The Right Size For A New Market

A new scenario has been drawn in the past two years. Trends have been accelerated, and numbers have been shifted. How much the pandemic has changed the world can be felt by everyone in a particular way. Nonetheless, how much the pandemic has changed the world for good when it comes to ecommerce and aviation, we can easily measure by numbers.

How the pandemic has changed ecommerce and the air freighter market

According to the US Department of Commerce Retail Indicator Division, in the USA alone, ecommerce sales were USD 870 billion in 2021, a 14% increase over 2020 and an impressive increase of 50% over 2019, during the pandemic. In the country, 13% of all retail sales in 2021 came from online shopping. 

However, the pandemic has boomed these numbers, changing the forecast for the ecommerce penetration for the next few years. Pre-pandemic numbers foresaw online shopping penetration in the US market by 21.67% until 2030. Post-COVID19 estimates are now 34.43% for the same period, according to Nasdaq. Also in a fast pace, Latin America is expected to grow its ecommerce at a 21% rate between 2019 and 2025.

An online competition to sell more, and now, faster. The promise for faster deliveries to every-day-more destinations has shaped the supply chain for the industry. It is an important matter when it comes to how these merchandises will be transported from A to B. Amazon itself has over 100 active warehouses spread around the United States and dozens of planned locations, according to the MWPVL International. As said by Mckinsey & Company, Amazon is investing in decentralized warehouses to establish next-day as a standard and make same-day an option for many. A USD 1 billion fund to invest in warehouse technologies to, among other reasons, speed up delivery was announced by the company last April. 

At the other end of your click to buy, freighter aircraft are packed with what you purchase online. While a growth of 3.3% in the airline industry is expected per year up to 2040, air cargo will grow 4.2% in the same period. Highlights to a 6.9% increase, particularly in 2021, after a decline of 10.6% in 2020, affirmed by IATA. The ecommerce expansion will certainly accompany these numbers over the following years, and a demand spiking for air cargo is clear. 

Current scenario for the freighter market

Among the freighters, the Boeing 737-300 is the absolute leader in the market share amid the most used aircraft, with slightly over half the stake. Having the first version of this particular Boeing model launched in the mid-1980s, age is now charging its toll, whereas a significant number of aircraft in the fleet is to be retired this decade, starting 2020. Other models in the freighter market for narrow and crossover standard bodies are the McDonnell Douglas DC-9, Bombardier CRJ 100/200, Boeing 737-200, BAe 146, and the 737-700.

However, looking at the bigger picture, these aircraft are responsible for only 8% of the freighter fleet, standing in between the small and large turboprops (40% of the total fleet) and large standard to widebodies aircraft (52% of the total fleet). So, when it comes to the right size needed in the small and crossover standard bodies category, the truth is that the market encounters a lack of options and flexibility. Moreover, shall we recall that over half of the fleet comprises one model, aircraft are aged within the retirement window, and are highly polluting.

Yet another gap is to be considered: as a crossover standard body, the 737-300SF has a payload capacity of slightly over 19,000 kilograms, the volume capacity of 132 cubic meters (m³), and a range of around 2,500 nautic miles with a full payload capacity. Say you don't need that much payload. Well, the next step down toward a smaller freighter aircraft is the ATR72-600, with its 76.5m³ volume capacity, somewhat over 8,000 kilograms payload capacity, and 500 nautic miles (nm) when fully loaded. In strictly rough numbers, only to facilitate comparison, the only option below the 737-300SF has half the capacity. On the other hand, if you need slightly more capacity than an ATR72-600 can carry, you'll have to go with a double-sized freighter. Up until today, there are no competitive aircraft between the new modern ATR option and the aging Boeing 737-300. Other options would include the BAe-146, the DC-9, and the MD-80s, which are aged, highly polluting, and with high costs. This is a considerable gap, not yet fulfilled until the beginning of 2022. 

A new player arrives to fill the gap

In February 2022, Embraer announced it would enter the freighter market with its first generation of E-Jets, the E190F and the E195F. Customers would be able to buy brand new models from the OEM or convert existing jets in the fleet, from passenger aircraft to freighter aircraft (P2F). 

Following the successful history of the ERJs and the first generation of E-Jets, in the late 1990s and early 2000s, Embraer has once more identified a gap in the market, yet to be served by a rightsized product. With less fuel consumption, low-cost maintenance, a reasonably long range for the size, and the number of passengers capacity, the E-Jets conquered airlines worldwide. 

A gap. The same reason that made the market see the rise of a new successful family of commercial aircraft is also why the OEM has entered the market of a crescent demand for freighters. 

Johann Bordais
Johann Bordais, President & CEO, Embraer Services and Support

Shortly after formally launching the E190F/195F at the last edition of the MRO Americas in April, Embraer announced the Nordic Aviation Capital (NAC) as the P2F launch customer.  Embraer and NAC signed an agreement to take ten slots for the E190F/E195F conversions. Plans are to use airplanes in the existing fleet for the conversion and take first deliveries as soon as 2024. 

"The E-Jet air freighters will provide fast, reliable, and cost-effective service to freight forwarders, extend the revenue earning life of E-Jets, support E-Jets' asset values and create a strong business case encouraging the replacement of earlier aircraft with modern, more efficient, passenger aircraft," said Johann Bordais, President & CEO, Embraer Services and Support. "With more than 1,600 E-Jets delivered globally, customers of this new freighter segment will benefit from well established, mature, global services network, in addition to a comprehensive portfolio of products ready to support their operation from day one."

The perfect fit

The E190F alone has a payload of 13,150 kilograms and a cargo volume of 103m³. Compared to the ATR-72F, it reaches a 3.5x longer range and carries 35% more load. Speed is yet another feature: for a 500nm trip, the E190F takes 51 fewer minutes to reach the destination when compared to the turboprop freighter. Compared to the Boeing 737-300 at a full payload for a 500nm trip, the E190F burns 31% less fuel and holds 39% fewer maintenance costs (considering 800 trips/year), meaning an overall 25% fewer costs to operate. Cumulative noise levels are also a concern for forevermore distributed warehouses along the landscape. The Brazilian OEM's model marks 7.6 less Effective Perceived Noise in decibel (EPNdB) relative to the Boeing model. Embraer's proposal fits the exact gap between the larger narrowbodies and large turboprop, thus estimating 100 to 200 E-Jets conversions and a market demand for around 700 aircraft in the E190F and E195F category size over 20 years. 

Arjan Meijer
Arjan Meijer, President and CEO Embraer Commercial Aviation.

"Perfectly positioned to fill the gap in the freighter market between turboprops and larger narrowbody jets, our P2F E-Jet conversion hits the market as the demand for airfreight continues to takeoff, and as e-commerce and trade in general undergoes a global structural transformation," said Arjan Meijer, President and CEO Embraer Commercial Aviation.

The P2F conversion

The complete cargo conversion will extend the life of the most mature E-Jets by another 10 to 15 years and encourage their replacement with more efficient, sustainable, and quieter aircraft. The conversion to freighter will be performed at Embraer's facilities in Brazil and includes main deck front cargo door; cargo handling system; floor reinforcement; Rigid Cargo Barrier (RCB) – 9G Barrier with access door; cargo smoke detection system, including class "E" extinguishers in upper cargo compartment; Air Management System changes (cooling, pressurization, etc.); interior removal and provisions for hazardous material transportation. 

As the economy goes through rapid changes, followed by changes in habits, consumption, and people seeking opportunities away from large busy cities, the E190F and E195F have entered the market at the right time to dispute share with a retiring fleet and to fill a gap not yet explored. The same gap that launched Embraer and the E-Jets to a successful journey when first presented to airlines 20 years ago might again be the reason for a new success.

Article contributed by Marcus Lemos