The aircraft leasing market has changed considerably due to the Covid-19 pandemic, with freighters now hot property, as Justin Burns discovers.

Demand for freighter aircraft has grown since the outbreak of coronavirus, as more dedicated maindeck capacity is needed to meet the boom in ecommerce and medical shipment growth, as well as to fill the cargo capacity shortage.

As the leasing of passenger aircraft models has stalled due to the significant fall in traffic since March, the freighter leasing market has gone in the opposite direction. Airlines, freight forwarders and ecommerce firms
are all leasing freighters to make up for the lack of belly cargo, while express operators are also expanding their fleets through leasing agreements.

Freighters to the fore

The Covid-19 pandemic has radically altered the aircraft leasing market landscape, as the number of passenger aircraft in operation has fallen significantly, leading to reduced available belly cargo capacity, plus the need for freighters to fill the capacity shortage.

Global ecommerce markets have also grown substantially this year, due to changing consumer trends caused by the pandemic, further swelling demand for cargo capacity, while the express sector continues to expand.

Atlas Air Worldwide is seeing strong demand for freighter aircraft leasing, explains executive vice-president and chief commercial officer Michael T Steen. The services of the company’s freighter carriers Atlas Air, Polar Air and Southern Air have been in high demand in order to serve the need of the market.

“We are seeing an increased demand for freighters, interest in longer-term capacity and lease agreements, as well as strong express and ecommerce growth,” he says.

Prior to the pandemic, belly space in passenger aircraft accounted for around half of the global air cargo capacity he notes, but this figure has fallen, meaning more reliance and need for freighters.

“Industry forecasts anticipate passenger capacity is unlikely to return until a vaccine is widely distributed,” remarks Steen. “Experts believe it could likely take several years for passenger air travel to recover to pre-Covid-19 levels. With reduced passenger operations, a significant amount of cargo capacity is no longer available in the market.”

Another lessor seeing strong demand for freighter aircraft leasing is Air Transport Services Group (ATSG), via its subsidiary Cargo Aircraft Management (CAM). Company CCO Mike Berger says there has been strong growth during the pandemic and also via changes in the global marketplace, especially in increasing demand for the converted Boeing 767 freighter aircraft.

This is being driven by customers serving both the ecommerce and regional express markets, fuelled by increasing online consumer spending as, according to Berger, the aircraft provides the capacity and range required by its customers.

ATSG, the world’s largest lessor of Boeing 767 freighter aircraft, is having a record year; by the end of 2020, it will have delivered 12 freighters to nine companies in five countries and expects to end this year with 78 owned 767 freighter aircraft in operation, 71 of which will be leased to 11 external customers.

Other lessors have seen a similar rise in demand and Vallair announced recently that it is to lease a pair of A321s, which are converted freighters, to wet-lease and charter specialist SmartLynx’s Maltese division.

“With the surge in demand for air cargo as a result of the pandemic, and the availability of feedstock, we believe the A321F will be the future of ecommerce and satisfy market demands for the next 20 years,” asserts Vallair’s chief leasing and trading officer, Alistair Dibisceglia.

SmartLynx will enter the freighter market for the first time and operate the aircraft on behalf of an international freight forwarder. It is also eyeing up leasing a further 10 of the same type by 2023.

Demand across all regions

Freighters are in demand across all regions of the globe, as belly capacity has fallen massively, leaving a shortage of capacity for the peak season. Changes in the marketplace have also provided an opportunity for lessors to win agreements with new carriers and operators.

GE Capital Aviation Services (GECAS) has leased freighters since the start of the pandemic and is helping a new airline operator into the main-deck marketplace. GECAS has penned an agreement with S7 Airlines for the lease of two 737-800 Boeing Converted Freighter (BCF) aircraft, marking the first dedicated freighters for the Russian-based operator.

They are set to be delivered in November this year and January 2021, and will fly both medium and short-haul routes for S7, across various sectors in Russia and the CIS. Likewise, ATSG is seeing growing demand across different regions and the market is throwing up some new leasing opportunities.

“ATSG has seen new opportunities in regional markets across the world,” says Berger. “We have expanded our relationships with customers in Africa, Mexico and South East Asia.” So far this year it has delivered five converted 767s to Amazon Air, which has committed to leasing 11 more in 2021, and by the end of next year it will lease 42 freighters to the ecommerce giant.

In October, ATSG delivered a fifth converted 767-300 freighter to UPS, while Amerijet took delivery of a 767-300 in September and now leases eight of this type from ATSG, while Cargojet took delivery of a fifth 767-300 in October.

Northern Air Cargo has also signed an agreement with ATSG to take delivery of a fourth converted freighter in November; meanwhile, Kenyan all-cargo carrier Astral Aviation has signed for its first 767-200 freighter and Mexican operator MasAir is taking delivery of a 767-200 in October after leasing a 767-300 in July.

Steen notes that Atlas Air is seeing “strong demand everywhere” and explains the Transatlantic trade lane is particularly buoyant, as the sector has experienced a 55 per cent decrease as a result of reduced capacity available on passenger aircraft.

“Transpacific trade lanes, which aren’t as dependent on passenger belly space, are seeing more utilisation,” he comments. “Asia and South America are important regions for us. Much of the cargo we fly into South America originates in China, South Korea and Vietnam.”

Atlas is the principal freight carrier at Miami International Airport (MIA), a key cargo gateway for the Americas, where it operates around 20 departures a day to South America. These freighters are flying finished products, electronics and pharmaceuticals to the region and perishables such as flowers, vegetables and salmon are transported back to MIA and on to destinations around the world.

All types of aircraft

All freighter types are in demand inter­nationally, notably Boeing 747Fs, 767Fs and 777Fs, but especially narrow and medium-body aircraft. Atlas expects the lack of belly capacity in the marketplace, and the ever-increasing growth in express and ecommerce markets, to drive further demand.

“This includes leasing out 747, 777, 767 and 737 aircraft – we have reactivated three of our 747-400 converted freighters and we began operating a 777 freighter from our dry-leasing business, Titan Aviation Leasing. This enables us to serve the strong demand,” he explains.

New leasing contracts that Atlas has secured in 2020 include agreements with manufacturers such as HP and large freight forwarders such as DHL Global Forwarding and Flexport.

“These customers sought committed capacity from us and we were able to meet their needs with our flexible and diversified service offering,” Steen notes. “Also, we recently announced a new partnership with Cainiao, the logistics arm of Alibaba, to launch a charter programme to enhance Alibaba’s extensive logistics network as cross-border trade between China and Latin America continues to expand.”

The deal will see Atlas fly dedicated freighter charter flights between China, Brazil and Chile three times a week to meet rising cross-border trade between China and Latin America.

Conversion market taking off

The passenger-to-freighter (P2F) conversion market has grown in the last few years and a number of different programmes are being operated, utilising various feedstock. Prices of aircraft feedstock are predicted to drop over the coming months, as airlines weigh up what to do with older aircraft taken out of action as a result of the pandemic, potentially leading to more conversions.

Steen forecasts there will be high demand for conversions in both the narrow and medium body categories, as intra-regional express and ecommerce continues to accelerate at pace.

GECAS was the launch customer in 2016 of the Boeing 737-800 BCF programme of converted freighters and continues to add new aircraft to its roster. Senior vice-president and manager of GECAS Cargo Richard Greener says the freighters appeal to air cargo customers, offering “greater efficiency, lower operational costs and better environmental credentials” for the growing express and ecommerce market.

Over the summer, the company signed an agreement with Boeing to convert 11 737-800 BCF options to firm orders and add nine additional options to the GECAS Cargo order book, bringing the total for the type to 74 (60 firm and 14 options). Orders for the B737-800F are beginning to take off as operators and lessors look for alternatives to the B737 classics, which are seeing feedstock begin to dry up.

In other news from the sector, lessor and MRO firm AerSale has entered into a purchase agreement to acquire 24 Boeing 757-200 passenger aircraft that it will convert into freighters. AerSale says it has targeted Boeing 757 passenger aircraft as feedstock “for a burgeoning freight market”.

Airbus aircraft are also being used for conversions; ATSG has formed a joint venture with Precision Aircraft Solutions to develop a supplemental type certificate (STC) for an Airbus A321 P2F freighter conversion. The first post-conversion flight was recently completed for the A321-200PCF freighter, which will allow progression to full certification.

The leasing market has changed considerably due to the impact of
the Covid-19 outbreak and, with passenger traffic set to be heavily impacted for the foreseeable future, demand is likely to remain high in the freighter leasing market.