MRO: Freight frenzy

The market for widebody cargo aircraft is booming, but with the A380 delayed and 747-400s in short supply, how can manufacturers cope with demand?

Like a turning supertanker, the aerospace industry has been slow in adjusting to burgeoning demand in the cargo sector for large-capacity, long-range aircraft.

The well-chronicled delays to the passenger version of the Airbus A380 is a case in point and is at the root of what the freighter conversion industry is predicting will be a severe, albeit short-lived, shortage of an already limited feedstock of Boeing 747-400s.

The decision in March by Philippine Airlines to switch its remaining 747 orders to the 777 means that the 1,358th 747-400, delivered to China Airlines in April 2005, was the last passenger 747-400 to be built. Research by Flight's ACAS data service reveals a breakdown of current operators ranked by fleet size for that aircraft (see table).

Seattle-based Air Cargo Management Group (ACMG) in its latest 20-year freighter aircraft forecast has highlighted the relevance of this blip caused by the A380's tardiness against a backdrop of tremendous projected growth expected in freight traffic.

"Interest in freighter aircraft has never been higher, as evidenced by a record backlog of orders for new and converted freighters. Over the next three years, three new widebody freighter types will enter the market in the form of 777Fs, 747-8Fs, and A330-200Fs, all of which have enjoyed wide market acceptance," says Bob Dahl, ACMG project director.

The growth of the global widebody fleet is such that ACMG reckons that, from comprising over half of the world's fleet of freighters today, the segment is projected to attain a 64% share by 2026.

ACMG's forecast shows that the total freighter fleet will more than double in size from 1,801 units now to 3,883 units in 2026. In addition, more than 1,100 existing freighters will have to be retired over the next 20 years.

"Taking both growth and replacement into account, ACMG predicts the need for more than 3,200 new and converted freighters through 2026, an average of 160 units added per year," says Dahl. So any factor affecting a principal aircraft type in the widebody feedstock repertoire - even in the short term - stands to have a serious knock-on effect.

Even Boeing is finding itself wrestling with the drying-up of 747-400s for freighter conversion due to carriers following the incontestable commercial logic of meeting passenger demand. Programme updates issued from the Toulouse headquarters of Airbus detailing the delayed delivery schedule of the A380 has forced the airlines to do the only sensible thing and retain the largest airliners in their fleets for passenger business.

Those carriers seeking fresh freighter capacity are now being forced to ask for new aircraft, which will not be due for some considerable time. The result is that Boeing is struggling to take advantage of Airbus's problems.

Boeing regional director marketing for cargo, Thomas Hoang, at a briefing in October said: "The positive aspect of the A380 delay for us was that it was not acceptable to FedEx [which switched to new Boeing freighters instead]. The negative aspect is the delay to airlines releasing 747s for conversion. They are hanging on to them longer than expected and that is an issue for conversions."

Hoang pointed to Korean Air, which he said was planning to cut 10 747s as part of its fleet renewal, but is now releasing only eight because of the A380 delay. "That has had an impact on our strategy negatively," he conceded.

All sold out

"When I look at production planning on the 747, the 747 freighter production line is pretty much all sold out," he said. "The 777 freighter entry into service is late 2008. The 747-8F is late 2009. So there really is not any position open in 2007 or 2008. There is no availability to really take advantage of that."

Take the example of Russian outsize cargo carrier Volga-Dnepr's scheduled operation AirBridge Cargo, which late last year reported it was on the verge of finalising a deal to acquire several 747-8 freighters in an ambitious bid to secure 20-25 aircraft by around 2020-25.

AirBridge chief Stanley Wraight said then that the breakdown of new freighters and 747 conversions would ultimately depend on Boeing's ability to meet the desired timescales.

"The A380 timing has really thrown a monkey wrench into everyone's fleet planning on the freight side. In 2008-12, there will be limited conversions, but after that there should be availability," he said, concluding that AirBridge's fleet plan must therefore take account of the trade-off between new aircraft delivery-slot availability and the eventual re-awakening of the conversion market.

ACMG's Dahl points out that, even given the challenges, Boeing has everything to gain: "The impact of the A380 should certainly put Boeing at an advantageous position in about five years' time in that it has two large freighter aircraft in production, the 777F and then later the 747-8F, while Airbus has nothing to rival that in this segment."

ACMG's analysis of freighter requirements model-by-model in five-year increments to 2026 further reflects Boeing's expected dominance. "A 20-year forecast cannot really take into account the impact of something such as the A380 delays in the short term, but we opted to be a little more pessimistic than Airbus and scheduled a 2015 entry into service of the A380F. By 2026, we have forecast therefore that there will be many fewer A380Fs than we were forecasting only a year ago, which pegged entry into service at 2009," says Dahl.

Truth be told, the 747-400 conversion business is high risk given the high conversion costs, which create a barrier to entry for other players, added to the fact that the widebody market is significantly smaller and less liquid than volume narrow­body markets.

Still, the view from the handful of businesses involved in the highly specialised field of 747-400 freighter conversion remains relatively sanguine. GE Commercial Aviation Services (GECAS) has recently started converting passenger 747-400s sourced from Asian and North American airlines and today has three in revenue service.

Active in the freighter conversion market for the last five years, GECAS's Chris Damianos, senior vice-president and cargo programmes manager, still believes the 747-400's abiding popularity will continue to make it the freighter conversion of choice with many years of attractive shelf life to offer - but not at any price.

"We have up until now sourced our 747s from Asian and North American airlines although we would be prepared to go anywhere there are suitable aircraft," says Damianos. "As a general rule, we tend to convert aircraft between 15 and 20 years of age because this allows an investor to recoup his investment. While we do not normally deviate from our own guidelines if an aircraft had, say, a very good maintenance pedigree and low cycle usage that may cause us to look outside the 20-year limit," he says.

Difficult time ahead

US-based lessor Guggenheim Aviation Partners, meanwhile, is mid-way through converting nine 747-400 combi and passenger aircraft, both with Israel Aerospace Industries and Boeing. Five of the aircraft were formerly operated by Singapore Airlines, two by Air Canada and two by Malaysia Airlines.

Guggenheim managing director Paul Newrick says that, once the scale of the A380 delays became apparent, it was obvious the freighter conversion industry in this segment would be facing an extremely difficult time around 2008 due to the continued use of 747-400s in the passenger role and consequent lack of freighter conversion feedstock

The limited availability of passenger 747-400s was put under further pressure by new airlines such as Oasis Hong Kong Airlines, which has taken both ex-Singapore and All Nippon aircraft, strengthening prices in some cases above the level for viable conversion feedstock.

Guggenheim sees this situation improving slightly from around 2009 with the gradual increase of A380 deliveries, but more importantly the continuing delivery of the high-capacity 777-300ERs.

"These are big aircraft with a reasonable production rate and many airlines such as All Nippon and Air France switching to 777 routes will also enable them to release more 747s. There will also be the constant stream of 787 deliveries, which although not in directly the same size category as the 747-400 will undoubtedly have a secondary effect as this long-haul capacity is injected into the market," says Newrick.

Younger aircraft

He adds that this increase in supply will over the next few years see the release of younger passenger 747-400 aircraft into the market, providing more attractive conversion candidates in terms of remaining airframe life available

"The market pricing for converted freighters combined with the cost of around $30 million for the conversions, will ultimately determine the maximum pricing that can be paid for feedstock aircraft," Newrick says.

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Source: Flight International