Is there an overkill of (converted) freighters?

One of the key topics at Dubai Airshow has been the growth of the freighter market. With the launch order for the Airbus A350F, Embraer announcing it will enter the freighter market, and Boeing and some of its customers saying they will expand the passenger-to-freighter activities, there is real momentum here. Is there an overkill of (converted) freighters? We have a detailed look. Whichever airframer you talk to, they all see that there is sustained growth of the freighter market now. In its Commercial Market Outlook presented in September, Boeing says the full-freighter market will grow from 2.010 aircraft in 2019 to 3.435 in 2040. This includes 440 new medium widebody and 450 large widebody aircraft, plus 1.200 single-aisle and 520 wide-body conversions. In Dubai, Boeing wasn't ready to launch the 777X Freighter but that is a matter of time. Airbus is more conservative in its Global Market Forecast, projecting growth from 2.030 full freighters in early 2020 to 2.980 in 2040. With 540 freighters staying in service 1.490 to be replaced (some 500 large/900 smaller aircraft), and 950 for growth, that’s a net increase of 2.440 aircraft. Airbus says 1.560 will be conversions and 880 newly built freighters. Slide from the Airbus 2021-2040 Global Market Forecast. (Airbus) For the first time, Embraer has included the freighter market in its market forecast that was presented in Dubai. It looks at the smart and crossover standard body aircraft, which saw 296 aircraft in service in 2019. This will grow to 727 in 2040, confirming a trend of conversions in this segment that has been ongoing since 2013, with 70 percent of all conversions in the standard-body (single-aisle) market. In 2040, Embraer expects 40 percent conversions for large standard-body aircraft, 18 percent for small and crossover-body aircraft, while 52 percent of the conversion market will be taken by widebodies. These are jets only, as at the lower end of the freighter market there are turboprops. Slide from Embraer's freighter forecast, also presented during Dubai Airshow. (Embraer) E-commerce will continue very strong These are the forecasts. But is this really what is happening out there in the market and will the freighter/air cargo market be at a sustained level? It has been able to grow so strong since the start of the pandemic in March 2020 as belly cargo capacity collapsed when airlines massively reduced flying. As passenger traffic recovers, will the demand for freighters back off again? Ted Colbert, CEO of Boeing Global Services that runs the 737NG and 767 Boeing Converted Freighter (BCF) programs, doesn’t think so. During a pre-Dubai Airshow media briefing, he said: “We are really close to our customers and ask them: what does the future look like, what capacity will show up in the belly versus needs for conversions and new planes. It is obviously very dynamic. We also keep track of their views on how strong is the e-commerce market going post-pandemic. All forecasts that we see are that it will continue really strong. We are being careful with the amount of capacity we put in the place and our investments.” Ihssane Mounir, Senior Vice President of Commercial Sales and Marketing, added: “When you look at the conversions, that’s a phenomenon that started before the pandemic and was driven primarily by the boom in e-commerce in parts of the world that we're pretty low on that for a while. We started the strategy of putting conversions lines in China and everywhere for the 737, primarily driven by that boom. That’s going to continue, you are going to see it in just about every market. There were lots of aircraft that were being reactivated to be part of the supply chain. They were parked in the desert and because of the lack of capacity, all these airplanes came back in. These airplanes want to go back to the balance, so that balance is going to find itself again. Pre 2019, we couldn’t put enough 737 conversions out there to satisfy the market.” Bigger freighters tend to be newer ones Mounir’s view is shared by Airbus colleague, Chief Commercial Officer Christian Scherer: “I believe there will be so much demand for dedicated freighters. I want to point out that the smaller the freighter, the more it tends to be a converted passenger aircraft, and the larger the freighter, the more it is a new dedicated freighter. (…) The bigger the airplane and the longer range, the more important the efficiency of the machine is. That’s where the efficiency of an A350F comes in. So we will see a shift towards dedicated A350 freighters and a little bit away from converted airplanes that by definition are older and more fuel-consuming. (…) Our A350F is the only new freighter proposition that is on the table today that can serve the demand for 540 large new freighters.” Airbus says the A350F is the most efficient new big freighter out there. Until Boeing launches the 777XF, that is. (Airbus) The launch order from Air Lease Corporation (ALC) for seven A350’s on the second day of Dubai Airshow bucked the trend that the US lessor never has had full freighters in its portfolio before. But as CEO John Plueger said: “We respond to market demand. It’s very clear that we believe that especially e-commerce is a very stabilizing factor in the freighter market and a growth factor.” Executive Chairman Steven Udvar-Hazy added: “We see dual trends. One is the conversion of existing widebody and single-aisle aircraft into freighters as they meet the second part of their economic lives. That’s been an ongoing process since the jet age has begun. Then secondly, we see a market for dedicated freighters that are brand-new aircraft. Those are the ones that are the most capable in terms of payload and range, fuel consumption. We actually believe there is sufficient demand even with the redeployment of widebody aircraft within the next two to three years as international markets develop and travel returns but there is actually sufficient demand for both.” As far as the low-end of the freighter market is concerned, Embraer is keen to fill the void that it thinks is out there for converted E-jets or even new freighters said CEO Commercial Aviation, Arjan Meijer: “We have looked at it for a long time, but the E-jets were a bit young. It was still expensive to do a conversion. We now believe that the aircraft is reaching an age that economically makes sense. Plus, we see a huge cargo up-tick with an e-commerce market that is ever emerging. So cargo operators are looking at ways to fly deeper into the veins of the network. That’s where the size of an E-jet is just missing in the range. There is an ATR and then you go to narrowbodies, there is nothing in the middle.” IAI anticipates higher demand for freighters than OEMs While Airbus likes to think that demand for new, long-haul freighters will grow, the reality is that never before, there have been so many P2F conversion programs. The aforementioned BCF ones, but also Airbus’ A330 line with Elbe Flugzeugwerke or the A321 program with Vallair. One of the most active is Israel Aerospace Industries (IAI) which has a long history of conversions. It has been the first to offer the Boeing 777 converted freighter with GECAS (now AerCap). During Dubai Airshow, it announced a historical agreement with Emirates to convert four 777-300ERs. IAI is working on the first 777 for a few months but is already offering triple seven conversion slots in Israel, South Korea (with Sharp Techniks), and Abu Dhabi (with Etihad Engineering). It also does 767 conversions at home, in Mexico, and in Ethiopia (with Ethiopian), 737NGs, and will start a new Airbus A330-300 line in 2025 for Avolon. Emirates will have IAI convert four of the 777-300ERs into full freighters. The 777 has a huge future as a converted cargo aircraft, says IAI. (Emirates) IAI, which was present at Dubai Airshow for the first time ever, has had little to complain, says Vice President of Marketing, Eyal Eckstein. “The pandemic has caused a huge change in e-commerce. Amazon, Ali Express, ebay, all e-commerce sites have created huge air cargo traffic all over the world while belly capacity has decreased. As a result, cargo airlines demand more and more transport capacity and drive aircraft demand. According to our research, this trend will remain there for the next decades.” While not specifying, IAI anticipates an even higher demand for freighters than the 950-1.400 projected by Airbus and Boeing, notably that of widebodies that reach the retirement age in passenger service. While the 767 is the most popular type right now in IAI’s portfolio, the 777 will soon take its place. “The 777, for which we started the STC program, will definitely dominate the skies for the upcoming twenty years, mainly for the e-commerce”, says Eckstein. The A330 could have a second chance But don’t rule out the Airbus A330. The -200F has never been as popular as the A300-600F. Christian Scherer was involved in the A330 and says he is partly to blame for that. “The A330-200 had more range and structural capability than the -300. We went for a compromise between range and structural capability but it was neither a heavy cargo freighter nor optimized as an express cargo freighter. And it has been the express segment that has expanded the most. If there was a mistake, we could have been more successful with the -300 which would have been more optimized for the express market. The beauty with the A350 is its structural capability and its range, inherent with the efficiency of that light airplane, makes it capable for heavy cargo and also extremely effective on the express market.” But as a P2F, the A330-300 has a new chance, says Eyal Eckstein. Lessor Avolon has launched a conversion program with IAI from 2025 for twenty aircraft and there are more interested parties, says Eckstein: “There is certainly more to come.” And then the Israeli company has various 737 conversion programs. New freighters and converted freighters can sit perfectly in the same market, says IAI’s marketing vice president, although conversion is much cheaper than buying a new full freighter. “There is enough room for both Boeing and Airbus with their new aircraft and for the converted aircraft from IAI and its competitors. We are living in a world in which there is huge demand.” The Airbus A330-300F conversion program by IAI follows Airbus' own initiative with EFW. (Airbus) Etihad partners with IAI on 777 conversions Right now, IAI and its associated partners have the capacity to convert some twenty 777s per year. To grow capacity, the Israeli company has partnered on 777 conversions with Etihad Engineering. Not long ago a relationship between an Israeli and Arabian company would have been impossible, but this has changed after the UAE recognized the state of Israel. Partnering with IAI just came at a moment when Etihad Engineering wanted to enter the conversion market, having done only minor modifications until now. “We have had earlier discussions with other companies, but the approach came from both IAI and Etihad to work together when they were looking to go into the 777 markets”, says Maria Sebastian, Director Transformation, Business Development & Strategy at Etihad Engineering. “It’s still new, it’s still fresh, it’s trying to replace the 747-market and all the other freighter market when you are looking at the big volumes we are talking about. We couldn’t have chosen a better partner to enter than IAI.” Potential customers for a 777 conversion will first contact IAI, which then looks where capacity is available. “The first year, Etihad plans one conversion line which can do two aircraft. Once we have successfully completed the first two, then we will look into a second line. Once we get to the optimized turnaround times, each will take four to five aircraft per year. But we still have to pass our learning curve”, explains Sebastian. Etihad Engineering will send its engineers to Tel Aviv to be trained for the program, which is expected to start work on the first 777 in Q1 2023. That’s unlikely to be one of Etihad’s own 777s, as the Abu Dhabi airline has a fleet of young aircraft. Boeing cautious with adding its own 777 conversion capacity So expect quite a few 777 to change roles in the coming decade, when around 2025 the oldest passenger aircraft are phased out but have some life left as a converted freighter. With IAI as the dominant party to convert triple sevens, Boeing is taking a cautious approach to add the type to its own BCF program, said Boeing Global Services’ Ted Colbert: “We continue to evaluate the opportunities with 777 conversions. Obviously, the 777 conversion versus the 777F goes towards different types of customers, so there are different discussions going on about the needs. We are very careful about building up too much infrastructure around the product. Our strategy in the converted market is to keep an asset-light approach of the company perspective. We do partnerships around the world.” However, Boeing actually announced the opening of three new 737-800BCF lines in the coming years, one in the UK and two in Canada, Is there an overkill of (converted) freighters, it was asked a few times during Dubai Airshow press conferences? Definitely not, is what the OEM’s and companies like IAI and Etihad Engineering say.

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