Interesting times ahead in the widebody freighter conversion business

It wasn’t all that long ago that Cathay Pacific launched Boeing’s 747-400BCF passenger-to-freighter conversion program, but the world of air freight has changed drastically since 2005, and as far as we can determine, of the thirteen units ordered by Cathay (and Dragonair, which is now wholly-owned by Cathay), only one remains in service with the carrier. Not all of the other twelve are permanently parked, and in fact six are now in active service with two of Cathay’s joint-venture partners – Air Hong Kong and Air China Cargo. But being “in active service” can mean many things, and it is instructive to hear what Titus Diu, Air China Cargo’s COO, has to say on the subject.

Air China Cargo operates an 11-unit 747-400 freighter fleet, made up of three production freighters and eight conversions (six BCFs and two BDSFs), and despite increasing traffic, the carrier is losing money. Interviewed recently in Cargonews Asia, Mr. Diu said: “Coupled with the existing low-yield market, the BCF is a disaster, especially on eastbound routes out of Asia. In today’s high fuel price environment, a BCF would make a business case only on short-haul regional routes such as Shanghai-Tokyo or Shanghai-Taipei.” Supporting this opinion, Cathay’s cargo boss Nick Rhodes said that unless there is a dramatic fall in the price of fuel, “There is no sense to retain any 747-400 for conversion.”

Of course none of this means that there is no place in the air freight business for a freighter-converted 747-400. As Titus Diu pointed out, and as industry veterans like Stan Wraight have said many times, the low acquisition cost of a 747-400BCF/BDSF can make it a profit generator on short-haul routes with high load factors. But that role does not require the conversion of more 747-400s. With over 75 units already converted by Boeing and Bedek, and an increasing number of used production 747-400Fs coming on the market as carriers replace them with 747-8Fs and 777Fs, it is hard to see a business case for further 747-400 passenger-to-freighter conversions. That situation could change if air freight demand rebounds more strongly than predicted, if the price of fuel falls steeply, or if yields increase substantially, but under current circumstances further 747-400 conversion orders will be uncommon. One point in favor of more 747-400 conversions is that no other large-capacity P-to-F program is likely to become available until after 2020, so if demand does pick up, the 747-400 is the only conversion candidate in this market segment.

Given that the drying up of demand for 747-400 conversions is expected to continue, what comes next for the big conversion houses? In the last decade the mainstays of the widebody conversion market have been the A300-600, the 767-200 and -300, the MD-11, and the 747-400. EFW still has about ten A300-600 conversions in its backlog for DHL, but it is hard to see many more beyond those. There are almost no MD-11s left available for conversion, and no demand for the few that are available. And while there are plenty of passenger-configured 767-200s available, the age of the -200 fleet argues against any major orders for future conversions of this type.

Which leaves the 767-300. Boeing recently took a three-unit 767-300 conversion order from Guggenheim Aviation Partners, and it is likely that some orders for further conversions of the -300ER will come in for both Boeing and M&B Conversions over the next few years, but that order rate is unlikely to turn into a flood unless the major integrators choose to add converted -300s. All of which leaves the manufacturers and conversion houses facing the big question: What next?

• Airbus, in partnership with EFW and ST Aerospace has launched a conversion program for the A330 Family, and while there is certainly plenty of long-term potential for freighter-converted A330-300Fs, and possibly for -200Fs as well, there have so far been no orders.

• Both Boeing and Bedek Aviation Group have said they plan to develop a 777 conversion program, but the 777 is a far more complex aircraft than any widebody that has been converted in the past, and the challenge, especially for a non-OEM will be enormous. The fact that a converted 777-200ER will fall short of the capability of the production 777F could also prove problematic.

• There is also the A340LCF low-cost freighter option proposed by LCF Conversions. This offers the attraction of low acquisition/conversion cost, and may well prove viable, but its future is unclear at present.

And as difficult as the 777 may be to convert to freighter configuration, the aircraft that follow it – the A380, 787, A350, and beyond, will be even more so. Interesting times ahead, indeed.

Note: This discussion was excerpted from the December issue of Cargo Facts. We encourage those of you who do not already subscribe to Cargo Facts and its companion, the weekly emailed Cargo Facts Update newsletter, to click here for more information.