Limited widebody capacity, conversion feedstock carrying into 2025

Widebody capacity, feedstock supply and conversion costs top the list of challenges in the freighter industry, as evidenced by discussions at the 30th annual Cargo Facts Symposium, which took place Oct. 14-16 in San Diego. As Cargo Facts predicted, most talk at the symposium touched on these themes along with maintenance costs and engines , which will likely shape the industry in 2025 and beyond. Here are some of the main takeaways from Cargo Facts Symposium 2024. Widebody capacity Multiple carriers and lessors agree there is a shortage of large-widebody capacity in the freighter market. This is due, in part, to delays in aircraft production and 777 conversions. The problem is exacerbated by the fact that more than 100 of the approximately 630 large widebodies in service are thirty years old or older, Atlas Air Worldwide Chief Executive Michael Steen said in a fireside chat at the event. [caption id="attachment_57146469" align="aligncenter" width="2560"] Cargo Facts Editor Jeff Lee and Atlas Air CEO Michael Steen during a fireside chat at CFS 2024. (Photo/Cargo Facts)[/caption] “In the next five years or so, many of those aircraft are going to be retired, and that’s going to put even more pressure on the global widebody fleet,” Steen said. “That is exactly why we have pivoted to invest in more widebody aircraft , and to serve widebody aircraft that are acquired by our customers as well.” The supply and cost of widebody freighters will depend on the pace of new-generation Airbus and Boeing aircraft deliveries, according to the appraisers’ outlook at the symposium. Airbus’ new A350F is due to enter service in 2026, while Boeing last month delayed the first delivery of its 777-8F to 2028 . Each type has a backlog of fifty-five units. “I think there’s going to be demand for that size, efficiency and capability of aircraft,” George Dimitroff, head of valuations at Cirium Ascend, said. “And there probably won’t be enough supply.” Over the next ten years, Boeing and Airbus will prioritize passenger aircraft deliveries while placing a higher premium on the limited slots available for production freighters, he said. Production delays have already driven up current-generation 777F values and lease rates . As Airbus and Boeing work to resolve challenges affecting aircraft deliveries, passenger demand for current aircraft types is increasing, limiting available feedstock for conversion. “The 777-300ER has gone from loads of feedstock to nothing in a matter of about eighteen months,” Dimitroff said. Pricing feedstock, conversions Limited feedstock is also impacting the medium-widebody and narrowbody markets. “The reason there are so few orders for conversion is because: Where am I going to get the feedstock?” Dimitroff said. “If you can get the feedstock, are you going to pay $28 million for a 737-800 to convert? We’re seeing airlines wanting these aircraft for passenger service, bidding 20% higher than everybody else.” [caption id="attachment_57146471" align="aligncenter" width="2560"] From left, Cargo Facts Consulting Director Guillermo Ochovo moderates a panel with George Dimitroff of Cirium Ascend; Alice Gondry of MUFG Bank; and Anna Kopinski of mba Aviation. (Photo/Cargo Facts)[/caption] Rising feedstock prices and higher conversion costs will be passed onto customers, Alice Gondry, director of aviation research at MUFG Bank and an ISTAT-certified senior appraiser, said at the event. Converting an A330-300 costs $6 million to $7 million more than converting a 767-300ER. This makes it difficult to pitch a converted A330 freighter at a lease rate similar to a 767-300F. The carrier must consider the cost of the A330-300 feedstock and more than $20 million for conversion, Dimitroff said. “Unless you’ve already secured your feedstock and conversion slot for the next three years, I think the next opportunity to buy A330 feedstock will be when a lot of these six-year lease extensions that were done in 2023 expire,” he said. 767s vs A330s Demand for 767 freighters remains strong even as feedstock supply is exhausted. IAI expects to continue its 767-300BDSF conversions for a few more years as it completes redeliveries for ATSG and other customers. Replacing the Boeing medium-widebody freighter will be a challenge for operators that heavily favor the type, such as Amerijet , which recently transitioned to an all-767F fleet. The switch enabled the Miami-based carrier to increase its lift capacity by 23% while reducing operational block hours by 13%, CEO Joe Mozzali said at the symposium. “The capacity that the 767 provides [comes] at a very low cost,” he said. “[It] is a very reliable and very versatile aircraft.” Boeing recently announced that it will cease production of the 767-300F in 2027 . For now, the only replacement for the 767 freighter is the A330F. A second A330F conversion program is ramping up as IAI in September began its prototype A330-300BDSF conversion (1574, ex-Air Europa). The market will benefit from having another option for A330 conversions, operators have told Cargo Facts . Narrowbody engine leases While the passenger and air cargo carrier demand for feedstock may have raised aircraft prices, disruption in the production cycle has also limited the supply of engines in the narrowbody sector. “To add insult to injury, whereas the traffic coming back is great for the [passenger] airlines, we have OEM delays and engine issues,” Amazon Global Air Senior Manager and Head of Worldwide Fleet and Carriers Mylene Scholnick said during an engine and leasing panel. “And now we have a competition between engines and freighter leasing, particularly in the narrowbody market.” [caption id="attachment_57146472" align="aligncenter" width="2560"] From left, Amazon Air's Mylene Scholnick moderates a panel with Dora Alexander of Hamden Aviation; Ryan Anderson of Aero Capital Solutions; David Ellis of GA Telesis; and Maik Falkuss of MTU AENA. (Photo/Cargo Facts)[/caption] Current market conditions appeal to lessors with the assets and ability to place their engines on short-term leases with customers seeking to avoid delays and additional costs to overhaul their own engines, David Ellis, senior vice president and global head of the asset transaction group at GA Telesis, said. Some engines have increased 20% in value two years in a row. Lease rates have declined for 737-800 freighters whose engines have been removed to fill the passenger demand for exchanges and leases while the narrowbody freighter market has cooled down, Dora Alexander, executive vice president of Hamden Aviation, said. However, while many lessors and owners seek to generate revenue in a strong passenger market by only leasing out freighter engines, others believe the best option is placing whole freighters on lease terms of eight year or more, Ellis said. “You don’t really want to deal with frequent lease returns, return conditions, borescopes,” he said. “Engine leasing is a much more hands-on type of endeavor and business model than aircraft leasing.” Strong demand for leased engines is magnified by the slow retirement of 737 Classics coupled with increasing costs of engine shop visits, prolonged turnaround times and supply chain constraints, according to Ellis. “There are still 200 Classic freighters in service,” he said. “We haven’t seen that replacement phase really hit.”

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