Israel Aerospace Industries launched a B737-700P2F conversion program through its MRO and conversion arm, Bedek Aviation Group. Alaska Airlines is the launch customer for the program with three firm orders plus an option. Bedek expects certification in mid-2016 with delivery of the first converted aircraft by the end of 2016. Alaska’s cargo fleet consists of one B737-400(F) and four B737-400(M)s used on flights throughout rural Alaska as well as to the mainland United States.  With the earliest 737-700s now approaching the end of leases, the question of whether they can be re-leased in a market that seems to be moving upward in size is on the minds of lessors.  With this, and competing P2F programs, they now have options.

This latest move by IAI in the P2F business highlights a few items: IAI continues to demonstrate its excellent capabilities, and long legacy in the P2F conversion market. It is also converting 767-300ERs to tankers for both local and export markets, no doubt much to the annoyance of Airbus and Boeing, who don’t appreciate a lower cost option with a near match in capabilities.

Finally, it also demonstrates how Airbus continues to miss out on a key segment of the business. Owners of A320 family aircraft must wonder why it is that after useful lives in the passenger business, their aircraft have no second life as freighters. There have to be many used A319/320s that could be moved into the P2F space. Indeed the A321 by all appearances, looks to be the best potential replacement as a 757 freighter – just as it does for passenger use. We understand that there are technical complications in converting the Airbus, but the P2F market seems to warrant the investment. Even though P2F is a niche market, the sheer size of the A320 family fleet deployed to date has to warrant this.

Meanwhile, residual values for Boeing aircraft that can be converted to freighters remain a bit higher than the oldest A320 models, which currently have no option other than being parted-out for spares.

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