Next-gen freighter conversions restock leasing portfolios

Fleet modernization has taken off for cargo operators as they retire classic freighters utilized to gain capacity during the pandemic. Diversification of the air cargo sector has led lessors to search for feedstock for new freighter conversion programs or programs now in the planning stages. Cargo Facts has analyzed leases from twenty-one lessors between May 2022 and April 2023, including conversion orders, lease orders and lease placements of the latest generation of converted freighters: 777s, A330s, A321s, A320s and 737NGs. A330 conversions still attractive With demand for air cargo service falling from record levels, lease orders for medium-widebody freighters remain consistent despite the shifting market pace. Cargo Aircraft Management (CAM) continues to build its medium-widebody freighter portfolio, which includes a mix of 767 and A330 freighters. Parent company Air Transport Services Group (ATSG) told Cargo Facts in February that it held the rights to six A330 feedstock candidates with vintages from 2006 to 2012 and plans to diversify its A330 portfolio with General Electric CF6 and Rolls-Royce Trent 700 engines. CAM expects to lease some A330 freighters to DHL, although ATSG would not confirm if any of its airline subsidiaries would operate A330P2Fs for DHL on a CMI basis. The A330-300P2F units leased to DHL will add to the feedstock the express company directly purchased for conversion with Elbe Flugzeugwerke (EFW). [caption id="attachment_56725181" align="alignright" width="450"] A330 conversions are gaining momentum with lessors. (Photo/CDB Aviation)[/caption] In May 2022, ATSG announced that ASL Aviation Holdings had agreed to lease two A330-300P2Fs from CAM that are expected to enter service in 2024. The first CAM A330 is slotted for conversion with EFW in the fourth quarter of 2023. On the West Coast, Seattle-based Altavair has twenty or more A330P2F units it looks to move over the next couple of years. Altavair will lease ten of them to Amazon, which will place them with Hawaiian Airlines to operate on its behalf. The first of the ten A330-300s to be leased to Amazon, a 2018-vintage Rolls-Royce Trent 700-powered aircraft (1902), arrived at Shanghai Technologies Aerospace Company Limited (STARCO) in Shanghai (PVG) last year to become the youngest Airbus medium-widebody aircraft to undergo conversion. Altavair delivered an A330-200P2F (717, ex-Etihad) in January. The aircraft entered service with Air Belgium, which also operates another of Altavair’s ex-Etihad units (832) in 2022. The lessor placed two ex-Etihad A330-200P2Fs (854 and 868) on lease to Mexico-based Mas in the first half of 2022. Mas leased its first pair of A330-300P2Fs from CDB Aviation and took delivery of the ex-China Southern aircraft (958 and 964) in June 2022. The carrier subleased unit 958 to Galistair Malta, which has operated the aircraft between the U.S., Mexico and Europe. CDB Aviation will convert at least fourteen A330-300P2Fs and has successfully placed half of them with customers, Head of Strategy Cronan Enright told Cargo Facts at Cargo Facts Symposium 2022 in San Diego. A330 passenger-to-freighter conversion programs are expected to grow as the 767 production freighter approaches the end of its manufacturing cycle and conversion feedstock declines. 767s reach peak At least fifteen 767Fs have been placed on lease in the past twelve months, about five fewer than A330 freighters, which is reflective of growing demand for its Airbus successor and declining 767-300ER feedstock. Still, the 767F is at its full maturity and continues to be placed into service at a high capacity as the freighter type remains popular for operators in the express shipping and e-commerce sectors. As CAM, the largest lessor of the 767 freighter platform, continues to place the medium-widebody freighter with customers even as growth for airfreight globally slows. [caption id="attachment_56864124" align="alignleft" width="450"] CAM recently leased two 767-300Fs to Amerijet. (Photo/ATSG)[/caption] ATSG Chief Executive Rich Corrado indicated that the company will lease fourteen converted 767-300Fs in 2023, while Amazon has begun to return older 767-200BDSFs it leased from ATSG. In the company’s full-year earnings call recently, Corrado said ATSG expects eight of those 767s to be returned this year. He remains confident in market demand for the 767 freighters and believes ATSG will be able to put the aircraft returned by Amazon back into service. “These midsize freighters tend to go into networks powered by e-commerce,” he said. “E-commerce is growing faster outside this country than it is inside.” ATSG and DHL agreed in 2022 to extend their commercial relationship, which includes the lease of three more 767-300Fs and more CMI 767 operations, Corrado said. CAM has delivered its first 767-300BCF on lease to Miami-based Amerijet. Before 2022 came to a close, CAM had also placed its fourth 767-200BDSF on lease with Malaysia-based Raya Airways. Boeing tops lease market Boeing’s presence remains strong in the lease market, with Cargo Facts recording at least eighty-four freighters being leased or entering lease agreements. The 737-800F platform leads the group with fifty-two aircraft leased and 767Fs following at fifteen. The 757-200F and 737-400F types each had five units being placed on new leases, the 777-300F had ten new leases and three 737-300Fs entered leases. Bahrain-based Texel Air, which until recently had bought and converted its own 737-800 feedstock, took delivery of its first leased 737-800BCF from BBAM in April. The 2004-vintage unit 33804 (ex-Ryanair) began service for DHL last month. Other notable milestones this year by other leasing companies that have transitioned to newer freighter types include: Ireland-based lessor Genesis placed the 2005-vintage 737-800BCF (29670, ex-SpiceJet), the first freighter in its portfolio, on lease with Kargo Xpress in December 2022. Icelease’s 2004-vintage unit 33973 (ex-FlyEgypt) became the first 737-800BCF converted in Europe when the aircraft emerged from Boeing’s London Gatwick (LGW) MRO facility in December. The lessor ferried its second 737-800 (34251, ex-Belavia) to LGW the following week. Seattle-based Alaska Airlines has selected two of its older passenger 737-800s for conversion with Boeing and agreed on a sale-leaseback of the soon-to-be converted aircraft with lessor BBAM. The first induction took place in May at the COOPESA facility in San Jose (SJO), Costa Rica, and will be delivered to Alaska Airlines’ cargo division later this year. Titan Aircraft Investments expanded its Boeing narrowbody freighter portfolio in October 2022 when the company leased its first 737-800SF to ASL Aviation Holdings. Titan Aviation Leasing Chief Commercial Officer Eamonn Forbes told Cargo Facts at Cargo Facts EMEA in February 2022 that it would convert its first 737-800s with Aeronautical Engineers Inc. (AEI). While Boeing’s freighters, particularly 737-800Fs, hold significant market share in the narrowbody sector, A321F programs continue to gain interest from lessors and operators. Lessors build inventory with A321Fs Over the past year, Cargo Facts logged lessors placing, or agreeing to place, at least sixteen A321Fs on lease, while more leasing companies have revealed plans for conversion orders with 321 Precision Solutions and EFW. BBAM continues to strengthen its leasing portfolio with A321-200P2Fs, after the lessor told Cargo Facts in April that it expects to take redelivery of ten more EFW freighter conversions by yearend. At least eight A321s were undergoing conversion at various MRO sites globally in late April. Greenwich Highland Aviation converted the 2001-vintage unit 1438 (ex-AtlasGlobal) with 321 Precision Solutions. Unit 1438, which will soon enter service with Miami-based Global Crossing Airlines (GlobalX), was the first aircraft to enter the 321 Precision Conversions line at the HAECO Americas facility in Lake City (LCQ). [caption id="attachment_56864125" align="alignright" width="450"] More lessors are sending A321s for conversion. (Photo/SmartLynx)[/caption] GlobalX expects to take delivery in July of a 2001-vintage A321-200PCF (1451, ex-Fly2Sky) on lease from Aerovista. Unit 1451 arrived at McConnell Air Force Base (IAB) on March 18 and will become the first aircraft to exit the new 321 Precision Conversions line there. The new carrier took delivery of its first A321-200PCF on lease from Singapore-based ST Engineering in January and is looking to take delivery of six more A321Fs by the end of the year. ST Engineering delivered Raya Airways’ first A321-200P2F (1293, ex-Sky Angkor Airlines) in April as part of a 2022 lease agreement for two A321-200P2Fs and two A320-200P2Fs after the carrier announced a lease agreement with CAM in March 2022 for at least two A321-200PCFs. The first of those two A321-200PCFs (1972, ex-Thomas Cook Airlines) was spotted in the airline’s livery at the PEMCO facility in Tampa (TPA) in early June. Two major lessors began accumulating A321F inventory in 2022, with AerCap placing a conversion order with EFW in October for fifteen A321-200P2Fs and an option for fifteen more, and JLPS Ireland signing an agreement with EFW for up to five A321-200P2Fs. JLPS took redelivery of the first A321-200P2F (1207, ex-Windrose Airlines) in the fourth quarter of 2022 and the second (974, ex-Onur Air) in May 2023. A fresh sign of support for A321 conversions was endorsed by Japan-based Fuyo Lease Group subsidiary Fuyo General Lease and new leasing company Nexus Aviation Ventures. Leasing companies continue to grow their portfolios with modernized freighters and express optimism in the midst of the declining demand for air freight. Lessors confident in market demand When giving his presentation at the inaugural Cargo Facts LATAM conference in Panama City, George Dimitroff, head of valuations at Ascend by Cirium, said lease rates for 737-800Fs are starting to soften, declining from $200,000 to $175,000 per month. As 737-800 freighter supply increases, lessors are going to have to look beyond their normal markets to put them on lease, Dimitroff said. Surplus of narrowbody freighters will create an opportunity, Copa Airlines Senior Director of Cargo Jaime Alvarez said at the CF LATAM conference. “In terms of availability of aircraft right now, we might find a lessor that could give us a good deal,” Alvarez said. “Maybe I’ll get so much demand to fly a 737-800F that we could get two or three more. We’ll see.” The widebody sector continues to instill confidence in lessors as orders mount up. CAM confirmed during its quarterly earnings call in May that it had secured customers for all but three of its thirty-four 767-300BCF and -300BDSF conversions through the end of 2024. Overall, industry executives agree that the air cargo market is cyclical and variable, and they are accustomed to periods of growth and decline, but what gives them reassurance in this year of uncertainty is the future void that has to be filled, particularly in the widebody segment. “The pending retirement of older freighters and passenger airlines decreasing carrying volume by 30% due to smaller aircraft are other factors favoring demand for freighter lift returning,” Fatih Cigal, senior vice president of cargo marketing at Turkish Airlines, said at the Cargo Facts EMEA conference in Dubai in February. At the Airline Economics conference in Dublin earlier this year, Titan Aviation Leasing’s Forbes said that he is confident about widebody freighter leasing. “I think the market has been really resilient,” he said. “We’re seeing strong demand in a resilient market, which means lease rates certainly hold up very, very well.”

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