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Spectre Cargo Solutions will take its first Boeing 737NG freighter in June but, as President Kevin Casey explains, the freighter market is still in a state of flux
 

There is little doubt, he says, that e-commerce is driving the market at present. Growing middle classes with disposable income are becoming used to online ordering, especially in China, expecting the orders to be delivered within a couple of days. Major Asian e-commerce platforms such as Alibaba and JD. com are enjoying this surge of demand and looking to expand beyond local customers and the Chinese domestic delivery area, and are tailoring their maturing platforms to attract and serve customers in the rest of Asia as well as Europe and North America. In a recent move, Walmart announced it will be acquiring a 77% stake in Flipkart, the leading Indian platform.

An obvious result of this is the need to get those deliveries to the customer as fast as possible, hence the surging demand for time definite delivery capability via dedicated main deck freighter aircraft. A prime example is the 737 freighter, a mainstay of hub and spoke freighter operations around the world, and for which demand is still ‘super strong’ (around 30 737 Classic conversion this year, he estimates). However, Casey says in some cases operators have recently deferred plans for 737 acquisition to focus on aircraft like the 757-200 and 767-300ER, which are in high demand from integrators like DHL and FedEx, and from northeast Asia carriers like SF Express. This is, in part, in response to their e-commerce customers’ demand for international delivery, combined with the impact of airport congestion and pilot shortages driving substantial demand for longer range and larger aircraft.

He cites the example of Amazon Prime, using a fleet of Boeing 767-300ER freighters operated by ATSG and Atlas Air; as well as renewed demand for new production medium and widebody freighters (just this year, Boeing has received 777 Freighter orders from All Nippon Airways (2), Lufthansa (2), Qatar Airways (5), and Turkish Airlines (3)); and even 747-400Fs coming out of desert storage.

He adds that inadequacy of feedstock to meet 767 demand may ultimately contribute to making ST Aerospace/EFW’s Airbus A330 PTF conversion even more attractive, as the A330-200 and -300 bracket the 767-300ER freighter in terms of volume (one less and one more container) and have comparable payload/range capabilities.

The ongoing popularity of the 737-800 in passenger service is driving limited feedstock availability and high cost, factors which are contributing to some operators temporarily focusing instead on larger aircraft.

In addition to pure availability, challenges to early adoption of the 737NG freighter include the acquisition cost. Not every operator has the ability to acquire a $20 million 737NGF to fill the role of a $9 million 737 Classic freighter. This is the gap that Spectre fills by leasing newly converted 737-700 and -800 freighters. But even at just 1.0 to 1.1% lease factors, this can easily mean over $200,000 per month for a 737-800F, slightly less for a 737-700F.

While these lease factors are well below the 1.5 to 1.7% typical of 737-300/400F, on a cash basis the monthly rent is substantially above the 737CL. However, as Casey points out, the substantially lower fuel and maintenance costs of the NG more than offset the higher monthly rent, particularly with higher utilisation and, increasingly, as fuel prices recover. And when taken together with the NG’s increased payload, range and congested operations capability, it is easy to see why the 737NG freighter is expected to experience strong demand despite its continuing to be the ‘darling of the air finance world’ and its attendant high market values.

However, he says things are expected to change as soon as 2019/2020, when market values are projected to sag and realign with Base Values, facilitating the adoption of 737NG freighters for expansion and replacement of retiring aircraft. This applies most imminently to the -700, as there are several major airlines with plans to exit substantial numbers of aircraft in the next two years as they take delivery of the later MAX models. The increased availability of aircraft is projected to cause a drop in price, and may be improve availability of CFM56-7B engines which presently are in tight supply.

Casey says Spectre Cargo Solutions is in a good place, with 12 aircraft to deliver over the next 18 months (with more than three of each of the -700 and -800 models this year) as the market comes its way. The aircraft will be given a C check and converted at various locations.


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