(Updated May 19, 2020, 7:20 A.M. ET)
LATAM Airlines Group has increased its order for 767-300 converted freighters from Boeing (NYSE: BA), nearly doubling the size of its freighter fleet by the end of 2023 and reducing the average fleet age from 17 to 14 years, the company announced Tuesday.
The South American carrier, which operates 11 767 all-cargo aircraft in addition to its passenger fleet, plans to add 10 of the aircraft during the next three years.
LATAM said it placed orders for two more conversions with Boeing’s program and fully committed to four tentative retrofits. It previously placed an order for four 767 conversions, with four options, in early March. The first plane is scheduled to be finished and begin operation in December.
LATAM is supplying the aircraft from its passenger fleet and will send them to Singapore where the airframe modifications will be done by Boeing’s licensed partner ST Engineering, according to LATAM.
The airline also said it will yank the seats from three aircraft as a temporary step to increase cargo capacity to 46 tons while they wait for a production slot at the repair facility. Two of the planes are already operational with LATAM’s cargo division and the third one is expected to be available later this quarter.
Last week, Latvia’s SmartLynx Airlines announced a similar interim move involving cabin cargo. It is leasing five Airbus A330 widebody aircraft for future passenger business but removing the seats to optimize cargo capacity with a roaring cargo market and long-haul travel still depressed.
A full conversion involves permanently replacing seats, covering windows, carving in a wider door for pallets, adding a reinforced floor and rigid cockpit carrier and installing a cargo-handling system.
The decision on the 767s crystallizes LATAM Cargo’s transition to a single aircraft type. The company said in its first quarter earnings on May 6 that it cancelled an order with Boeing for a new-production 777 freighter, as well as four 787s for the passenger operation. LATAM also recently retired the Airbus A350 aircraft in its passenger fleet.
A simplified widebody fleet (all from Boeing and all 767s for freighters) offers certain operational efficiencies, makes it easier to train pilots, and reduces spare parts and maintenance costs.
LATAM has previously said it accelerated planned investment in converted freighters because of robust growth in e-commerce traffic and financial stability provided by its bankruptcy restructuring. It plans to emerge from bankruptcy by the end of the year.
Expanding the cargo fleet to 21 aircraft opens growth opportunities for Santiago, Chile-based LATAM and its regional subsidiaries and increases planning flexibility.
The new aircraft will be used to increase capacity from Colombia and Ecuador to North America to support the flower industry, as well as from Chile to meet demand for salmon exports and imported goods.
“Capacity to and from Brazil will also go up as we add routes from North America and Europe, boosting both the export and import markets,” said Kamal Hadad, LATAM Cargo’s director of network and alliances, in a statement.
LATAM said it is assessing whether to put the two additional conversions to use for new projects or to refresh the existing fleet.
LATAM suffered a $355.7 million operating loss during the first quarter, with passenger revenue down 77% compared to 2019. But the cargo division generated $345.2 million in revenue, a 31% increase, despite a 30% decline in overall cargo capacity caused by a decrease in passenger operations. Cargo yield grew 61% over the same 2019 period, resulting in an 88% jump in unit revenue.
The higher cargo revenues were achieved through greater utilization of the freighter fleet and switching passenger aircraft to dedicated cargo operation, in addition to the higher yields. LATAM operated 540 cargo-only passenger flights during the quarter.