again smashed records. Alibaba reported gross merchandise sales of $74.1 billion, nearly double the 2019 total. And Alibaba is logistics subsidiary Cainiao process 2.3 2 billion orders for delivery during the sale. Many of the other developments this week on the equipment side reflect an expectation that much of these ecommerce volume is here to stay. So Charles, what’s tiny are actually doing to handle all these, these growing volumes, particularly when it comes to cross border parcels.

Charles Kauffman
And it’s a good question, you know, with Cainiao. And the cross border component, I would really say that momentum has been building for some time now, a lot of what Cainiao does relates to planning for Alibaba is peak, and it’s certainly the 1111 Singles Day shopping holiday. You know, and this year has been special because of the pandemic. They Cainiao announced earlier that they were planning 1200 and 60 flights through about the first quarter of 2021. So a significant increase in the number of charter flights. And just to show the, you know, the importance of this, this holiday and the activity around it. An estimated 700 of those flights, you know really do operate around Singles Day. So this is this is really a busy time for them. And these flights were operated across many different operators and connecting you know, the Americas with China and there were flights within China. So it’s a very extensive operation. You know, around the same time we also saw the opening of a couple new bonded warehouses in in Japan. So to two warehouses, one in Tokyo and a second in Osaka that really cater to not only air freight volumes, you know in the case of the Tokyo facility it’s located within close proximity to the city’s major airports with the region’s major airports I should say. And then certainly you know, there’s decent connectivity to some of the seaports in the region as well. I my expectation really is that long term you know Alibaba and signing out will focus on seafreight to the extent that’s possible, but we are seeing regular flights between China and Japan to cater to these, these growing volumes and volumes that they cannot be forward stocked. And another interesting development with China and this is more long term doesn’t necessarily, you know, change much about its operation today. But we saw that Air China cargo, which previously was the cargo affiliate of Air China, one of the country’s one of one of China’s Big Three carriers, has been reforming according to kind of this this government mandated program. And this week, Air China cargo received an equity bump with capital contributions from four companies totaling about 730 2 million US dollars. And one of the investors was signing out. The new investors you know, they haven’t concretely defined where they plan to take the company. They certainly mentioned cross border e commerce as a as an appealing opportunity. And I would just note that with the other two major Chinese operators in China, Eastern Airlines in China Southern, as they kind of embarked upon this privatization path or kick, we have seen a few additional freighters added to the fleet. So that that is a sign that growth is a possibility for the fleet as well. And air China’s fleet really hasn’t changed much since 2015, when they took delivery of their last triple seven freighter.

Jeff Lee
Yeah, I think we might see some changes pretty soon. But it’s not just in China. I mean, other we’re starting to see other combination carriers warming up to the idea of operating freezes again. Only.

Charles Kauffman
Yeah, that’s that’s right. Yeah. And in varying degrees of transparency with those those plans, I would say as well. Air Canada is probably the would say the the closest of the major combination carriers that they don’t currently operate dedicated freighters are the closest to taking the plunge. So Air Canada, and its affiliate, low cost carrier, Air Canada Rouge, they, you know, until the pandemic operated a sizable fleet of 767 30ER, about 30 of them. And some of those were owned, you know, they’re they’re on the books, following the pandemic, Air Canada, you know, motions to retire some of those aircraft. And so conversion is definitely an option for many of those airframes. Now, whether Air Canada is converting those and operating them within their own fleet, or selling them to another operator who may have those aircraft converted, you know that that remained a question and this week, Air Canada signaled pretty clearly that they would like to convert at least a couple of those seven, six sevens. Really the only hold up is that it has to clear with their pilots. Since that would change the dynamic of beta for transporting cargo instead of passengers. It’s interesting to note also that Air Canada has, has been exploring seventh sixth seventh graders for some time. So back in 2016, they did launch this, this operation with seven six sevens that were a semi leased from cargo jet. And they operated those freighters on on North South routes connecting cities in Latin America, some of them with intermediate stops in the United States. And that operation ceased in 2017. There were some pilot pilot issues, but yeah, it’s not really surprising to see them take an interest in cargo. It’s it has long been a significant part of Air Canada’s business. This year especially Air Canada was an early adopter of cargo only flights with their passenger fleet. As you know, just they removed a number of seats on their triple sevens and they continue to operate those and According to recent revenue projections, they’re looking at hitting a target of about 100 and $50 million Canadian dollars for cargo revenue in 2020. And, and with freighters, they’re, they’re planning to grow that a bit. But you know, combination carriers aren’t alone in, in looking at e commerce. And while we dwell on the medium wide body segment, the seven six sevens which are growing rapidly, we’re also seeing a dramatic uptick in narrowbody. freighter conversions, are we Jeff?

Jeff Lee
We are especially the seventh reason 800. And this is, which is why we had an interesting story this week about cargo air in Bulgaria. They actually originally had to firm conversion slots with Boeing for 800 PCs. And they postponed those last year because of feedstock prices. Obviously, entire market has changed. And so they’ve recently just acquired their first send 378 hundred. And they were hoping to convert that, but because of the slot availability at Boeing, they actually turned to IAI for for this for their first 800 conversion, which is very interesting. And they do have, you know, a very good relationship friendship with the I was all of their 7373, hundreds and four hundreds were converted by AI. They mentioned that they wouldn’t have been able to get a slot with Boeing until at least 2022. So obviously, that timing didn’t work for them. So they’ll be talking with Boeing to see what, what they can do. But generally, with the 800, we’ve seen, we have actually seen all three even version houses, increasing the output capacity, and did by next year, we can have, you know, ai could have up to nine lines converting eight hundreds, Boeing could have up to seven IAI has already expanded with a second one in Mexico, but that can also increase. So we know when we’ve seen so many lines converting eight hundreds at the moment. And even with that, there’s still a substantial backlog. So we’ll be seeing many, many more 800 phrases, but most of these have been ordered by the lead source. So obviously, a huge chunk of the Boeing slots are taken up by DJI has which has, which actually found out more options in August and now has 60 phone orders. Be bam, rogue capital solutions BlackRock, GA, telesis, Agra, finance, Germany, and potentially a couple more. So lessons are lining up to convert the part 800 The only exception or the major exception to that is ASL airlines, which ordered 10 firm conversions last year at the Paris Air Show. And we believe they’ve actually just started sending these open version with three having gone to China recently. So we will be seeing those, you know, probably like, early next year.

Charles Kauffman
Yeah, definitely. quite a few placements that are still undefined. And I I’m quite eager to see where where some of those aircraft end up after they exit conversion, but it’s going to be an exciting period for for the narrowbody segment. Now what

Jeff Lee
we also have the 321 which will, which we’re also expecting to see an increase there.

So

Charles Kauffman
it’s a good point. Yeah, the narrowbody that next generation of narrowbodies is certainly starting to take off. What else we have on tap for next week, Jeff.

Jeff Lee
couple of interesting aircraft reactivations and some interesting CMI arrangements, and maybe a unique 757 freighter that we’re looking at

Charles Kauffman
a unique 757 freighter sounds like something that will totally reshaped the conversion market. Maybe not. Maybe not Interesting nonetheless. That’s all for today. covered quite a lot to those of you listening. Thank you for joining us on this episode of Carfax Connect. And for the latest on all things, freighters and conversions, make sure to visit www.cargofacts.com Thank you, Jeff.

Jeff Lee
Thanks, Charles.