Narrow-body conversions set records

Narrow-bodies, with their promise of fuel efficiency, continue to rule the highly competitive market for freighter conversions. Companies that specialize in the 737 conversion niche agree that the market is at an all-time high. With no factory-built 737 freighters on the market, this is entirely a conversion realm. A lot of the demand is coming from start-up cargo carriers around the globe.

Miami-based conversion specialist Aeronautical Engineers Inc. (AEI) and Tampa-headquartered conversion and MRO company PEMCO report thriving narrow-body business.

“The 737-400 is the darling of the hour,” says Robert Convey, AEI’s vice president, sales and marketing. “Demand is strong and orders continue to come in. We have 12 in the works right now and our backlog is pushing 20. We are full up this year, and it looks like that for most of next year.”

AEI is on track to deliver 30 freighters in 2014, and Convey estimates the company will complete 25 to 30 conversions in 2015.

The conversions lines have been busy for the past few years at PEMCO. The company converted 19 aircraft last year and expects to top that figure by the end of this year.

“We continue to receive a lot of interest in classic freighters,” says Kevin Casey, PEMCO’s president. “The business volume for narrow-bodies continues to be very high.”

PEMCO converted a record number of aircraft in 2013 (19) and is on track to exceed that number this year.

“It’s indicative of a rising tide floating all boats,” Casey says.

An advantage of the conversion of 737-300s or -400s into freighters is that a carrier can obtain a freighter in the US$6 million-8 million (4.4 million-5.9 million euro) price range that can be flown for 20 years, Casey says. This can result in a fuel savings of US$1.5 million-2 million (1.1 million-1.4 million euros) annually over 727s or DC9s, he says.

AEI has launched a freighter conversion program for Bombardier’s CRJ100 and CRJ200 aircraft and has orders for 2015.

“Unlike the other conversion houses, we have been aggressive in adding more products,” Convey says. “Our plan is to have enough diversity in our conversion offerings that we should always have one or two types of aircraft being converted in decent numbers.”

AEI recently added a fifth conversion line in Dothan, Ala., giving it 12 overall.

“The market is at an extremely high point,” Convey says. “The question is how long will it last? We are certainly in a bubble and have been for a year and a half. We are just about sold out for this year, and most of the first quarter of 2015 is booked.”

PEMCO’s Casey notes that predicting demand for freighter conversions is not a precise science with demand typically not projected far in advance.

“The air cargo industry is a bit of a reactive industry and as such, you don’t see long-range planning for the next airplane. What we have now is a broad realization that these airplanes are available and affordable at a price that enables airlines to make a good living. We’ve been converting 737s since 1991 and to do 20 or more in a year is certainly a high-water mark. It’s a bright bloom of the sun before it drops below the horizon. We have the expectation that it will last at least another year or two at this level.”

Wide-body market sluggish

Israel Aerospace Industries (IAI), one of the world’s largest aerospace companies, does conversions of 767s through its Bedek Aviation Group. Jack Gaber, senior vice president, marketing and business development, says that while demand has been down, he does see hints of life in the market. IAI will do six 767 conversions this year.

“There are some signs that this economic crisis might be at an end. It’s not sustainable yet and I don’t know if it’s safe to say there’s a recovery, but we are definitely seeing positive movement,” Gaber says. “We have had more inquiries in the last three months than we have had in the past year.”

IAI has the capability to perform 737 conversions, but is not presently doing so.

Boeing expects to perform six 767 conversions this year, which is capacity. It is also offering 737 conversions, but is targeting the second half of 2017 for those conversions, according to Carrie Shiu, director, product marketing, Commercial Aviation Services.

“There is a lot more optimism with our customers this year than last year when there was a lot of uncertainty in the long-term trend of the market,” Shiu says.  “Quite a few are looking into long-term plans for growth or replacements.”

Shiu says e-commerce will be among the drivers for the 737 market.

“For Boeing, we believe that our strength getting into the narrow-body market is the same as we have in the medium and large market,” she says. “We know this industry and have always worked closely with customers. Of course, we provide more offerings that are unique to OEMs [original equipment manufacturers]. We do a lot more technical work.”

EFW, the Germany-based joint venture between Airbus and ST Aerospace, which converts Airbus planes into freighters, will do two conversions this year and has a backlog of five aircraft.

“The conversion market in our midsize category is still very weak and for large freighter is more or less not existing due to overcapacity of freighters,” says Wolfgang Schmid, vice president sales, marketing and customer support. “On single-aisle aircraft, the demand is still higher.”

Schmid says the integrators still have “a lot of appetite” for new and converted planes by FedEx and DHL.

“The market did not change very much in the past year in terms of conversions in the wide-body segment,” Schmid says. “But we see slight improvements, which will result in more conversions when the overcapacity is consumed by some retirements and replacements.”

Schmid says there is growing interest in EFW’s new A330P2F programs with the first aircraft entering into service in 2017.

“Although not many are ready to commit for such aircraft today, we see our program being perfectly scheduled for future demand,” he says.

Portland, Ore.-based Precision Conversions went through a restructuring earlier this year and is now a division of Precision Aircraft Solutions, which also includes other services such as engineering and program development. Precision converts 757s and has three in process. The company develops conversion kits and works with MROs around the world for the conversion process.

“You have everything from stick build all the way through to the OEM approach,” Gary Warner, president of Precision Aircraft Solutions, says. “We are in the middle, but slightly closer to the OEM approach. We tend to use modules. Customers clearly want to see that you have a competent approach…We are about to see some pretty good years in terms of 757 aircraft.”

Precision, along with its Goodyear, Ariz.-based partner AeroTurbine, is performing the first full freighter conversion of a winglet-modified 757-200 aircraft for Canada’s Cargojet, which plans to use the freighter for long-distance routes. While the majority of 757 feedstock now becoming available already have winglets, the capability to add them in the conversion process is an important development in the market, Warner says.

“Because of the feedstock and the age of planes, winglets are becoming important to people,” he says. “In the coming months, we will see more conversions along these lines.”

Looking to the future, Warner says Precision will explore other wide- and narrow-body conversions, ranging from the 737 next generation aircraft to the A320.