Vallair is ramping up cargo capabilities and sees opportunities as a wave of new freighters take off. Keith Mwanalushi speaks to head of cargo conversions Peter Koster while in Montpellier, France.
Nestled conveniently beside Montpellier Méditerranée Airport in the south of France, integrated aviation company Vallair has a fully functioning MRO facility.
Vallair has two facilities in France, including another in Chateauroux. The company provides integrated support for mature aircraft across various business units, including trading and leasing, aircraft teardown, aircraft MRO, engines, aerostructures, painting, and cargo conversions.
On arrival, it’s evident there is plenty of work on the go, with a couple of Airbus A320/A321s and Boeing 737-400 Classics undergoing end-of-lease checks and post-cargo conversion MRO works.
Vallair has delivered 12 737-400 converted freighters to date. Peter Koster, head of cargo conversion business unit explains that the company entered the market following the start of maintenance activities and trading on the mature aircraft types.
“Suddenly it was visible to us that these aircraft were not for part-out’s, so that’s how we grew into that business for conversion,” Koster states.
Vallair has converted 737-400s with AEI and PEMCO. “Basically, we deliver turnkey solutions for airlines that do not want to undertake the conversions by themselves, or may not have the capabilities to do so.”
Koster attests that the process can be complex: “You have to source the aircraft, assess what needs to be changed, make the business plan, finance the aircraft while its being converted, and then deliver on the turnkey basis. That’s basically the added value that Vallair brings,” he says.
Looking ahead, it’s clear that the -400, as popular as it might be for cargo conversion, will see availability levels dry up.
“Indeed, this is a feedstock driven business – we may see some aircraft that we would consider for conversion, but frankly speaking its getting more difficult to find spares, as well as more difficult to find the right feedstock,” Koster affirms.
He stresses that the [Classics] can be converted as long as a good aircraft can be sourced that will meet the stringent requirements needed.
“In Europe for example, industry players are almost saturated with Classics, and gradually progress towards the NGs [Next Generation 737s], not necessarily because of features that the -800s offers, but because they can’t find the feedstock that is worth the long-term investment,” Koster tells.
He explains that the investment, and adding the value of the conversion on top, does not always justify having the assets in your books or even leasing it. “I think the last batch of good 737 Classics is about to be absorbed.”
There is a gradual shift from the Classics to the NGs as Koster observes: “West Atlantic are currently taking deliveries and we can see that the industry is asking for those freighters.”
In April, West Atlantic took delivery of the first 737-800 Boeing Converted Freighter (BCF). The operator will receive four 737-800 aircraft in addition to its current Classic fleet.
West Atlantic expects the additional capacity and NG efficiency offered by the -800 will deliver real benefit by improving reliability, lower aircraft operating costs, and provide a better environmental footprint.
“I see that the -800 will now end up in networks and we can see those networks opening up for the -800s and ready to pay the prices and premiums. In my view the growth of the -800 is coming with firstly, the lack of feedstock and secondly that you have end users that are able to pay the cost for those aircraft.”
Some industry analysts say approximately 300 lease ends on average are forecast each year to 2022. The expected trend is increasing numbers of redeliveries over the next few years; naturally many of the leases will be extended, as passenger demand will continue to be strong.
Koster agrees that the leases of the -800 have expanded, and there could be limited availability for the -800 until around spring 2019, having its impact on current feedstock prices.
Then comes the issue of engines, which is a market of its own: “You don’t want to end up hanging on to too much value on your wings while flying low utilisation programmes. So, there are two markets that you need to observe; one is the feedstock on the frames, but also the feedstock on the engines.”
Interestingly, Indian low cost operator SpiceJet announced the launch of its dedicated air cargo services. The first freighter aircraft to be inducted by SpiceJet is a Boeing 737-700.
SpiceJet plans to have an air cargo fleet with the first four freighters scheduled to be inducted in FY 2019.
“There is a huge untapped market for air cargo services in India, and a player like SpiceJet – with its low cost structure – is best suited to address this need,” the airline said in a news release.
Reportedly, the global boom in e-commerce shipping is facilitating such strategies to move into the freighter market. Koster however, is not entirely convinced that it’s only e-commerce driving freighters in India.
“I believe India in general is maturing as a domestic air cargo market, and I think it’s going to be very strong. I don’t believe it is only e-commerce driving freighters in India.
“It has room for growth in terms of express, it has potential in terms of domestic ordinary cargo, and the surface travel in the country is still challenging. I think that there are a lot of commodities such as perishables that are being flown much more than previously.”
With the 737 Classic feedstocks dwindling, much attention has turned to the NGs and the Airbus A321. In February 2018, Elbe Flugzeugwerke (EFW) announced that it had secured a launch contract from Vallair for its A321 passenger-to-freighter (P2F) conversion solution.
At that time, and assuming all is on track, the Germany-based aerospace company said it will convert 10 A321-200 passenger aircraft to a 14-pallet cargo configuration for Vallair.
“Although we are the launch customer of the Airbus product we don’t rule out conversions for Boeing,” Koster stresses.
For the A321, it’s quite clear that there is demand for that type of capacity – “We have signed agreements with both convertors, EFW and 321 Precision Conversions.”
For airframe MSN 891 to Precision (prototype) the expected time of delivery will be 4Q 19, Koster reports. He says in early November the next aircraft MSN 835 will head for induction to EFW, and the conversion will be done by ST Aerospace in Singapore.
Notably, delivery for the EFW aircraft will also be at the same time as the Precision A321 in Q4 2019.
“Obviously there is a difference in time frame. The prototype with Precision is significantly more complex than it would be with EFW having all the data from the OEM. One is an OEM supported conversion and the other a reverse-engineered conversion design,” Koster explains.
Vallair sees huge potential in the A321 P2F, not only as a replacement of the B757F, but as a key tool for the cargo industry to achieve the projected growth rate of the air freight market in general – in particular driven by express services and e-commerce.
The A321 P2F will be the first aircraft to introduce a containerised lower deck to the market segment of narrowbody freighters, a significant game changer for any hub and spoke operation, the company indicates.
The A321P2F conversion programme is the first in its size category to offer containerised loading in both the main deck (up to 14 container positions) and lower deck (up to 10 container positions).
With a generous payload-range capability that can carry up to 27.9 metric tons over 2,300 nautical miles, the A321P2F is the ideal narrowbody freighter aircraft for express domestic and regional operations.
Vallair has purchased several A321s and placed them on lease agreements with various operators to expand the cargo conversion portfolio. These aircraft will ultimately serve as ongoing feedstock for the company’s launch of the P2F cargo conversion programme.
In terms of the most ideal sector lengths for P2F operations, Koster reckons that will depend on the operator.
“Generally, I believe the aircraft is ideal for an operation of anything between 1.45 and 2.45hrs flight time. I don’t think integrators will select the aircraft purely on its range, it may find one or two homes where the range matters, but I think it will be the volume that counts.”
The A321 however is still a popular passenger aircraft, and when looking at current feedstock levels, it’s clear that they are in abundance, but Vallair is on top of those that are available for sale or trading.
“It is very much macro environment driven. Whatever the geopolitical situation is, it may impact the availability of certain aircraft or the demand of certain aircraft. I believe we will see A321s becoming available at about the same time as the 737-800s.”
With the A321’s reliably operated by the passenger business, Koster feels that actually speaks for the aircraft. And when it comes to its smaller sibling the A320 and its candidacy for conversion?
“The A320 is having like for like competition that the A321 doesn’t have. In my opinion the success of the A320 is dependent on the success operators have with the A321, in which the single-type operation for an operator will make it cost efficient to run the A320 in parallel.”