Covid-19 Boosts P2F Conversions Boom

What seemed unthinkable a few years ago is now a pure reality: A shortage of air cargo capacity due to a perfect storm of increased demand and a sharp drop in supply has led to a boom in conversions from passenger to cargo.

Supply fell with the onset of the pandemic in early 2020 due to a drop in lower cargo capacity on passenger aircraft as international travel restrictions disrupted passenger services. According to Boeing, nearly 50% of global air cargo passed through lower, wide-body passenger compartments before the pandemic. At the same time, demand for air freight shipping has been driven by accelerated growth in e-commerce, supply chain disruptions, severe shipping disruptions, and economic recovery. The International Air Transport Association expects demand for air cargo to exceed pre-crisis (2019) levels by 8% this year and 13% in 2022. Longer term, Boeing predicts growth continuous demand measured in revenue tonne-kilometers. 4% per year for the next 20 years.

As a result, the demand for passenger-to-cargo (P2F) conversions has increased, leading to an expansion of the types of aircraft being converted, swelling of rental portfolios and a growing number of aeronautical engineering suppliers entering the market. worldwide.

“We are seeing a more global spread of conversion centers,” noted Bob Convey, senior vice president of sales and marketing at Aeronautical Engineers (AEI). “This is a good thing, also for the environment as ferry flights will be shorter,” he said during a recent webinar on the future of the P2F conversion market hosted by the firm of independent IBA aviation consultancy. Now operating five conversion facilities worldwide, AEI hopes to add more centers next year and increase the number of production lines from 13 to 15. This would give it the capacity to modify around 35 aircraft for cargo use per year, said Convey, who conceded that he hopes to increase that number to “50+” per year. The current and foreseeable market demand for converted freighters “seems to support this kind of number,” he explained.

AEI is just one example of a P2F conversion provider expanding its footprint. Almost all of its competitors do the same.

Israel Aerospace Industries (IAI) (Stand 300), for example, in recent months reached an agreement with independent MRO provider Atitech to establish a passenger-to-cargo conversion site for the 737-700 / 800 in Naples, Italy; with Ethiopian Airlines to open a conversion site for 767-300 in Addis Ababa; and with Etihad Airways Engineering (Stand 1110) to establish two dedicated conversion lines for the new 777-300ER P2F “Big Twin” program in Abu Dhabi. IAI also signed a memorandum of understanding with Incheon International Airport and Sharp Technics to set up P2F 777-300ER and 777-200LR capacities in South Korea.

Hot product

Analysis by AirInsight Group shows that 104 conversions of freighters, ranging from wide-body aircraft to regional turboprop, entered operator fleets in the first half of 2021, suggesting a pace of more than 200 deliveries this year. This marks a strong increase from the 58 P2F units delivered in 2019 and 81 in 2020. “The P2F market solves both short-term supply and demand issues. Underutilized airliners are becoming highly demanded freighters, “noted AirInsightGroup, while wondering” how fast conversion houses can deliver what is now a commodity, and how long the trend will continue. “.

Boeing Commercial Market Outlook 2021 predicts that growth in air freight will create demand for 2,610 cargo deliveries globally over the next 20 years, and the bulk of delivery units – 1,720 units or 66% – will involve passenger-to-cargo conversions. The figure includes 520 wide-body aircraft, such as the Airbus 330, 777 and 767, with Asian carriers accounting for over 40% of that demand. The US aircraft manufacturer has booked orders for 133 cargo planes in the first nine months of this year, which Tom Sanderson, director of product marketing for Boeing commercial aircraft, called “record sales.” Production freighters accounted for 53 planes – four 747-8Fs, forty 777Fs and nine 767Fs – while converted Boeing (BCF) freighters accounted for 74.

Airbus’ latest global market forecast, released two years ago, predicted that operators will need around 2,500 dedicated cargo deliveries by 2038 to replace aging fleets (60%) and cope with the growth (40%). The company predicts that 850 deliveries will be of new aircraft and 1,650 P2F conversions, of which just under 1,000 conversions fall into the “small” cargo category, where the aircraft payload ranges from 10 tonnes to 40 tonnes.

Boeing domination

Boeing has historically dominated P2F conversions. Airbus, however, aims to nibble the market share of its rival. The European equipment manufacturer launched the A330P2F program at the Singapore airshow in 2012 and three years later, at the Paris airshow, it unveiled its plan to develop a P2F conversion program for the A320 and A321 narrow-body airframes. Airbus implemented the widebody and small passenger-to-cargo retrofit programs through a collaboration with Elbe Flugzeugwerke (EFW), its joint venture with ST Engineering Aerospace, based in Singapore.

The higher density, longer range A330-300P2F and A330-200P2F received Supplemental Type Certificates (STCs) from the European Union Aviation Safety Agency (EASA) in November 2017 and July 2018, respectively; the first examples went to German express delivery company DHL in December 2017 and EgyptAir Cargo in August 2018. The first converted cargo ship A321 entered service in October 2020 with Qantas for services on behalf of Australia Post. However, a slight delay affected the A320P2F program, designed to compete with the highly successful conversions of 737 passengers to cargo. EFW now aims to achieve STC for the A320P2F in 2022 rather than this year.

Six A321-200P2Fs are now operating in service and some 19 are reserved for conversions, according to IBA data. The program is still in its infancy, but IBA predicts it will become a competitor in converting 757 passengers to cargo. “The 757 is still being converted to a substantial number, but as the [757] the raw material eventually dries up and the prices for the A321 passenger plane drop, we are planning a whole slew of A321-200 conversions, ”said Jonathan McDonald, IBA chief commercial and aging aircraft analyst . The initial conversions of the A321-200 were for aircraft built in the late 1990s, but as more and more of the A321neo come online and more and more of the A321ceo withdraw from passenger service, a trend accelerated by Covid-19 and the push to reduce CO2 emissions, younger examples have started to appear as conversions. Lufthansa Cargo will operate the youngest A321 dedicated to the P2F adaptation – a former Eurowings aircraft built in 2008 – once EFW completes the conversion.

In addition to EFW, several other companies have entered or are considering entering the A321-200 and A330 conversion market. With the rise of air freight and the depletion of EFW A330P2F production lines of around 100 slots until 2025, IAI decided it was time to deliver on its one-year pledge to establish its own conversion of A330-300 cargo planes in cooperation with Dublin. the Avolon-based aircraft rental company. Under the terms of the deal, announced in October, Avolon agreed to take 30 A330-300P2F conversion slots from 2025 to 2028 and support the Israeli state-owned aerospace company in the development of an STC for the A330-300P2F.

Airbus Commercial Director Christian Scherer, speaking to reporters at a briefing on the sidelines of IATA’s annual general meeting in Boston in October, said he welcomed IAI’s move to enter the conversion of the A330P2F. “Airbus is a shareholder of EFW, so we have every interest in this particular solution. But there will be plenty of other solutions, the market is quite large, “he said, stressing the” huge potential “of the A330P2F. The fact that the aftermarket” finds new commercial applications is a good thing, ”Scherer said.

Changing of the guard

By September 2021, Airbus had collected orders for 1,442 A330ceo passenger aircraft and had delivered 1,418 since the model entered service in 1994, providing a sufficient source of cells to support the conversion program for many years.

Market interest in the A330 freight conversions has been focused primarily on the -300, McDonald said, noting the “rapid reduction” in raw material prices for A330 passenger aircraft. As of June 30, 249 A330-200s and 245 A330-300s were in storage, Leeham News reported. Pre-Covid, a 2009 Roll-Royce Trent-powered A330-300 passenger cost around $ 25 million; now that asset attracts around $ 15 million and in some cases just less, according to IBA’s analysis. The situation means freight operators can look for an aircraft that is much younger than the early MSNs – EFW’s backlog included two ex-Singapore Airlines A330-300s built in 2013 – and “reap the benefits of years of life. additional usefulness and a longer term investment in the asset, ”the consulting firm concluded.

Convey predicted that growth will gradually shift from 757-200 freight conversions to A321-200 in the wider widebody segment and from the 767 to the A330 in the medium widebody segment. A “change of guard” will result from the depletion of the 757/767 raw material for the conversion and the increased availability of the A321 / A330, he said.

Boeing, meanwhile, remains confident of maintaining its lead over Airbus in the global cargo aircraft market, both for production freighters and P2Fs. Airbus’ current range of conversions has “not reached the market yet,” Sanderson commented.

Airbus has only sold 38 production A330Fs and its new A350F has yet to attract a launch customer.