SINGAPORE, Sept 22 (Reuters) – The airline trade’s record-breaking scramble to transform older passenger jets to freighters through the travel-starved years of the coronavirus pandemic threats to carry a glut of cargo house as a dimming world financial image hits demand.
Analysts say plane lessors, who helped drive a tripling in annual conversions since 2019, now face not solely fallout from falling charges for cargo and freighter leases, however might get caught with extra freighters or be compelled to cancel conversions.
“This surge in conversions has raised some issues a couple of bubble,” stated Chris Seymour, the pinnacle of market evaluation for aviation advisory group Ascend by Cirium, who fears there may very well be a slowdown by the center of the last decade.
AirAsia (CAPI.KL), Air Canada (AC.TO), Qantas Airways (QAN.AX) and Vietnam Airways (HVN.HM) are among the many carriers including freighters to their fleets of their bids to diversify sources of income.
However cargo charges have fallen almost 40% from December’s report, with delivery big FedEx Corp saying a worldwide demand slowdown is ready to worsen after an acceleration on the finish of August, clouding the height year-end delivery season. learn extra
The speedy financial downturn and rising pessimism are a swift reversal from pandemic expectations, when falling plane values, mixed with a surge in cargo demand, drove lessors and airways to provide used plans new life as devoted freighters.
A report 192 such conversions are forecast this yr, up from 122 final yr, itself a report, and 64 in 2019, and can climb increased nonetheless to 221 subsequent yr, primarily based on present orders, in response to information from Cirium.
Corporations similar to Singapore Applied sciences (ST) Engineering (STEG.SI), Swire Pacific’s (0019.HK) Hong Kong Plane Engineering Firm (HAECO) and planemaker Boeing Co (BA.N) added passenger-to-freighter (P2F) conversion capabilities to take up spare capability at upkeep hangars after many passenger planes had been grounded.
P2F converters are struggling to maintain up with the surge in demand as they increase capability amid a good labor market, rising prices and provide chain snarls within the wake of China’s on-again, off-again lockdowns.
“We’re absolutely booked till round 2026,” stated Jeffrey Lam, president of economic aerospace for ST Engineering. “So, actually, for brand spanking new prospects which might be coming in now to guide slots, they should guide in late 2026 or 2027.”
Lessors similar to AerCap Holdings NV (AER.N), BBAM and Aero Capital Options (ACS) have piled in, even, in some instances, reserving speculative conversion slots earlier than signing up airline prospects.
“As plane age and airways take into consideration asset adjustments, the lessor group has a extra important function or a better stake on this base of transactions,” stated Mike Doellefeld, the vp of Boeing World Companies’ business applications.
AerCap declined to remark, whereas BBAM and ACS didn’t reply to requests for remark.
Despite the fact that some airways have eagerly snapped up freighters, prompted by the robust e-commerce market and the gradual return of passenger flights with cargo stomach capability in some areas, analysts marvel how lengthy that pattern will final.
“Significantly within the narrowbody section, I feel the impact goes to be that lease charges are going to drop,” stated Frederic Horst, managing director of Sydney-based freight consultancy Commerce and Transport Group.
“Lessors could also be caught with transformed plans.”
Lessors face better danger than converters, which might fill their hangars with different upkeep work as passenger demand rebounds, Horst added.
For its half, HAECO is attempting to keep away from being overexposed to P2F conversions from lessors, stated Richard Kendall, its chief working officer, who noticed a drop-off in freighter demand in a few years.
“We do not wish to see the bubble burst and be caught with damaged commitments that we will not then backfill,” he added on the sidelines of the MRO Asia-Pacific convention in Singapore.
Reporting by Jamie Freed; Enhancing by Clarence Fernandez
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