Israel Aircraft Industries (IAI) announced Monday it will develop a program for converting Airbus A330-300 passenger aircraft into cargo freighters and produce 30 of them for Dublin-based Avolon, the third-largest aircraft leasing company in the world, between 2025 and 2028.
Avolon is entering the air cargo market sector for the first time, seeking to capitalize on favorable conditions. All 837 of the aircraft it owns, manages or has on order — including 54 A330-200/300s — are passenger models.
The large initial order to remodel the medium-size widebody aircraft secures limited production space for Avolon and reinforces how intense demand for all-cargo aircraft has become among express carriers and general cargo operators as the airfreight market quickly picks up altitude.
The International Air Transport Association on Monday projected air cargo revenue in 2021 would reach $175 billion, more than $50 billion better than last year’s record. Boeing and other forecasters say volumes are expected to double over the next 20 years, with average compound annual growth of about 4.7%. The boom in e-commerce is a major factor behind the need for more aircraft. Online transactions represent nearly 20% of total retail sales, according to Statista. Planes provide online retailers faster transit times from many more origin points to help meet customers’ delivery expectations.
“This agreement signals Avolon’s intention to be a leading player in that expansion,” Avolon CEO Dómhnal Slattery said in a statement.
IAI would follow Elbe Flugzeugwerke (EFW), a joint venture between Airbus and Singapore’s ST Engineering, in remodeling the A330 into a cargo configuration. EFW has only converted a dozen of the aircraft so far (nine -300 variants plus three -200s) because the aircraft is still relatively young. More are available at reasonable prices now because cost-cutting passenger airlines, aligning fleets to lower travel demand during the pandemic, and preferring newer planes that burn less fuel are discarding many of them.
Midway through 2021, there were 249 A330-200s and 245 A330-300s in storage, Leeham News reported.
Parcel carrier DHL is the largest customer so far, taking eight converted -300s.
EFW is increasing its conversion capacity to the point that it will be able to induct about 60 aircraft per year for conversion — about 30 each for the A330 and the new A321 narrowbody conversion programs — by 2024, up from 19 conversions it expects to carry out this year, said spokeswoman Anke Lemke. The company is setting up a new conversion line in San Antonio for the smaller A321 program that is scheduled for completion by the end of the year. It also plans to establish production facilities in China and the U.S. for the A330 reconfiguration in 2022, she said.
Nearly all of EFW’s production slots for the A330 have been booked through 2026 and the company is fully booked through mid-2024 for the A321 program, Lemke said.
As the launch customer, Avolon will help IAI develop its supplemental type certificate — the approval granted by regulators to modify an aircraft from its original design.
The A330-300 is positioned as a competitor to the Boeing 767, which currently owns the market for twin-engine, medium widebody aircraft. More than 200 of them have been converted by IAI and Boeing’s authorized partner, ST Engineering, in Singapore. It has a maximum payload of 67 tons and a range of more than 3,600 nautical miles. The converted model will have up to 27 main deck pallet positions, one more than the 767, and will improve cargo loading capacity due to a unique cargo door placement. Those characteristics will make the plane very efficient to operate, IAI said.
The -300 version is longer and well-suited to carry lighter e-commerce parcels because of its extra volume.
During a virtual media briefing in May, IATA Director General Willie Walsh talked about the growth of e-commerce and called the A330 “a very efficient aircraft with great cargo capacity” that is a good candidate for conversions.
The 767 has mostly been popular with North American operators such as Atlas Air (NASDAQ: AAWW), Air Transport Services Group (NASDAQ: ATSG) and Amazon (NASDAQ: AMZN). Experts say the A330 will likely go to companies that already operate Airbus aircraft. But a limited supply of used 767s for conversion and the fact that EFW is setting up a conversion line in the U.S. suggests that U.S. and Canadian cargo airlines will adopt the A330 too.
IAI is a long-established aircraft engineering and conversion house. In addition to the 767, it also remanufactures various models of the Boeing 737 narrowbody jet and the Boeing 747 jumbo jet (although none of those are being produced anymore because they burn too much fuel and are expensive to operate).
IAI also is developing the first cargo conversion for the large Boeing 777-300 aircraft, which is scheduled for delivery in 2023. In August, the company signed an agreement with Etihad Engineering, part of the Etihad Aviation Group, to establish a passenger-to-freighter conversion site for the 777-300 in Abu Dhabi that will supplement IAI’s Tel Aviv facility. The deal was made possible by the diplomatic opening between Israel and the United Arab Emirates in 2020.
IAI achieved 22% growth in net income in the first half of the year, to about $100 million, and midyear sales of $2.2 billion, the highest level of first-half profitability and sales in company history. The company is also active in the defense industry, supplying satellites, weapon systems, robotics systems, cyber technology and unmanned aerial vehicles. In commercial aviation, it is a large provider of aircraft maintenance and manufacturing, business jet conversions and aerostructure development.
Avolon is 70% owned by an indirect subsidiary of China-based Bohai Leasing Co.
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