MROs Enter PTF Conversion Market As Cargo Demand Surges
In a year fraught with challenges for the aviation industry and particularly airlines, some comfort has been found in the surging air cargo market. During the COVID-19 crisis, as carriers reeled from a sharp drop in passenger numbers and revenues, airlines with idle aircraft moved quickly to scale up freighter operations by converting passenger aircraft in their fleets, typically flying medical supplies and personal protective equipment across borders, resulting in impressive aircraft utilization rates.
During this period, the rise of the “preighter”—passenger aircraft undergoing light conversions to switch to a cargo configuration in the cabin—became commonplace. In North America, Air Canada converted three of its Boeing 777-330ER aircraft into quasi-freighter versions by removing all the economy and premium economy seats. Others, including American Airlines, carried out similar operations with converted aircraft. In Europe, Iberia, British Airways and Lufthansa all converted grounded passenger aircraft into temporary freighter versions, which also helped to plug some gaps in their maintenance operations.
Naturally, growing demand in the cargo segment has been good for the passenger-to-freighter (PTF) conversion market. Jens Steinhagen, director of Boeing freighter conversions at Boeing Global Services, says the PTF segment was in the ascendency before the crisis in 2019, being driven by rising international trade, industrial production recovery and e-commerce growth. “Goods trade started to recover during the third quarter of 2019, and industrial production in emerging markets—driven by a large contribution from China—has turned positive year-over-year, and the global numbers are also set to show growth in 2021,” he says.
Market forecasts suggest the expansion of the PTF conversion segment could be sizable. Boeing forecasts strong demand in the next 20 years, with a need for 930 production freighters and 1,500 PTF conversions in the next 20 years, with Airbus predicting similar numbers. Given the surplus of passenger aircraft that has developed over the past 12 months, Steinhagen predicts this situation will drive down the average age of the freighter aircraft fleet in the long term.
“The current passenger market shock is likely to reduce the age of converted aircraft compared to what is anticipated in a typical or relatively stable market. These aircraft are then expected to remain in the market longer,” he says.
Strong growth is already being seen in the PTF conversion segment. Air Transport Services Group, parent company of Pemco Conversions, reported 16 fresh conversions last year and says it expects to do at least another 16 in 2021. Robert Convey, a representative for U.S.-based PTF specialist Aeronautical Engineers (AEI), says the company has seen “a dramatic increase” in conversion activity over the past 12 months and expects this to continue strongly for a further two years before falling off slightly.
AEI sees this activity centered on one of the aircraft it converts: “The Boeing 737-800SF over the next 10 years, driven equally by growth in e-commerce and the retirement of 737-400SFs,” Convey says. Interest in the Airbus A321 freighter, first delivered to Vallair in October 2020 by Airbus and ST Engineering’s Elbe Flugzeugwerke joint venture, is expected to be more moderate.
“Our models show moderate interest in the A321F, constrained by a lack of suitable feedstock and uncertainty in the durability of the airframe,” Convey says. “The smaller A320s and 737-700s will be outliers, with a limited operator base that is focused on niche routes.”
Brian McCarthy of Precision Aircraft Solutions, which specializes in A320 and Boeing 757 PTF conversions, believes the demise of the latter—long considered a workhorse of the cargo fleet—has been exaggerated. “We will be converting 19 757s this year alone and a similar amount next year,” he says. Believing that freighter aircraft only trend smaller in uncertain times while doing the opposite in more stable markets, he foresees cargo aircraft demand veering toward large hold-space models. “Congested skies, [limited] route authority and extreme volumes of cargo will likely drive operators toward bigger aircraft in virtually every class of aircraft or tonnage spectrum,” he says.
This growth also promises opportunity for MRO providers, who have been well-served by the cargo segment in the tumultuous past 12 months. Some are simply choosing to offer flexibility for more base and line maintenance services on operational freighter aircraft, while others have either added to or developed totally new cargo aircraft maintenance capabilities during the crisis. One of these companies, UK-based Caerdav, sees it as a long-term opportunity, announcing plans to move into PTF work focused on 737 aircraft in October 2020, utilizing its expertise with the passenger variant that has seen reduced utilization during the crisis.
Aircraft manufacturers and PTF providers are also seeking new partnerships, partly driven by a need for extra capacity to undertake the work. Boeing has expanded its network of PTF conversion partners, Steinhagen says, noting partnerships in the Asia-Pacific region. These include one with Singapore-based SASCO, which added capacity for 767-300BCF work last year, and China’s Gameco, which announced plans to launch a third line for the 737-800BCF in February.
AEI is also looking to expand beyond existing sites in North America and China, is exploring the possibility of adding further conversion centers in Europe, Convey says. Capacity expansions in Europe are already underway by other PTF specialists. Lithuania-based MRO Aviatic entered a partnership with one of the world’s largest PTF providers, Israel Aerospace Industries (IAI), to build a new MRO facility for PTF-driven work. Located in the Lithuanian city of Siauliai, the facility is scheduled to open in the summer of 2022 and will fully convert Boeing 737NG passenger aircraft into freighters.
As well as giving it an MRO foothold in Eastern Europe, the new center signals the further growth of IAI’s PTF capacity outside of Israel. Last year, IAI entered a joint venture with lessor GECAS focusing on a Boeing 777-300ER PTF program, which is to be marketed as the 777-300ERSF. The prototype version was delivered by GECAS to IAI in the summer of 2020.