Cargo Conversion Boom Expected To Roll On

Credit: IAI

Along with lease transition work, passenger-to-freight conversions have proved a bright spot in MRO during the last 18 months. Transition work will ease off as aircraft have been reshuffled from failed or shrinking carriers to startups. But how long will the good times roll on conversion lines?

For quite a while to come, explained Robert Convey, senior vice president of sales and management at Aeronautical Engineers Inc. (AEI), and Jonathan McDonald, head of commercial and aging aircraft at IBA, in a recent webinar on conversion prospects.

AEI has five conversion centers now and plans to add two more in mid-2022. Its 13 conversion lines should increase to 15 next year. “We have bookings into the end of 2023, especially on the [Boeing] 737-800,” Convey said. “And it’s not just us. Our competitors are seeing the same demand.”

McDonald reviewed the basic causes: Global passenger flights in September had recovered to not much more than a half of pre-COVID levels. Belly freight thus needs to be replaced, and e-commerce is also boosting demand for fast air shipments. Convey noted the COVID-19 slump also cut prices for feedstock aircraft, 737s, the A320 family and the larger widebodies.

Among Boeing narrowbodies, conversions are clearly shifting to 737-800s, with more than 35 due in 2021 and more than 50 pending afterwards. Boeing 737 classics are fading due to shrinking feedstocks.

Moving up a bit in scale, 757-200s are still popular, with 30 conversions pending. But A321-200s are coming along, with nearly 20 now pending. “The 757 is the perfect freighter and will be around for a long time,” Convey said. However, Convey sees the A321-200 as a perfect replacement for the 757, just as the A330 is a perfect replacement for the 767. A conversion market invented and long dominated by Boeing is now seeing a “changing of the guard” with Airbus types.

Feedstock prices are down due to COVID-19, but conversion costs are relatively steady, ranging from $3-6 million for narrowbodies, $16-18 million for most widebodies and $34-37 million for the future 777-300ER, according to IBA estimates.

At the same time, IBA estimates the value of a converted Boeing narrowbody between $18-20 million, so it is easy to see why this option is popular among lessors as well as operators.

IBA predicts the feedstock of 757-200s will dry up eventually and A321-220 prices decline with age, so the Airbus narrowbody should do well on the conversion market.

For widebodies, McDonald notes that Turkmenistan has ordered some A330-200 conversions, and other are joining in. Furthermore, A330 feedstock pricing has declined, from as high as $25 million pre-COVID to as low as $15 million now. That means operators can seek younger aircraft, get more useful life from freighters and improve the economics of conversion.

MROs are well prepared for the conversion challenges. There are now dozens of major conversion centers working, according to IBA, with three more—dedicated to Airbus conversions—to be announced. The United States and China host many such centers, but the work is spread across the globe to Europe, Korea, Singapore, Mexico, Israel, Taiwan, South Africa and Canada.

With express carriers establishing feeder networks, there is room for conversions of smaller aircraft, too. There are now 32 converted ATR72-500s, “but the fleet is building up quite rapidly,” McDonald says. CRJ200s still lag slightly at less than 30 conversions.

However, the big draw is still in narrowbodies. “Interest is as strong as ever” in 737-800 conversions, the McDonald stressed, and he sees “ever growing interest” in A321-200s.