Orders and redeliveries outlook: Narrowbody focus

As the narrowbody freighter market progresses through 2024, signs of overcapacity are emerging, contributing to a noticeable slowdown. Other challenges, such as a shortage of conversion feedstock and robust demand from passenger airlines, are compelling potential conversion candidates to remain in passenger service, thus reducing the pool of available aircraft for freighter conversion. On top of the overcapacity and feedstock issues, the cost of engines and spare parts for these freighters is rising , driven by high demand in both freighter and passenger sectors. This situation is further complicated by the ongoing production delays that are exacerbating feedstock scarcity and driving up conversion costs. With those issues identified, it is important to look at orders and redeliveries in the narrowbody market moving forward into 2024. Figure 1 below illustrates a comparison and forecast of the freighter market from 2017 to 2027F(Forecasted) and suggests that the temporary peak of cargo conversions has passed. Cargo Facts Consulting estimates that narrowbody conversions will decline by 40% during the next three years, dropping from a high of 135 in 2023 to 76 aircraft in 2027. Figure 1 – Freighter Conversion Market 2017-2027F

737 remaining orders, upcoming redeliveries In the realm of 737 conversions, the remaining orders within the narrowbody market primarily involve the conversions of 737-800s into the 737-800BDSF by IAI , the -800SF by AEI , and the -800BCF by Boeing . It's worth noting that the -800 variant boasts a 10% increase in volume compared to the -300/400SF, rendering it well-suited for the prevailing e-commerce landscape. Presently, there are no known standing orders for the 737-400SF/F, a segment supported by AEI and PEMCO, nor for the -700 conversions undertaken by IAI and PEMCO . Cargo Facts Consulting knows of about 50 orders that remain for the 737-800 conversions with 22 of those currently inducted into the conversion process shown in Figure 2. Of those inducted, all are expected to be redelivered in the first half of 2024 before the remaining orders are brought in for conversion. Figure 2 – 737 Conversion Orders and In Conversion

Note: Some of the numbers above are approximate and based on CFC estimates

Figure 3 shows the annual conversion capacity for the 737 currently hovers around 120 aircraft. Boeing commands approximately 50% of this capacity, with an output of 58 -800BCFs per year. AEI is estimated to convert around 38 -800SFs annually, while IAI's capacity stands at approximately 21 BDSFs.

Figure 3 – 737 Conversion Market Capacity

In the 737-800 market, Boeing's BCF dominates, representing almost two-thirds of the converted aircraft, while AEI and IAI follow. Many Boeing -800BCFs are converted in Asia, notably at facilities like STAECO Jinan and Boeing Shanghai, known for their quick turnaround times and multiple available lines.

Following the rapid surge in e-commerce-driven demand in 2021, the backlog of orders for 737-800s has significantly decreased, showing overcapacity, with 31 aircraft currently parked while over 72 were converted in 2023.

Conversion houses have begun to scale back their output, and MRO facilities have started shifting focus away from passenger-to-freighter (P2F) conversions in favor of heavy maintenance, particularly as passenger aircraft return to service. Consequently, we anticipate a healthy reduction in annual capacity as conversion lines become inactive due to these shifts in industry demand.

757 conversion programs to end in 2024 Precision Aircraft Solutions is the only active conversion house for the 757, producing the 757-200PCF.

According to estimates by Cargo Facts Consulting, approximately seven orders are in progress with Precision, six of which are from AerSale and awaiting completion, redelivery, or delivery to a lessee; one order is pending for Asia Pacific Airlines.

The conclusion of Precision Aircraft Solutions' 757-200PCF conversion program is primarily attributed to the aging Boeing 757 fleet. As these older aircraft gradually retire from service, the pool of available 757s for conversion diminishes, effectively marking the closure of this conversion market.

Owners and operators have already begun retiring or leasing out their 757 freighters in response to a slowing market. For instance, Cargojet made its four 757-200 freighters available for purchase last year amid rising costs and the air cargo market slowdown.

Airbus A320/A321 conversion market grows The Airbus conversion narrowbody market has seen a steady rise in popularity since its inception , with a focus on converting A320/A321s. Key players in this market include EFW and 321 Precision Conversions, with C Cubed nearing completion of its prototype and Sine Draco showing limited activity. For A321s, EFW holds 49 orders, with seven already inducted into conversion. Meanwhile, 321 Precision holds 16 orders, with 10 undergoing conversion. Due to the 757 conversion program shutting down and Boeing’s production issues, we expect these numbers to increase significantly over the next few years. Figure 4 – Current A321 Conversion Orders

Of the aircraft currently undergoing conversion, we anticipate that 13 out of 17, shown in Figure 4, will be redelivered by the first half of the year. The remaining conversions for ST Engineering , AerCap , and one of the four for CAM are projected to be completed in the latter half of the year. The A320, although smaller and less in demand compared to the A321, undergoes conversion primarily by EFW, which secured the STC in March of 2022. Presently, there are five orders, with one already in induction, all for ST Engineering. In Figure 5, Cargo Facts Consulting estimates EFW's yearly A321 conversion rate at 16, while 321 Precision Conversions operates at 11 which we expect to increase once its EASA certification is obtained. In terms of A320 conversions, EFW holds a distinct advantage with an annual capacity of 13, while C Cubed aims to secure its presence in the same arena. Figure 5 – Current A321 Conversion Capacity

Narrowbody conversion market decelerates The narrowbody conversion market is facing a slowdown due to feedstock shortages, rising costs, overcapacity and shifting industry dynamics. With the impending closure of the 757 conversion program in 2024 and reductions in conversion capacity for the 737-800, the industry anticipates significant adjustments ahead.

As the market navigates these challenges, attention is shifting to the steady rise in popularity of Airbus narrowbody conversions, particularly focused on the A320/A321, signaling potential growth opportunities amid the evolving landscape. We estimate the narrowbody segment to return to a healthy conversion rate starting in 2024 with a forecasted 70 aircraft.

Orders and redeliveries outlook: Narrowbody focus

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