Pandemic to boost feedstock availability for conversions [VIDEO]

Although passenger aviation faces the grim reality that it may take two to three years for traffic to bounce back to 2019 levels, feedstock for new and upcoming conversion programs, such as the 737-800 and A321-200, will soon be available at price points viable for conversion, said Doug Kelly, senior vice president of asset valuation at AVITAS, during an industry meeting convened by Cargo Facts . Although there are many parallels between previous downturns and the current COVID-19 slowdown, Kelly cautioned that this is not a normal recession, but rather a government-induced shutdown aimed at quelling the outbreak. The nature of the shutdown makes today’s situation look more severe in comparison with past recessions, yet the potential for a swifter recovery is greater. As a result of the COVID-19 pandemic, AVITAS expects passenger traffic to be 62% lower year over year in 2020, compared to 2019. Past recessions, meanwhile, saw passenger traffic fall by just 1.7% YoY in 2009, and 2.6% YoY in 1999. Once a cure or treatment for the virus is discovered and fear of traveling subsides, aviation is positioned for a healthy rebound, Kelly said. Until then, the trillions of dollars in government stimulus will do much to carry the industry through the downturn. Also unlike all past recessions during the past thirty years, fuel prices are also severely depressed, down 62% YoY compared to last year at this time, at $0.73 per gallon, according to IATA’s Jet Fuel Price Monitor. Still, the coming months will not be without bankruptcies and other consolidations. While each aircraft type has different nuances, historical trends suggest that older and out-of-production models will see notable declines in value. Mid-life 737-800s that are 10+ years in age could see values decline by 10%-12%. This could make conversion feedstock available at a price point below $10 million per frame, the price generally considered viable for conversion. AVITAS’ preliminary forecast projects a drop in A321-200 values that would make conversion feedstock available for less than $12 million. See also: AA to retire dozens of 737s, releasing more feedstock While feedstock prices for newer narrowbody types may soon be easier for cargo operators to stomach, values for older airframe types, such as the 737 Classics, may fall even faster. In this low-fuel cost environment, older aircraft will seem more appealing,” Kelly said. While this may encourage the conversion of additional 737 Classics, “feedstock will inevitably dry up, and conversion will move to the newer types.” For a recap of the entire webinar, check out the recording: .embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; } The presentation is available for download here . Cargo Facts Asia 2020 will be held on April 21-22, as a virtual event, continuing its keen focus on the Asia market. Although the event will look much different, the excellent content will remain the same, with the best and brightest minds addressing the most pressing industry issues for Asia Pacific — including those around COVID-19. To register and for more information, visit www.cargofactsasia.com .

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