Air Transport Services Group has contracted with Boeing for the first time to convert four more used 767-300 passenger planes to a full cargo configuration as it expands its fleet to meet growing shipping demand, the aerospace manufacturer said Wednesday.
ATSG (NASDAQ: ATSG) is the world’s largest lessor of 767-300s and owns two cargo airlines that operate more than 90 Boeing (NYSE: BA) 767 converted freighters for customers such as Amazon (NASDAQ: AMZN), DHL Express and the Defense Department. For two decades it sent B767s for conversion to Israel Aircraft Industries.
The first plane is slated to enter the remodeling shop in August 2022, followed by one in December and the remainder in 2023, ATSG Chief Financial Officer Quint Turner told American Shipper. All the planes will be leased to customers by 2024.
Demand for converted 767 freighters has increased substantially during the past two years as the business-to-consumer online market heavily served by express carriers grows at exponential rates. The medium-size widebody aircraft are popular for mid-to-long-haul express routes because acquisition prices are reasonable and the planes hit the sweet spot in size — not too big to have leftover space and small enough to fill quickly for rapid turnaround on shuttle runs.
“Strong customer demand for converted 767 freighters and a sizable order backlog is the driver in seeking a second conversion source at this time. It also diversifies our production sources to fill customer demand for leased aircraft,” Turner said via email.
In August, the provider of bundled transportation services said it had placed deposits to secure 67 production slots for freighter conversions starting next year through 2025, 47 of them for 767s.
Most overhaul and engineering shops that reconstruct aircraft for heavy cargo are booked solid. Production lines can only manage a few conversions a year, forcing leasing companies and aircraft operators to wait longer for work to be completed.
ATSG, based in Wilmington, Ohio, gets used aircraft from a variety of sources in the secondary market, including passenger airlines that are modernizing or downsizing their fleets.
The company has a hybrid business model in which it leases aircraft to airlines and logistics companies through leasing subsidiary Cargo Aircraft Management (CAM), and then offers turnkey services, such as crew and maintenance, for those that don’t actually operate aircraft but want dedicated capacity they can control. ATSG, for example, has placed several aircraft with UPS (NYSE: UPS), which operates its own fleet. Its cargo airlines are ABX Air and Air Transportation International.
CAM currently owns 15 B767-300s and one Airbus A321-200 that are either undergoing, or scheduled for, conversion.
“Our continued confidence in the 767-300 platform, now coupled with the services and support of the original equipment manufacturer, reinforces our commitment to deliver best-in-class reliable services to our customers,” said Mike Berger, ATSG’s chief commercial officer, in a statement.
Boeing says it now has more than 100 orders and commitments from customers for 767 passenger-to-freighter conversions. Having original design data on aircraft is one of the advantages of having the manufacturer reconfigure an aircraft, a complex process that involves installing a wider door and a reinforced floor to accommodate heavy containers and pallets that enable more efficient loading and unloading.
Boeing announced in late September that Chinese partner Guangzhou Aircraft Maintenance Engineering is adding two production lines for 767-300 conversions that are scheduled to open next year. The airframer also has conversion lines for the 767-300 converted freighter at ST Engineering’s facility in Singapore.
On Tuesday, the massive vessel operator and logistics conglomerate A.P. Møller – Maersk said it has leased three 767-300 converted freighters from ATSG’s leasing arm, for its in-house cargo airline, Star Air.
ATSG is also diversifying its fleet to keep up with demand. In early August, it announced plans to buy 20 used Airbus A330 passenger jets and change them into freighters.
Last summer, CAM purchased two A321 narrowbody aircraft and said sister company PEMCO will convert them into freighters under license from its joint venture, 321 Precision Conversions, that designed the conversion and worked with aviation regulators to get it approved for commercial use. The A321 converted freighter, a new entrant to the market, is competing against the Boeing 737-800. Both planes are popular with express carriers for shorter-haul routes.
ATSG is scheduled to report third-quarter earnings after Wall Street closes Thursday.
(Correction: An earlier version of this story had the incorrect day for reporting Q3 earnings.)