IAI Snags More Cargo Conversions From Online Sales Boom

IAI is developing a 777-300 cargo conversion program for the future.
Credit: IAI

There is nothing like cheap feedstock and booming demand, even if it is in a niche market, to boost cargo conversions.   

Cargo capacity is short now, due to the lack of belly freight in grounded passenger planes. But as these come back, or are replaced by temporarily converted passenger aircraft, there may be only moderate demand for new cargo aircraft from most carriers. For most air cargo demand tracks with GDP growth, and that looks to be weak for a while.

The exception, of course, is express delivery of consumer packages ordered online during the coronavirus lockdowns. Online sales have been booming, and the companies that deliver the resulting packages have done well.

For example, DHL International’s June Roadshow presentation reports that, despite the general business slowdown, parcel volumes grew strongly year-over-year in weeks 13 through 18 of 2020. That is roughly April through early May, the peak of lockdowns.

The company thus “benefits from strong exposure to e-commerce and business to consumer sales,” DHL managers say. DHL’s share of consumer shipments had already grown from 10% in 2013 to 30% in 2019.

And management expects the strong growth to continue after the virus crisis is over For example, in German markets, it predicts parcel volumes will grow 5-7% annually through 2025.

The benefits of online sales growth flow down the value chain. Israel Aerospace Industries (IAI) has just won a contract to convert at least three more, and possibly a fourth, Boeing 767-300 passenger aircraft to cargo configuration for DHL. The contract marks another major milestone for IAI’s aircraft cargo conversion program and the broadening of business for IAI’s Aviation Group.

Over the last decade, 767s have been the backbone of the cargo aircraft market, and they are particularly cheap as feedstock now due to the crash in passenger demand and their expected replacement by new widebody jets like the 787 and Airbus A350 as traffic recovers. 

IAI EVP and General Manager of Aviation Group Yossi Melamed, says: “The constant increase in the e-commerce market and the effects of the COVID-19 pandemic have emphasized the importance of cargo aircraft.”

IAI is developing a 777-300 cargo conversion program for the future. But it is quite happy to stay busy with its 767 work for as long as possible.