FREIGHTER
CONVERSIONS
CONVERSIONS
BY NUMBERS
3+ freighters needed
to create the
optimal airline business
unit
Conversions post COVID-19
Freighter conversions were once a niche pursuit, as airlines prioritised
fleets towards servicing soaring passenger volumes. Then along came
the pandemic, as Max Gosney reports.
Welcome to a fictional
airline’s daily
COVID-19 crisis call.
Zoom is filled with solemn
faces as tumbleweed whips past
the fuselages of row upon row
of parked aircraft in the
background. The airline’s CEO
speaks in sombre tones while
outlining 90% reductions in
pax volumes amid the
catastrophe that is the
coronavirus crisis. There’s
nothing we can do, all present
agree, but sit it out.
And then somebody
interjects: “Guys, I think I
might have a solution.” To
raised eyebrows all round, he
continues: “Why don’t we
convert some of the fleet to
freighters?”
Conversions: until six
months ago it was a niche
market with fewer than 100
commercial aircraft converted
to carry freight in 2019. But
then along came COVID-19,
shattering pax demand,
grounding fleets and
reinvigorating conversions as a
serious airline revenue
generator.
“We definitely will be doing
a lot more on our Teleport
business side (cargo),” reveals
Javed Malik, Group Chief
Operations Officer at AirAsia,
while speaking at a Webinar on
the impact of the coronavirus
on Asian aviation. “We will be
looking at aircraft we can
convert to dedicated cargo
freighter aircraft. That’s the
level of investment we are
willing to make; we see the
potential in the ASEAN market and we really want to go for that
market quite aggressively.”
AirAsia isn’t the only tail fin you can expect to see taxi-ing
towards the cargo warehouse with increasing regularity. American
Airlines launched its first cargo only flights since 1984 this March,
while Air France/KLM boosted schedules to deliver over 300 flights
a week to 67 destinations. Overall, all-cargo flights represented
14% of all flight movements in Europe this May, compared to 2%
for the same point last year, EUROCONTROL data shows.
The coronavirus pandemic has ignited activity in a market that
was already experiencing a latent mismatch between supply and
demand. An “immediate and severe air cargo capacity crunch” was
proclaimed by IATA this April. Global demand for moving cargo in
the skies may have fallen 28% compared to April 2019, but the
capacity to deliver those goods fell 42%. The shortfall has been
accentuated by the lack of belly space on pax flights (down a
whopping 75%) as COVID-19 rips up schedules.
The prevailing conditions lend themselves to a very busy year
for conversion houses. “We’ll see cargo reinstated in the market
place as a result of the pandemic,” explains Alistair Dibisceglia,
Chief Leasing & Trading Officer at Vallair, a full service provider
for airlines looking to lease/purchase and finance aircraft and
aircraft conversions. “Cargo has lower yields compared to pax, but
is largely immune to an event like COVID-19 because people need
to send goods around. In my opinion, we will see that many more
airlines have cargo units within their fleet going forward.”
The business case is made even more compelling by a volte-face
in finding and financing candidate aircraft (pax aircraft that have
reached the end of their service life, typically of around 18-21
years), adds Dibisceglia. “In our recent past, before COVID, we
were struggling to find aircraft. Everything with two wings was
Conversion houses like AEI are witnessing strong
demand for B737-800 and B737-400 products
mainly being deployed for
passenger purposes and pax
numbers kept on growing.”
The shortage was also
compounded by the grounding
of the Boeing 737 MAX, says
Dibisceglia. Airlines clung ever
more tightly to narrow-body
incumbents like the A321. The
first A321F aircraft is planned
to enter into the market this
summer, adding to the
candidate aircraft stock.
Dibisceglia comments: “The
crisis is likely to have released a
lot of assets. Potentially, A321s
will arrive on the market, so we
can have plenty of
opportunities to buy the right
stock at the right price, and the
same with the engines. Due to
the unprecedented numbers of
aircraft now sitting on the
ground, potential valuable
feedstocks for freighter
conversion can be obtained
more easily. Values typically
drop by an average of 15%, but
depending on the aircraft and
vintage, potentially more than
15%.”
Savings that finance houses,
like Vallair, can then pass
through to potential airline
customers, according to
Dibisceglia.
“We want to reduce the
price as much as possible. If I’m
able to lower the cost then the
better it is for everybody. I want
my customers to continue to
operate the aircraft in a way
that maximises profitability for
24 June 2020 www.airlogisticsinternational.com
/www.airlogisticsinternational.com