Business
COVID fueled e-commerce boom, falling plane costs leading to converting passenger planes to freighters
The ongoing coronavirus pandemic is redefining the concept of innovation for the aviation industry in a very unique and different manner
From Air Canada AC.TO to China’s CDB Aviation, airlines and leasing firms are rushing to permanently convert older passenger jets into freighters, betting on a boom in e-commerce as the value of used aircrafts prices are going down amidst the crises.
Already, both Boeing and Airbus are sitting on a huge inventory of unused planes and price discounting is in progress.
This has created a unique opportunity for passenger-to-freighter (P2F) conversion companies, including Singapore Technologies (ST) Engineering Ltd STEG.SI, Israel Aerospace Industries (IAI) and U.S.-based Aeronautical Engineers Inc.
Aviation analytics firm Cirium expects the number of P2F conversions globally will rise by 36% to 90 planes in 2021, and to 109 planes in 2022.
The market value of 15-year-old planes has fallen by 20% to 47% since the start of the year depending on the model, according to advisory firm Ishka, which makes freighter conversions more attractive.
Air Canada is looking to convert several of its Boeing Co BA.N 767s, Russia’s S7 Group is acquiring its first 737-800 converted freighters from lessor GECAS, and lessor CDB Aviation has ordered two Airbus SE AIR. PA A330 conversions from ST Engineering’s EFW joint venture with Airbus.
Permanent conversions are a financial bet that air freight demand, which was weak before COVID-19, will remain strong for years to come as shoppers turn to e-commerce.
The conversion boom is also helping aviation maintenance, repair, and overhaul groups offset some of the lost business from the decline in passenger flights.
U.S.-based Aeronautical Engineers is also seeing a dramatic increase in demand for conversions, said Robert Convey, its senior vice president for sales and marketing, citing a 30-40% fall in the value of planes.
“We’re seeing younger and younger aircraft being converted due to the large number of passenger aircraft that have been grounded and are not likely to return to service in the near future,” he said.
Although news of a vaccine roll out in the U.S. today may boost travel sentiment in the upcoming holiday season, consumer shopping and travel preferences have changed drastically in the last eight months and it is still unclear if people will travel freely without fear.
The airline industry estimates it will take until 2024 for passenger traffic to recover to 2019 levels as global uncertainty still prevails.
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