The airline industry is scrambling to convert old passenger planes into freighters during a record-breaking travel-starved coronavirus pandemic as a bleak global economic situation hits demand, potentially creating a glut of cargo space.
Aircraft lessors, which have helped triple the annual conversion rate since 2019, now face not only the impact of falling freight and freighter lease rates, but could be bogged down or betrayed by too many freighters, analysts say. forced to cancel the conversion.
Chris Seymour, head of market analysis at Ascend by Cirium, an aviation consultancy, said: “The surge in conversion rates has sparked some concerns about a bubble, and he fears there could be a slowdown by the middle of the century.
Airlines such as AirAsia, Air Canada, Qantas and Vietnam Airlines are adding freighters to their fleets to diversify their revenue streams.
But freight rates are down nearly 40% from their December record, and shipping giant FedEx said a slowdown in global demand would worsen after accelerating in late August, overshadowing the peak shipping season at the end of the year.
The rapid economic downturn and growing pessimism quickly reversed expectations from the pandemic, when a drop in aircraft values, coupled with a surge in cargo demand, prompted lessors and airlines to give new life to used aircraft as purpose-built freighters.
A record 192 such conversions are expected this year, up from 122 last year (which was a record in itself) and 64 in 2019, according to Cirium, and will climb to 200,000 next year, based on current orders. 221 times.
Companies such as Singapore Technology (ST) Engineering, Swire Pacific’s Hong Kong Aircraft Engineering Company (HAECO) and aircraft manufacturer Boeing have added passenger-to-freighter (P2F) conversion capacity to take up spares in maintenance hangars after many passenger planes were grounded capacity.
P2F converters are struggling to keep up with the surge in demand as they expand capacity amid a tight labor market, rising costs and supply chain disruptions in the wake of China’s intermittent lockdown.
“We’re fully booked until around 2026,” said Jeffrey Lam, president of commercial aviation at ST Engineering. “So, really, for new customers who come in for booking slots now, they have to book in late 2026 or 2027.”
Lessors such as AerCap Holdings NV, BBAM and Aero Capital Solutions (ACS) have flocked, in some cases, booking speculative switching slots before even signing on with airline customers.
“As the aircraft age and airlines consider asset changes, the lessor community has a greater role or stake in this deal base,” said Mike Doellefeld, vice president of Boeing Global Services commercial programs.
AerCap declined to comment, while BBAM and ACS did not respond to requests for comment.
While some airlines have eagerly snapped up cargo planes due to a strong e-commerce market and the slow return of passenger flights in some regions, analysts wonder how long the trend will continue.
“In the narrowbody segment in particular, I think rental rates will come down,” said Frederic Horst, managing director of Sydney-based freight consultancy Trade and Transport Group.
“Lessors may be trapped in modified aircraft.”
Horst added that lessors are at greater risk than convertors, who can fill their hangars with other maintenance work as passenger demand rebounds.
HAECO is working to avoid over-exposure to lessors’ P2F conversions, said HAECO chief operating officer Richard Kendall, who has seen demand for freighters drop for several years.
“We don’t want to see the bubble burst and get caught up in unfulfilled promises,” he added on the sidelines of the MRO Asia-Pacific conference in Singapore.