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Covid-19 Spurs Boom in P2F Conversions

 - November 11, 2021 (All day)
Technicians at Israel Aerospace Industries work on a Boeing 737-800 passenger-to-freighter conversion. (Photo: IAI)

What would seem unthinkable a couple of years ago is now a sheer reality: An air cargo capacity crunch due to a perfect storm of increased demand and a sharp fall in supply has led to a boom in passenger-to-freighter conversions.  

Supply tumbled with the onset of the pandemic in early 2020 owing to a fall of capacity in the lower cargo holds of passenger aircraft as international travel restrictions disrupted passenger services. Nearly 50 percent of worldwide air cargo traveled via widebody passenger lower cargo holds prior to the pandemic, according to Boeing. In parallel, demand to ship cargo by air received a boost from accelerated e-commerce growth, supply chain disruptions, severe maritime interruptions, and economic recovery. The International Air Transport Association expects demand for air cargo to exceed pre-crisis (2019) levels by 8 percent this year and by 13 percent in 2022. Over the longer term, Boeing projects a continued growth in demand measured in revenue-tonne kilometers of 4 percent annually in the next 20 years.

As a result, demand for passenger-to-freighter (P2F) conversions has surged, resulting in an expansion of aircraft types undergoing conversion, swelling of lessors' portfolios, and a growing number of aircraft engineering providers entering the market across the world.

“We are seeing a more global spread of conversion centers,” remarked Bob Convey, senior vice-president of sales and marketing at Aeronautical Engineers (AEI). “This is a good thing, also for the environment because ferry flights will be shorter,” he said, speaking during a recent webinar on the future of the P2F conversion market organized by independent aviation consultancy IBA. Now operating five conversion facilities worldwide, AEI hopes to add more centers next year and increase the number of production lines from 13 to 15. That would give it the capacity to modify about 35 aircraft for freighter use per year, said Convey, who conceded that he hopes to boost that number to “50-plus” per year. The current and foreseeable market demand for converted freighters “seems to be supporting this kind of number,” he explained.

AEI presents just one example of a P2F conversion provider expanding its footprint. Almost all its competitors are doing the same.

Israel Aerospace Industries (IAI) (Stand 300), for instance, in recent months concluded an agreement with independent MRO provider Atitech to establish a passenger-to-freighter conversion site for 737-700/800s in Naples, Italy; with Ethiopian Airlines to open a conversion site for 767-300 in Addis Ababa; and with Etihad Airways Engineering (Stand 1110) to establish two conversion lines dedicated to the new “Big Twin” 777-300ER P2F program in Abu Dhabi. IAI also signed a memorandum of understanding with Incheon International Airport and Sharp Technics to institute 777-300ER and 777-200LR P2F capabilities in South Korea.

Hot Commodity

Analysis from the AirInsight Group shows that 104 freighter conversions—varying from widebody jets to regional turboprops—entered operators’ fleets during the first half of 2021, suggesting a pace for more than 200 deliveries this year. That marks a steep increase compared with the 58 delivered P2F units in 2019 and 81 in 2020. “The P2F market solves both the supply and demand issues in the near term. Underutilized airliners become high-demand freighters,” AirInsightGroup noted, while questioning “how fast the conversion houses can deliver what is now a hot commodity, and how long the trend will continue.”

Boeing’s 2021 Commercial Market Outlook forecasts that air cargo growth will create a demand for 2,610 freighter deliveries globally in the next 20 years, and the bulk of the delivery units—1,720 units or 66 percent—will involve passenger-to-cargo conversions. The figure includes 520 widebody aircraft, such as the Airbus 330, the 777 and the 767, with carriers in Asia accounting for more than 40 percent of that demand. The U.S. airframer booked orders for 133 freighters in the first nine months of this year, which Tom Sanderson, Boeing director product marketing commercial airplanes, described as “record sales.”  Production freighters accounted for 53 aircraft—four 747-8F, forty 777Fs, and nine 767Fs—while Boeing converted freighters (BCF) accounted for 74 examples.

Airbus’s latest Global Market Forecast, released two years ago, projected that operators will need about 2,500 dedicated freighter deliveries by 2038 to replace aging fleets (60 percent) and accommodate growth (40 percent). The company expects 850 deliveries will involve new-build aircraft and 1,650 P2F conversions, of which just under 1,000 conversions fall into the “small” freighter category, where aircraft payload ranges from 10 tonnes to 40 tonnes.

Boeing Dominance

Boeing historically has dominated P2F conversions. Airbus, however, aims to take a bite out of its rival’s market share. The European OEM launched the A330P2F program at the Singapore Airshow in 2012 and three years later, at the Paris Airshow, it unveiled plans to develop a P2F conversion program for the A320 and A321 narrowbody airframe. Airbus established both the widebody and narrowbody passenger-to-freighter modification programs through a collaboration with Elbe Flugzeugwerke (EFW), its joint venture with Singapore-based ST Engineering Aerospace.

The A330-300P2F and the higher-density, longer-range A330-200P2F received European Union Aviation Safety Agency (EASA) Supplemental Type Certificates (STCs) in November 2017 and July 2018, respectively; the first examples went to German express delivery firm DHL in December 2017 and EgyptAir Cargo in August 2018. The first A321 converted freighter entered service in October 2020 with Qantas for services on behalf of Australia Post. However, a slight delay has beset the A320P2F program, designed to compete with the highly successful 737 passenger-to-freighter conversions. EFW now aims to achieve the STC for the A320P2F in 2022 rather than this year.

Six A321-200P2Fs now operate in service and some 19 are reserved for conversions, according to IBA data. The program remains in its infancy, but IBA predicts it will evolve into a competitor of the 757 passenger-to-freighter conversion. “The 757 is still being converted in substantial numbers but as the [757] feedstock dries up eventually and the prices of the A321 passenger aircraft come down, we see a whole raft of A321-200 conversions ahead,” asserted IBA’s head analyst commercial and aging aircraft, Jonathan McDonald. The initial A321-200 conversions involved aircraft built in the late 1990s, but as more A321neos come online and more A321ceos retire from passenger service, a trend accelerated by Covid-19 and pressure to cut CO2 emissions, younger examples have begun to appear as conversions. Lufthansa Cargo will operate the youngest A321 reserved for P2F adaptation—an ex-Eurowings aircraft built in 2008—once EFW finishes the conversion. 

Besides EFW, several other companies have entered or plan to enter the conversion market for  A321-200 and A330s. With the air cargo business booming and the EFW A330P2F production lines—some 100 slots—sold out through 2025, IAI decided it was time to deliver on its year-long pledge to establish its own A330-300 freighter conversion program in cooperation with Dublin-based aircraft lessor Avolon. Under the terms of the agreement, announced in October, Avolon has agreed to take 30 A330-300P2F conversion slots from 2025 to 2028 and support the Israeli state-owned aerospace company with the development of an STC for the A330-300P2F.

Airbus chief commercial officer Christian Scherer, speaking with reporters during a briefing on the sidelines of the IATA Annual General Meeting in Boston in October, said he welcomed the move of IAI to enter A330P2F conversion. “Airbus is a shareholder of EFW, so we have the best of interest in that particular solution. But there will be plenty of other solutions—the market is big enough,” he said, stressing the A330P2F’s “huge potential.”  The fact that the secondary market “finds new business applications is good,” asserted Scherer.

Changing of the Guard

As of September 2021, Airbus collected orders for 1,442 passenger A330ceo airplanes and delivered 1,418 since the model’s service entry in 1994, providing an ample source of airframes to support the conversion program for many years.

Market interest in A330 cargo conversions has focused mainly on the -300, said McDonald, noting “rapidly reducing” feedstock pricing of A330 passenger aircraft. On June 30, 249 A330-200s and 245 A330-300s sat in storage, reported Leeham News. Pre-Covid, a 2009 Roll-Royce Trent powered passenger A330-300 cost some $25 million; now that asset attracts about $15 million and, in some cases, a little less, according to IBA analysis. The situation means that cargo operators can seek a much younger aircraft than the early MSNs—EFW’s order book included two ex-Singapore Airlines A330-300 built in 2013—and “reap the benefits of additional years of useful life and a longer-term investment in the asset,” the consultancy concluded.

Convey predicted that growth will gradually shift from 757-200 towards A321-200 cargo conversions in the larger narrowbody segment and from the 767 towards the A330 in the medium widebody segment. A “changing of the guard” will result from the depletion of 757/ 767 feedstock for conversion and the rise in A321/A330 availability, he said.

Boeing, meanwhile, remains confident it will keep its lead over Airbus in the global freighter jet market, both for production freighters and P2Fs. Airbus’s current line-up of conversions has “not achieved market traction at this time,” commented Sanderson.

Airbus has sold only 38 production A330Fs and its new A350F has not yet attracted a launch customer.