Will The Narrowbody Conversion Boom Produce A Glut?

Credit: AEI

Boeing 737s still dominate conversions of narrowbody passenger aircraft to freighters, but the future may see an oversupply of this type, according to Jonathan MacDonald, analyst for classic and cargo aircraft at IBA.  

Planned conversions of Airbus A321s are increasing, and MacDonald sees this type as a possible replacement for the very successful 757 conversions as feedstock eventually dries up for the older Boeing model.

Through mid-fall 2022, more than 50 737-800s were converted, after 63 conversions in 2021. For A321s, nine conversions in 2022 have already surpassed the five done in 2021.

More than a hundred 737-800 freighters are flying, with 47 conversions pending. There are only 10 active A321 freighters, but 43 are pending conversion.

Robert Convey, senior vice president of sales and marketing for conversion shop Aeronautical Engineers Inc. (AEI), concurs with IBA both on the strength of 737 conversion demand now and the possibility of oversupply and diminished demand in the future. AEI just received four narrowbody conversion orders—for 737-400s, McDonnell Douglas MD-80s and Bombardier CRJs—in a single week. But in the future, he says “there could be a glut.”

Convey reckons the industry will soon convert about 120 narrowbodies per year, including 90 737-800s and 20-30 A321s, plus a few 737-300s and -400s and MD-80s. That would be in excess of replacement needs by conventional cargo carriers. However, the question remains whether online retail giants, which have created the extra demand for narrowbody freighters, will continue to grow rapidly.

Amazon sales have still been growing, but not as rapidly as before. Revenue in the 12 months to Sept. 30 was up nearly 10% from the same period a year ago, but only about 3% in real terms. In 2021 revenue increased 21%, or 13% real year over year, and in 2020 it was up 37%, or 35% real.

Despite the slowing of the Chinese economy, JD.com reported breaking its single day record of sales on Nov. 11. Sales of Apple products increased to over 1 billion yuan ($140 million), sales of gaming TVs, air conditioners and robot vacuum cleaners doubled year on year, and many other products saw dramatic increases in volume.

If narrowbody conversions depended just on conventional cargo carriers needing replacement aircraft, Convey says demand will not be “rich enough” to justify 120 conversions a year. But when adding on demand generated by e-commerce giants, he says “it is not as outrageous.”

Six months ago, Convey feared a major correction in the narrowbody conversion market. “Now I think it might be a mild correction,” he says.

Still, things are humming along at present. AEI’s customers are mostly lessors, and these lessors are getting several offers for each converted narrowbody, “leaving two to three people at the altar,” Convey says. Regional jets and other smaller conversions are booked through 2023.

The return of narrowbodies to domestic markets is not hurting demand for cargo conversions, as there was never a lot of freight carried in the bellies of narrowbodies, unlike widebodies. But Convey says the recovery in domestic flights and narrowbody operations is limiting conversion feedstocks.

“It’s hard to find -800s now, while a year ago they were all over the place,” says Convey. He thinks some airlines are holding onto to their -800s longer than planned because they are still a little nervous about taking 737 MAXs, given all the problems with this aircraft.

The immediate problem, then, remains finding good narrowbody candidates for conversion at good prices—not placing the converted aircraft. That challenge, if it comes, remains further in the future.