From the Cockpit with BBAM SVP and Head of Freighters John Lynch

BBAM has maintained a leading edge in the narrowbody leasing segment with multiple lease deals for next-generation freighters placed with carriers even during a softer market. The leasing company continues to diversify its freighter portfolio with new and established players. It expects to place an A321-200P2F with Brazilian startup Levu Air Cargo by yearend and recently completed a lease deal for two 737-800BCFs with Poste Italiane subsidiary Poste Air Cargo. [caption id="attachment_57146753" align="aligncenter" width="2560"] John Lynch, senior vice president and head of freighters at BBAM. (Photo/Cargo Facts)[/caption] Earlier this year, BBAM completed the purchase, sale and leaseback of two 737-800BCFs (35681 and 35682) to Alaska Airlines and delivered a second 737-800BCF (29644, ex-Go2Sky) to Bahrain-based Texel Air. Cargo Facts recently caught up with John Lynch, senior vice president and head of freighters at BBAM, to discuss the lessor’s narrowbody leasing strategy and how BBAM is navigating the growth and development of its freighter portfolio amid the market challenges. What follows is an edited version of the conversation. Cargo Facts : What are you seeing in the widebody freighter segment in terms of supply? John Lynch: The feedback we’re getting is there appears to be a significant capacity shortage in the large-widebody freighter segment. We’ve been speaking to several different airlines who have been asking us if we have any capacity. And, by the way, we don’t have any spare capacity available to lease or sell into the market. We’ve seen this coming from operators mostly in Europe, but also in Asia and, to some extent, in the Americas and the Middle East. CF : What about the narrowbody market? How different is that? JL: That market has been, on the demand side, relatively challenging over the last eighteen months. I would say, because of the number of aircraft that were converted in late 2021 through 2022 into the 2023 period, there was a significant supply of capacity into the market that definitely overshot the demand. However, now what we’re seeing is an inflection point, a very dramatic drop-off in the supply of narrowbody freighters, primarily because feedstock is completely dried up. Feedstock is completely dried up because passenger airlines are extending leases or looking for new leases they can find. They’ll take any 737-800 or A321-200 they can get their hands on and, therefore, there’s literally no feedstock available. CF : Are you considering increasing your footprint in the large- and medium- widebody segments? JL: It’s certainly causing us to look at those two segments a little bit more closely than we have been in the past. There are significant investments required, particularly if you want to buy an aircraft. Let’s just say the 777F is the one large-widebody freighter available at the moment to give into that market. There’s a huge backlog at Boeing as I think everybody’s aware of, so getting access to assets to play in that large-widebody freighter space is a real challenge. The alternative to new aircraft is obviously converted aircraft and, interestingly, the characteristics of what I just described earlier about the narrowbody freighter space are now playing out in the large-widebody freighter space. We’re seeing a huge growth in demand for 777-300ERs on the passenger side, the same for A330s. But if you just look at the 777-300ER, the airlines that are operating those aircraft are seeing a huge growth in demand on the long-haul routes with really no alternative capacity becoming available from the OEMs in the near term to allow them to replace their fleets in any kind of scale. That means that they are holding onto those aircraft longer. So, we’re seeing a lot of extensions of these aircraft and even new leases because that is pushing up lease rentals and values of these aircraft. The values of 777-300ER passenger aircraft have increased quite dramatically over the last year or so and I think that will continue. While that is the case, it questions the economics of doing a conversion because some of these asset values have increased by 50% to 80% since 2022-2023 and that just changes the dynamic here very significantly. In conversations that we have had with some of these conversion facilities, they have indicated that they’re seeing the same thing as we are experiencing with their existing customers. CF : With oversaturation in the narrowbody freighter segment, would it be easier to pick up freshly converted airframes instead of putting more into conversion? JL: There are very few passenger airframes available in the 737-800 or the A321 model families and what we’re seeing in that narrowbody segment is an increase in retirements of the existing fleet. If you look at where we always thought demand would be, it would be in growth and the replacement of existing narrowbody freighters. What we’re actually seeing at the moment is the replacement pieces really starting to develop. So, there are more and more operators indicating they are no longer in a position to continue operating the older aircraft type for various different reasons. Technical airframe issues, engine issues, operational concerns because they can’t find pilots to fly a 737 Classic or an MD-80. A lack of trained personnel to work on the aircraft and spare parts leads to costs increasing very rapidly. All of these things are expediting the change into the next-generation aircraft such as the 737-800 and the A321. On the point about an excess of supply, we know that a number of the 737-800Fs that are actually indicated as available are under LOI at this point in time or have been parked with engines removed and leased out. Supplies are really very limited in terms of ready-to-go aircraft as demand is picking up. There’s a real shortage of equipment for the demand that we’re starting to see materializing. Similarly, with A321s, there are not as many aircraft as you might think. CF : How will you develop your freighter program going forward? JL: A few years ago, we were acquiring naked aircraft to line up with slots and that made a lot of sense because the passenger market was in decline and a very weakened state during COVID. So, asset values were quite low on the 737-800 and the A321. On one side, you could buy naked aircraft when interest rates were almost zero. You could keep them available for your slots. We have been very proactive with the conversion slots we have available. We did know the change that was taking place, obviously, on the passenger side because we have that huge exposure to that market. Everybody noticed interest rates were increasing, so the idea of buying an aircraft and keeping it on the ground for a long period prior to conversion as interest rates are rising is not a very good financial approach. So, in essence, what we did was change our strategy to start acquiring a lot of passenger leases on both A321s and 737-800s that lined up with slots that we had re-phased so that they’re in the 2026-2029 time frame. So, we have leases that line up with those slots later on and therefore we have a very nice portfolio of passenger aircraft that are leased with very good passenger airlines with very good lease rates. And that lines up nicely with the second half of this decade as demand is going to continue to improve in the freighter space. We’re going to take advantage of that and convert those aircraft and have them available for our customers in that time frame, where this nascent market improvement or pick-up we’re seeing will have matured nicely by the time these aircraft come off lease and are converted. Register now for Cargo Facts' essential regional events for industry stakeholders: Cargo Facts LATAM 2025 on Feb. 10-11 at the Pullman Sao Paulo Guarulhos Airport in Brazil; Cargo Facts Asia 2025 on March 24-26 at the W Shanghai in China; and Cargo Facts EMEA 2025 on May 6-8 at the Shangri-La Bosphorus in Turkey.

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