Chris Kjelgaard

Although older-generation single-aisle and twin-aisle aircraft generally make the best candidates for freighter conversions, values of mid-life examples of newer-generation models such as the Boeing 737-800 will decline enough in the next 24 to 36 months to render them suitable for adaptation to cargo haulers, according to a new white paper released by UK-based consultancy IBA Group. From 2020, the market for conversions of newer-generation aircraft should accelerate to meet freighter replacement and cargo-market growth needs, it added.

 


The release of the report, titled "Freighter Conversions—Capitalizing On the Resurgence In Demand," accompanies the launch of IBA Group’s freighter advisory practice, led by 30-year Aldav Engineering and Israel Aerospace Industries (IAI) veteran Moshe Haimovich. IBA Group’s decision to establish the practice follows IATA’s report of a year-on-year increase of nearly 11 percent in cargo volume globally in the first half of the year and 20-year forecasts from Airbus and Boeing that project a respective demand for 1,950 and 2,480 additional freighters, most of which they expect will involve conversions of passenger aircraft.

 


Focusing on the Boeing 737-800 as a particular example of a newer-generation model of which a ready supply of 14- to 19-year-old examples will become candidates for freighter conversions, IBA Group said that current market values of the model in that age range remain too high for conversion due to strong passenger-market demand for mid-life examples. IBA’s ideal estimated market value for a 737-800 as a conversion candidate is $11 million or less to meet freighter operators’ return on investment criteria, but current market values for those aircraft range from $19.1 million for a 14-year-old 737-800 to $12.5 million for a 19-year-old example, according to the UK firm. Additionally, only 20 737-800s—six of them aged 17, eight aged 18 and six aged 19—remain parked, IBA said.

 


However, IBA forecasts that conversion-suitable 737-800s “at the $11 million price point will become more available in 24 to 36 months, with an acceleration for replacement and growth from 2020 onwards.” Its assessment takes into account two factors: that the adjusted value of each aircraft depends on its maintenance status, when engine condition stands as a significant factor in adjustment of the aircraft’s market value; and that low-utilization cargo operation does not require a half-life condition of each aircraft’s engines.

 


From the end of 2018, when supplemental type certificates become available for 737-800 conversions by Boeing, Aeronautical Engineers, IAI and Pemco—the four companies that to date have announced development of conversion programs for that model—airplanes with market values of $11 million or less will emerge as conversion candidates, according to IBA. However, they’ll carry lower monthly lease rate factors (expressed as a percentage of market value) than those typically calculated for half-life/half-age aircraft, the firm forecasts.

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