Asian freighter fleet analysis part II: Fleets chart long-distance courses

Last week, in Part I of our two-part analysis of the freighter fleet in service with carriers based in China, Hong Kong and Taiwan, we began with an overview of the freighter fleets operated by carriers based in Taiwan and Hong Kong. Today, we continue with an analysis of the freighter fleet based in mainland China.

Reform and the freighter fleet

Shifting to mainland China, the contrast between combination carriers and express carriers is made quite clear when it comes to trends in the freighter fleets of each respective group. None of China’s three largest combination carriers made changes to their freighter fleets, nor did any place orders for additional freighters in the past year. This could change as the “Big Three” increasingly chase express cargo.

One factor to monitor in the coming year is the “mixed-ownership” reform that is currently underway at Air China Cargo, and on the horizon for China Southern. In August, China National Aviation Holding Co., which owns a controlling stake in Beijing-based Air China and its logistics subsidiary, Air China Cargo, announced it would sell a stake in the air logistics company, valued at an estimated US$1.5 billion. Air China Cargo will follow in the footsteps of China Eastern Airlines, which began the reform process in 2017 with the sale of its Eastern Air Logistics (EAL) cargo subsidiary back to its parent, CEA Holding. EAL owns freighter-operator China Cargo Airlines and manages the belly space on China Eastern Airlines passenger aircraft. To date, the reform has not affected the size of China Cargo Airlines’ freighter fleet.

Apart from carriers like Okay Airways, which exited freighter operations altogether last year, Shanghai-based HNA-affiliate Suparna Airlines (previously Yangtze River Express) was the only carrier in mainland China to make significant reductions to its freighter fleet. Suparna’s widebody freighter fleet, which carries a mix of general and express cargo, remained stable in size, while Suparna followed the long-term trend of shrinking its narrowbody fleet. Last year, Suparna Airlines sold two of its 737-400Fs to its sister start-up carrier, Tianjin Air Cargo, which secured an AOC from the Civil Aviation Administration of China  (CAAC) in August 2018, but has yet to commence revenue service.

Moving forward, the beleaguered HNA Group appears committed to its all-cargo airlines, despite moving to sell off a number of international assets, which include stakes in everything ranging from airport service companies, to banks, hotels, and airlines.  Apart from transferring freighters to Tianjin Air Cargo, Suparna has sold a number of aging narrowbody freighters. Cargo Facts believes the group is considering 737 NG conversions to replace some of the outgoing classic freighters, and may try to pursue sale-and-leaseback deals with aircraft currently operating within HNA’s passenger airlines.

CAAC greenlights imports

Moving away from the market for general cargo, most growth in the region’s freighter fleet centers around the express industry, which demands both widebody and narrowbody freighter aircraft. The narrowbody fleet in operation with Chinese carriers grew by 6% (six units) since January 2017, rising to 103.  As has been the case for the past two years, the majority of the aircraft added over the past year were 757Fs.

As domestic 757 feedstock became increasingly scarce in June 2016, SF Airlines realized it had to look beyond China to source feedstock, and so the carrier set out to introduce aircraft coming out of American Airlines’ 757-heavy passenger fleet. In the months since the project was launched, SF Airlines’ “American Airlines introduction team” made many trips to the US to conduct on-site inspections and collect the documentation necessary to obtain CAAC approval for the imports. In February 2018, after a prolonged 20-month endeavor, SF Airlines finally took redelivery of the first ex-American Airlines Precision-converted 757-200PCF. SF’s peers in China closely monitored the import process, and now see foreign 757 feedstock as a viable option.

In the past year, SF Airlines added four 757-200Fs, while Hangzhou-based YTO Cargo Airlines became a new operator of the airframe as it began launching flights to destinations such as Tokyo (NRT) and Hong Kong (HKG) with its first two 757-200Fs. China Postal Airlines, which has long been an operator of 757Fs, also added a 757F in 2018.

Over the next year, many more 757Fs are expected to end up in the fleets of Chinese express carriers – and the fledgling carriers that will eventually fly for them.

There are a number of 757-200s currently in conversion, including two for SF Airlines and one for China Postal Airlines.  YTO Cargo Airlines has already acquired feedstock for two additional 757 conversions, and is believed to have orders for up to eleven additional conversions. SF’s 757 backlog, meanwhile, consists of no less than six units, but Cargo Facts believes SF is looking at about ten more 757Fs beyond its current conversion order backlog.

How many more classics?

Turning to the smaller 737 freighter fleet in operation by Chinese carriers, the overall number of aircraft in operation remains nearly unchanged since last year, as carriers hold out for next-generation freighters.  Looking at the overall size of the 737 fleet in operation with Chinese carriers, fleet reductions by carriers like Suparna balanced out with net additions by Longhao Airlines, YTO Cargo Airlines, and SF Airlines, which added two, one, and one 737Fs to their fleets over the past year, respectively.

Guangzhou-based Longhao Airlines is the only Chinese carrier with confirmed plans to add more 737 Classics, though other carriers are expected to do so as well, since next-generation feedstock remains expensive. Longhao launched eighteen months ago with a single 737-300F operating in charter service for SF Airlines, and within six months, added two more -300Fs to its fleet.

In February, Longhao purchased two 737-300Fs from GECAS and, shortly after, agreed to purchase a 737-400F from Luxembourg-based Vallair. Given the nature of Longhao’s relationship with SF Express, the carrier has not invested heavily in a robust cargo sales and marketing team, but this is already beginning to change. In September, Longhao launched three-times weekly 737-300F flights between Xi’an Xianyang Airport (XIY) in Central China, and Hanoi Noi Bai Airport (HAN) in Vietnam, independent of SF Express.

Apart from Longhao, other express carriers appear to be waiting for the 737-800BCF. SF Airlines, YTO Cargo Airlines, and China Postal Airlines had all already placed orders for 737-800BCFs by early 2016, and there have been no major orders for 737 classic conversions placed by a Chinese carrier this year. Chinese carriers have also expressed interest in A320/A321 P2F conversions, but no orders have been made public.

Just as online shoppers grow impatient when parcels don’t promptly arrive, Chinese express carriers face frustration from the slow speed at which they can match air freight capacity with growing demand for lift. This month, Atlas Air will put a 747-400F into service on behalf of SF Express – before SF is able to put its own 747-400Fs into commercial service.

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