Icelandair has agreed to a sale-leaseback deal with a subsidiary of Atlas Air Worldwide Holdings (NASDAQ: AAWW) that recycles two Boeing 767-300 passenger planes into freighters for the cargo division and provides financial help to the company. The aircraft will replace two Boeing 757-200 all-cargo planes that the airline plans to take out of operation in 2023 and 2024, it said in a statement Wednesday.
Titan Aircraft Investments, the joint venture between Atlas’ leasing subsidiary Titan Aviation Holdings Inc. and Bain Capital Credit, said it purchased the 767s from Icelandair and will lease them back once they are retrofitted for hauling freight on the main deck.
A sale-leaseback allows a company to raise capital by selling an asset and then rent it back from the purchaser to get the benefit of using it.
Airlines are accelerating retirement of older passenger aircraft, focusing on more efficient models, as they restructure into smaller businesses in line with market conditions. Terms of the Titan deal were not disclosed, but Icelandair said the sale helps its liquidity.
Icelandair said the lease period for each aircraft is 10 years. Conversion work will begin next spring and the cargo jets are scheduled to enter service in September 2022. Until then, they will operate in Icelandair’s passenger network and as charters.
“We are very pleased to partner with Titan Aircraft Investments and Atlas Air to further strengthen our cargo business. With continued positive outlook for cargo operations post COVID, I am confident that the 767-300ER freighters will allow us to maximize new opportunities in our markets,” said Bogi Nils Bogason, president and CEO of Icelandair Group, in a statement. “These aircraft carry around 50% more freight than our current two B757-200 freighters and fit very well into our current fleet and network. Our aim is to increase the capacity in our markets, as well as strengthen Iceland as a hub for cargo, in a similar way as our passenger hub that provides attractive connections between continents.”
Fresh fish is one of the key markets supported by Icelandair Cargo. Last April, the airline stripped the seats from three 767s to help DB Schenker and other customers move larger quantities of urgently needed medical supplies around the world.
Icelandair is the latest passenger airline to put more permanent emphasis on cargo business. Many airlines have temporarily deployed passenger aircraft on cargo-only routes to take advantage of strong demand and yields while passenger business is depressed because of COVID travel restrictions. But the planes can quickly revert to regular duty as the travel market improves.
Some airlines, however, are making more permanent commitments to cargo. Air Canada recently launched an initiative to transition a few 767s into freighters for its own use, rather than simply sell them into the used aircraft market. Other carriers, such as Air Belgium, SmartLynx, Sun Country and Mesa Airlines, have added freighters to their operations for the first time. German leisure carrier Condor recently put some of its passenger planes to work on regularly scheduled routes for DHL Express under a short-term contract.
Titan Aircraft Investments now has three aircraft in its portfolio, including a Boeing 777-200 freighter. The joint venture was formed in late 2019, with Bain Capital putting up the lion’s share of the $400 million initial investment.
Titan Aviation, the Atlas freighter lessor, owns 21 767-300 Extended Range aircraft.
Dry leasing aircraft represents less than 15% of the parent company’s revenues. It also owns Atlas Air and Southern Air, and is a majority owner in Polar Air Cargo, all of which operate aircraft on behalf of other airlines, or charters for logistics companies, charter brokers and governments.