Conversion capacity remains tight but new lines are on the horizon

With strong air cargo, express and e-commerce market performance, demand for cargo conversions is at an all-time high — particularly for the 737-800, 757-200 the 767-300. Activity for the A321 and A330-300 is also picking up. After around fifty narrowbody redeliveries in 2020, we are expecting to see around 100 in 2021 and a similar number in 2022.

For the 767, we expect to see around forty redeliveries this year with similar numbers in 2022. The current known backlog of 737-800s is more than 100 units, mainly destined for lessors. For the A321, the figure is around fifty units. Meanwhile, the known backlog for 767 conversions is about fifty; for the A330 there are about forty, a large portion attributable to ATSG. In the 330 number we do not include Avolon's thirty aircraft launch commitment for the IAI A330 program.

The figure below shows an overview of the status of various conversion programs as of today. While there is a wide choice of aircraft types and programs in the narrowbody and medium widebody space, there will not be any available conversion options in the large widebody space until early 2023. We do not count the 747-400 program as active, even though IAI states that it is an active program.

In fact, a number of "active" programs for older types have not produced any conversions for a number of years. This includes the IAI 737-300/400 conversions and ST Engineering's 757-200 programs. When it comes to classics, the activity is centered on AEI (737s and MD-80s), Pemco (737s) and Precision (757s). There are three active 737-800 programs (Boeing, AEI and IAI) and two programs for the less popular 737-700 (Pemco and IAI). There have been two 321 conversion programs available since April with two more in various stages of development. EFW has commenced the development of an A320 conversion, and C3 also has a program under development. It is unclear at this stage how many Airbus narrowbody programs will make it through to achieving STC.

On the 767, IAI's program has been dominant, but Boeing is expanding in both China via GAMECO and Ethiopia via Ethiopian MRO. More on this expansion later. After a slow start, EFW's A330 program is picking up steam and it is expected that IAI will also have completed certification of a competing program within a few years.

Getting a large widebody freighter these days is a bit like buying a car — you either have to wait for a new 777-200F, overpay for a used unit or scour the aircraft graveyards of the world for something half serviceable. This will change in a few years, with an A350F and 777XF becoming available. Around 2023, there should be at least one 777-300 conversion option. We foresee that only about 20% of the demand in the large widebody segment will be met by conversions, so it's worrisome that there are three 777 conversion programs in development. We do not think there is enough demand to sustain three programs, and none have any OEM support so far.

While supply chain issues are creating their own constraints, capacity will remain tight until new conversion lines are added in the coming years. The interactive dashboard below shows an overview of existing and planned conversion locations by type as well as our estimate of annual current line capacity for the most popular programs: the 737-800, 757-200 and A321, the 767-300 and A330-200/300.

These are the basic assumptions behind our capacity estimates: Turnaround time (TAT): For 737s, approximately ninety days; for A321s and A330s, 120 days; for 767-300s, 110-120 days; and for 757s, ninety days. This implies three to four units per year, per line. In the TAT figure above we have added fifteen days for additional concurrent heavy maintenance, which can range from two to four weeks. Some facilities and providers are faster than others, particularly in the early stages of a program until the first units of a new MRO can take longer. We have not taken kit production and supply chain constraints into account, but we understand that this is currently an issue for multiple conversion programs. Our conclusion is that, on the 737-800 in particular, Boeing is operating at capacity. The same applies to Prevision on the 757, and both IAI and Boeing on the 767-300. On the 737-800, Boeing currently has about ten to twelve lines, while AEI has around nine, and IAI has 4. An additional four to six lines are likely to be added over the next 12 months in San Jose (Boeing) and Europe (IAI and AEI). This is a smart move as positioning aircraft and crews into China is difficult due to ongoing restrictions.

On the 767, IAI is running about eight lines at full capacity while Boeing has three. Boeing is adding an additional three lines — two in China and one in Addis Ababa, which will produce its first conversions in 2023. Use the conversion locations tab on the above map to explore the different actual and planned locations by conversion company and aircraft program.

The bigger question, however, remains: Will all of these aircraft find a home? That is a particular worry for the narrowbody space, which is running at a much higher rate than we have forecast. So, perhaps our forecast is wrong.

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