A flurry of new orders for converted and new-build freighters since Friday, as well as Boeing’s decision to establish more production lines to retrofit used passenger planes to carry cargo containers, further demonstrates aviation executives’ confidence in the long-term growth prospects for air cargo.
Air Lease Corp. (NYSE: AL) announced at the Dubai Air Show that it will be the launch customer for Airbus’ large A350 freighter with an initial order for seven planes. Boeing said Emirates cargo division is buying two 777 widebody freighters, while DHL Express signed up for nine converted 767s and a leasing company in Iceland opted to convert 11 737-800 small jets. The U.S. manufacturer is also adding three production lines to help meet customer interest for standard freighter conversions.
Demand for air cargo accelerated during the COVID pandemic with the drastic reduction in international passenger flights, the surge in e-commerce orders and extensive delays in ocean shipping. Cargo throughput is up about 9% over 2019 levels, according to the International Air Transport Association. Consulting group Seabury, now part of Accenture, estimates air cargo volumes will grow 6% next year.
Both aircraft manufacturers project continued strength for airfreight due to positive long-term trends.
Boeing’s 2021 Commercial Market Outlook forecasts increased demand for dedicated freighters, including new and converted models. By 2040, the global freighter fleet will be 70% larger compared with the pre-pandemic fleet.
There are several structural drivers behind the demand for all-cargo aircraft. Passenger belly space likely won’t return to pre-pandemic levels for two or three years, so shippers will seek out more freighter capacity, analysts say. With fewer passenger flights subsidizing cargo costs, those that operate freighters are likely to enjoy higher yields. Meanwhile, widebody passenger planes sold poorly at the Dubai Air Show suggesting that airlines are shifting more capacity to smaller jets on point-to-point routes, but with less ability to carry large amounts of cargo.
Before the pandemic, passenger aircraft represented 55% of global air cargo capacity. Boeing says the long-term trend is for dedicated freighters to carry more than 50% of global air cargo traffic. Contributing factors behind the shift include not enough passenger belly capacity on some key trade routes; passenger schedules that don’t meet shipper timing requirements; increased demand for hazardous material and project cargo that passenger planes can’t serve; and payload-range considerations on passenger aircraft that may limit how much cargo is carried and result in shipments being bumped to later flights.
E-commerce is by far the biggest tailwind behind air cargo, but the volume of pharmaceutical and perishables shipments are also increasing.
Another favorable condition for air cargo is that trade is growing faster than global GDP. Plus, more companies are diversifying their supply chains to promote resilience and air transport can help connect those supply nodes, especially when they are new.
Boeing projects air cargo traffic will double by 2039 with annual growth of 4.1%, including express shipments.
Airbus’ 20-year forecast calls for a 2.7% annual volume growth in general cargo, representing about three-quarters of the market, and 4.7% growth for express freight. During the period, the industry will need about 2,440 freighters, of which 880 will be factory built – 40 more than it predicted in 2019.
Airbus (DXE: AIR) formally launched the freighter variant of the popular A350 widebody passenger plane earlier this year. It is 20% more fuel efficient than other large all-cargo aircraft and will meet 2027 international emissions standards, according to Airbus.
Cutting a cargo door could be trickier with a carbon-fiber fuselage, but experts say Airbus could benefit from the original decision to use panels instead of a barrel sections as Boeing did with the 787.
Airbus is reportedly in talks with several cargo airlines about the new all-cargo aircraft. Possible candidates include FedEx Express, UPS, Singapore Airlines, Lufthansa, Cathay Pacific, Etihad and the newly merged Korean Air and Asiana Airlines, according to The Air Current. Air Lease is discussing leases for the A350s with seven airlines for placement in 2026, but nothing is finalized yet, Leeham News & Analysis reported.
Airbus officials say the A350 will be lighter and have a larger cargo door and sturdier flooring than its main competitor in the large freighter class, the Boeing 777, according to Leeham News & Analysis. The A350 has 10% more volumetric space than a 777 with a payload of 109 tons, 4.5% more than the 777, the aviation publication said. Airbus officials say the empty weight difference and more modern engines will give the A350 an advantage in operating cost.
First deliveries are likely by late 2025 or early 2026.
Spokespersons for FedEx (NYSE: FDX), UPS (NYSE: UPS) and Lufthansa were noncommittal about specific purchase plans, adding the companies constantly evaluate new aircraft for their fleets and the market to meet evolving customer needs.
Airbus has not been as involved as Boeing in producing freighters but is pivoting because of robust growth forecasts for air cargo and the fact that Boeing won’t be able to produce 767s and 777s with older designs after new international emissions standards kick in in 2027.
The market didn’t accept the Airbus A330 as an effective freighter. Based on the -200 variant, it didn’t have the structural integrity to handle heavy freight, while also being shorter, and having less volume for lighter packages, than a -300 variant would have. That compromise doomed its prospects, Airbus officials now admit.
Airbus only delivered about 40 aircraft and the rest of the orderbook was canceled. In recent years, Airbus has put more emphasis on producing converted freighters. The modified A321 narrowbody jet is attracting strong interest from express carriers and other operators since hitting the market in the fall of 2020 and Airbus’ overhaul shop is expanding to keep up with orders for the converted A330-300.
Last summer Air Transport Services Group (NASDAQ: ATSG), a large operator of Boeing 767s, said it will acquire 20 A330-300s and send them to Elbe Flugzeugwerke (EFW), an Airbus joint venture, to be rebuilt with a wide cargo door and reinforced main-deck flooring so heavy pallets and containers can be loaded where passengers once sat.
EFW is expanding production lines in the U.S. and China so it can modify more A321s and A330s.
Boeing (NYSE: BA) is developing a next-generation freighter called the 777X, but the certification process has been pushed back several years by technical snags and distraction associated with the 737 MAX grounding.
On Monday, the Chicago-based airframer announced that Emirates, the second-largest non-express cargo carrier in the world, ordered two 777 freighters. Emirates SkyCargo currently operates an all-Boeing fleet of 10 777 cargo jets and utilizes space in its large passenger fleet.
Boeing has received more than 300 orders for 777 freighters since 2005.
Boeing all-cargo retrofits
Boeing announced that DHL Express committed to convert nine more 767-300s into freighters as it continues to expand its long-haul intercontinental fleet in response to increased global demand for aircraft to carry freight traffic. The deal represents the express delivery company’s largest single order for the medium widebody aircraft
DHL previously sent eight aircraft to Boeing for retrofits, seven of which have been delivered and are leased to DHL partner airlines in the Middle East and Latin America.
The 767-300 is prized by express carriers and their contractors for its versatility, with a maximum payload of 113,900 pounds, range of 3,345 miles and low operating costs. Carriers such as FedEx, UPS and Amazon (NASDAQ: AMZN) operate large numbers of production and converted 767s.
DHL Aviation, the in-house airline of DHL Express, recently decided to concentrate operations at its East Midlands Airport hub in the U.K. on long-haul international flights by adding more 767s, introducing large 777 freighters and moving smaller Boeing 757s to Austria to serve the regional market in Europe. In January, DHL placed an order with Boeing for eight factory-built 777s.
Boeing also announced Tuesday (Nov. 16) that Air Tanzania will purchase a 767-300 freighter.
Boeing has more than 100 orders and commitments for 767 conversions so far. Israel Aircraft Industries offers a separate 767 conversion program.
The company also announced that Icelease, an aircraft leasing company in Reykjavik, Iceland, signed a firm order for 11 737-800 conversions and that it plans to add three production facilities in North America and Europe so it can modify more single-aisle jets for dedicated cargo activity.
Boeing will open a conversion line next year at its maintenance, repair and overhaul (MRO) facility at London Gatwick airport and two hangar spaces in 2023 at KF Aerospace, a licensed structural modification specialist based in Kelowna, British Columbia.
Icelease, which was spun off from Icelandair in 2005, will take the initial slots at Gatwick facility. It is adding cargo aircraft to its portfolio with the help of Corrum Capital through a joint venture, Carolus Cargo Leasing formed in 2019.
“We are confident in the quality and proven record of Boeing’s 737-800 converted freighter and pleased to be the launch customer for their new London MRO facility,” said Magnus Stephensen, senior partner at Icelease. “We look forward to bringing the freighter into our fleet to serve our growing global customer base operating domestic and short-haul routes.”
Boeing forecasts 1,720 freighter conversions will be needed over the next 20 years to meet demand. Of those, 1,200 will be standard-body (narrow) aircraft. Passenger-to-freighter conversions are projected to set a new record of 140 in 2021, according to research firm Cirium, with new orders surpassing 330 and counting.
Earlier this year, one of Boeing’s three partners in China, Guangzhou Aircraft Maintenance Engineering Co. Ltd. (GAMECO), added a third conversion line for the B737-800 and is scheduled to open two 767 conversion lines next year. More capacity is being built in Costa Rica, where airframe maintenance and repair specialist Cooperativa Autogestionaria de Servicios Aeroindustriales plans to open two production lines next year to install Boeing modification kits.
Most modification shops are booked up for months or years because of the high demand and delays could build without extra production capacity.
KF Aerospace has extensive experience modifying older Boeing products and maintaining 737-800s. It also does 737-800 conversions under license to Miami-based Aeronautical Engineers Inc., a Boeing competitor that has a different conversion design.
AEI also scored new business, announcing Monday it will provide Austin, Texas-based Aero Capital Solutions with 13 additional 737-800 freighter conversions. Once all deliveries are completed, Aero Capital will have 34 converted freighters in its fleet, making the company AEI’s largest customer to date for the 737-800.
The first aircraft of the new order will commence modification in March, with all modification and maintenance requirements to be performed by Commercial Jet, an authorized conversion center in Miami. The remaining 12 aircraft will be modified and distributed between Commercial Jet, KF Aerospace and HAECO Xiamen in China. The last aircraft of the order will begin modification in December.
Last week, Aircastle Ltd., which manages 264 aircraft under lease, ordered four 737-800 freighter conversions from AEI. All four planes will be modified by KF Aerospace, with the first plane scheduled for reconfiguration in July and the final plane arriving for its remodel in March 2023.
AEI says its main-deck configuration allows for an additional container spot and easier loading. It also puts the cargo door in a slightly different position.
The Boeing 737-800 conversion program has received more than 200 orders and commitments since starting four years ago, according to the company.