Demand for narrowbody freighter conversions remains strong, driven to a large extent by e-commerce. By now, freshly modified Next Generation 737s ought to be satisfying much of that demand, but the grounding of the 737 Max has thrown the market into disarray, as Paul Eden reports
With MD-80 series feedstock scarce, Boeing’s 737 has long been the staple of the narrowbody freighter conversion market. The Classic 737-200 and revised, modernised 737-300 and 400 models have proven particularly effective as passenger to freight (P2F) conversions and by now the values of early Next Generation (NG) 737-800 and 700 airliners were expected to have fallen sufficiently to be the latest P2F supply.
Just as the NG737 replaced the Classic models in passenger service, releasing them for P2F conversion, so the 737 Max ought to be releasing NGs. But the new model’s problems are keeping it grounded, causing airlines to hang on to their NGs, disrupting the P2F market.
Meanwhile, demand for freighters remains healthy. In its World Air Cargo Forecast, 2018-2037, Boeing predicts a doubling of air cargo traffic over the next 20 years, requiring 2,820 freighters to replace ageing aircraft and meet market demand. Almost two-thirds of these will be converted freighters, including 1,220 narrowbody conversions, so it ought to come as no surprise that operators are looking to the 737-800 and 700.
Challenges in the marketplace
Alvey Pratt, director of converted freighters and complex modifications at Boeing Global Services, confirms: “There are challenges in the feedstock market, but we are still seeing high demand for the 737-800BCF and have ramped up production. After adding production lines at Boeing Shanghai Aviation Services and our partners at STAECO, the 737-800BCF programme delivered a record 16 freighters last year. We are also launching another production line at GAMECO this year, positioning us to deliver even more 737-800BCFs in 2020.”
Boeing Converted Freighters (BCF) are designed by Boeing, converted by its partners and supported by the OEM. “Our strong relationships and role as a single point of contact are attractive for customers,” opines Pratt while adding that operators also have the option of “third-party conversion, completed by STC houses around the world”.
Among the latter, PEMCO Conversions focuses on the 737 P2F, but with a broad range of options. Director of cargo programmes Mike Andrews says, “The company will have more than 26 freighter platforms available once we receive certification on the 737-700, which is in the hands of the FAA for its final round of approval. We offer full freighter and FlexiCombi in the 700, full freighter and combi in the 400, and full freighter and Quick Change in the 300.”
The availability of anything other than pure freighters is rare in today’s market, but Andrews confirms that its “700 STC is for the FlexiCombi in addition to a full freighter, giving customers three variable passenger and cargo layout options. It provides the ability to transition from a 24-passenger to a 12-passenger cabin, or all the way to a full freighter.”
Asked how quickly the market might return to ‘normal’ after Max deliveries recommence, Andrews says he’d need a crystal ball, but notes: “I think the Max grounding has changed the marketplace for more than just 737 feedstock because it has set the benchmark for all similar cube and distance aircraft. However, we chose the 700 to give our customers the best option to develop additional capacity. We began with the 737-700 FlexiCombi to provide additional flexibility in our go-to-market conversion.”
The 737-800 offers additional capacity compared to the 737-400 and 700, and has proven a more popular conversion subject, but PEMCO is joined in the market for the smaller aircraft by the considerable expertise of IAI Bedek, which also offers an 800 product.
Rafi Matalon, executive vice-president of marketing at IAI Aviation Group, says: “We’ve had the 737-700 STC since the end of 2018. We’ve converted around eight aircraft already, and have another in our facility in China. We also have two 737-800s in the hangar, their conversion complete, awaiting the supplemental type certificate from the FAA.”
Over the past two years, the company has phased out its 737-300 and 400 conversions to focus on the NG, which means it too is feeling the effects of increased prices. “We’re feeling the influence of the Max problem very strongly as airline operators extend their 737-700 and 800 lease contracts. We’d expected to have plenty of 700 and 800 feedstock, but with supply limited and demand high, prices are also high.”
Matalon says the market’s return to ‘normality’ will depend on the process by which Boeing clears the backlog of stored Max airframes. “In my opinion, we will begin to see 700s and 800s in the market within two or three months of the Max returning to service; the airlines won’t be able to operate both.”
MD-80 to the fore
The focus of P2F work at industry stalwart Aeronautical Engineers Inc (AEI) is also switching towards the 737NG – the 800 in particular. However, with a sizeable legacy of Classic 737, MD‑80 series and CRJ200 conversions behind it, AEI continues to find success not only with the 737-400, but most recently with the MD-83.
Hot on the heels of receiving CAAC certification for its 737-800 conversion, on 28 January AEI announced it was to supply Airwork with a twelfth 737‑400SF freighter. Then, on 3 February, the company revealed that with the more-or-less simultaneous delivery of its twelfth MD‑80SF to TSM in March, an MD-83 would enter conversion for the same customer, with a second in November. Both deals prove the continuing, if limited, viability of these earlier types, but Robert Convey, senior vice-president of sales and marketing at AEI, shares his industry colleagues’ concern over the MAX and its P2F impact.
“We’re seeing high prices, but the problem is a lack of inventory. We don’t buy airplanes, but my customers do and they’re in competition with re-leasing in the passenger market. So long as the Max remains grounded and production halted, that’s going to continue, because as the airlines grow they’re consuming all the 800s, 757s and A321s.
“With the Max line shut down, it will take months to get going again. We’ll be struggling at least for the rest of this year before the market returns to what I call ‘normal’ in 2021 or 2022, in terms of 800s being available at reasonable prices.”
Thanks to its capacity, the 737-800 P2F intrudes into 757 territory, operators seeing either the 800 conversion or A321 P2F as potential 757 replacements. But, Convey cautions, the 757 P2F market is struggling with engine availability. “I just spoke to a customer operating 757s, wanting more airplanes and looking to switch to the 800 in the long term. They asked if I knew of any 737-400s because they can’t find 757s or 800s and, if they do find 737s, they’re too expensive.”
Holding on to Classics
Many operators are likely to hold on to their Classic 737s, and perhaps their 757s, longer than they had planned, but this is unlikely to have a significant effect on maintenance costs, at least in the short term. Marko Halla, chief operating officer and director of maintenance, and Andy Wardle, technical support engineer at the UK’s 2Excel Engineering, explain a well-managed maintenance programme ought to help avoid unnecessary issues.
The maintenance required is well understood, as “aircraft with 20 years of flying before they were modified have the same maintenance needs as passenger aircraft of the same age. But we do find that depending on cargo type, fish or horses, for example, we’re more likely to find corrosion damage below the floor.”
For customers operating BCF aircraft there is a single point of contact for maintenance issues – Boeing. But for most conversions, regardless of age yet potentially exacerbated by it, Halla and Wardle note that “MRO is performed according to approved maintenance data issued by the TC or STC holder.
“In theory, the process is straight-forward. In reality, the major modification designed by the third-party STC holder adds complications, since it’s not always clear if a problem is part of the original design or the STC holder’s modification.”
Offering an alternative
From a purely commercial perspective, if there is an advantage to be had in the market, it ought to go to ST Aerospace/Airbus JV Elbe Flugzeugwerke (EFW). The company offers A320 and A321 P2F conversions, the latter an obvious 737-800/757 alternative. Industry mutterings have in the past suggested that the A320’s freight capacity and perceived ‘fragility’ in the pick-up like freight environment make it a less suitable P2F subject, but by far the type’s major challenge is the position of an air data sensor where the cargo door would be installed. It’s a challenge EFW has overcome in full cooperation with Airbus.
Vice-president of sales and marketing at EFW Wolfgang Schmid says, “With its lower deck container capability, the A321 actually offers greater container volume than the 757, in a smaller aircraft; we’re seeing lots of interest even before receiving the STC, which I expect at the end of the first quarter. We’ll convert at least three A321 P2Fs this year.”
Schmid says combining the A320’s underfloor container positions with its main deck spaces results in a containerised volume greater than that of the 737-800, which can only contain bulk freight below deck, although Boeing’s Alvey Pratt notes: “The 737-800BCF is capable of accommodating lower hold containers via the optional Telair Sliding Carpet system.”
On the main deck, Schmid explains that the A320 offers ten full container positions plus a pallet, while the 737-800 offers ‘11.5’ positions. He adds: “Some companies say the A320 is too complicated for them to convert, but we have access to OEM data, and Airbus is working on a solution to move the AoA sensor from the door area. No one else will have access to that solution.”
All of which must be to Schmid’s considerable advantage in the current market, although he says not. “The Max grounding is muddling renewal plans and feedstock availability and that’s a disadvantage to everybody. At the moment it isn’t really affecting us; the A321 feedstock we need is there and we can provide slots. But we don’t know what its effect will be in the longer term. We all hope it will be settled soon.”