Worldwide demand for Boeing 737 Classics as cargo haulers is on the rise, say a Dublin-based aircraft lessor and a Miami-based aircraft conversion specialist.

The increase in demand led Ireland’s Aergo Capital to sign a deal with Pemco World Air Services in late October to convert up to 20 Classic aircraft to freighters and create a new subsidiary called Aergo Cargo Solutions. The deal with Pemco, which specializes in conversions and maintenance, repair and overhaul, also includes aircraft acquisition and bridging maintenance.

Concurrently, Miami-based Aeronautical Engineering (AEI) says it has a backlog of 737 Classic conversion orders through February, with five in conversion now and two more scheduled before the year-end, but it also is pitching its pending MD-80 cargo conversions as a less expensive alternative.

AEI converted three or four Classics in 2011, but received requests for five at the end of July 2012. “We thought it was kind of a blip,” says Robert Convey, VP-sales and marketing. “But then we had a second wave come in, and then a third wave,” and will end up doing about a dozen this year.

Conversion orders have come from a mixture of startups, carriers growing their business and airlines looking to replace smaller, older aircraft, such as 737-200s, which Convey thinks are on their way out because carriers do not want to spend money on upcoming heavy maintenance checks.

AEI customers who recently received or asked for Classics conversions include Kenya Airways, which is converting four of its 737-300 passenger jets; Moscow-based Atran Cargo Airlines; Air Incheon, a cargo startup in South Korea; Lagos-based Allied Air; and Brazil’s Sideral Air Cargo, which already operates -300s but is adding a -400 for growth.

Sally McGuckian, Aergo Group’s marketing manager, says demand seems especially high for conversions of 737-400s, which can carry more weight than the -300.

“Everyone sees” weakness in the cargo business, McGuckian says, but the decline in aircraft demand is happening for bigger, less fuel-efficient aircraft, such as Boeing’s four-engine 747-400s. “For the smaller-size aircraft, there definitely has been demand,” she notes.

“We are quite confident that we will place most of the 20 we have committed to over the next 12 to 18 months,” she says. Aergo, however, still is working on acquiring the aircraft “at the right price.”

McGuckian says Aergo has commitments for four converted Classics, which it owns, although she would not identify the customer or customers. The company also is close to deals for another two, she says.

Aergo has seen interest in the converted aircraft from carriers in South America, Eastern Europe and Africa, as well as Syria and Jordan. Canadian carriers serving mining and drilling areas also could become customers, McGuckian says.

Aergo, however, will run into competition in those markets from AEI, which recently embarked on a new program to convert MD-80 aircraft.

AEI’s Convey says that the conversion of a 737-400 can run $7.5-8.5 million when the cost of acquisition, conversion, maintenance and painting is included, but that the MD-80 costs less than $4 million and carry a similar payload. AEI says it has 15 firm orders for MD-80 conversions, including a customer in Africa and another in Europe, and is close to a deal for an order for three from an airline in Mexico.