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Despite Rising Demand, ATSG Not Eyeing New 767 Freighters

Marketing getting tighter for freighter-conversion candidates.

The top executive at Air Transport Services Group (ATSG) says his company is not interested in ordering new 767 freighters despite rising demand for the aircraft, nor can he could see a business case for the OEM to build new passenger versions of its venerable widebody twin.

"We don't see the value for, at least in our business, going after a new freighter," says ATSG President and CEO Joe Hete. "The returns just aren't there. The converted freighter pretty much does the same thing as a brand-new one at basically a third of the cost."

Speaking with analysts on a recent earnings call, Hete said that offering new 767 freighters makes sense for Boeing, even with converted passenger versions available. The OEM has a backlog of 100 767s, including 38 tanker transports that are "basically freighters with the ability to refuel airplanes at the same time." The other 62 are earmarked for FedEx, and it's conceivable that more could be sold to large cargo-airline specialists.

Despite rumors of interest from passenger airlines looking for a cheap mid-range widebody, Hete does not see Boeing offering new 767 passenger aircraft because of conflict with the company's in-production product line.

"I don't think they're going to do it with a passenger [version] because they're going to be cannibalizing some of the business associated with the 787," Hete says. "It would strictly be from a freighter demand perspective."

ATSG's portfolio includes one of the largest fleets of 767s at one company. As of Sept. 30, it had 64 767s in its 74-aircraft fleet—58 of which were flying with customers. The other six are either undergoing or awaiting conversions. The company expects to close deals on five more 767s this year, and is seeing demand for more lift.

"We have [prices] pre-negotiated for any additional conversions we will do, at least through the end of 2018," Hete says. "But it's really about the feedstock pricing at this point in time and it's still a pretty tight market from that perspective."

ATSG plans to place 11 more 767s with customers between Sept. 30 and the end of 2018—nine of which are spoken for. At least one new customer is on the list to receive aircraft, and the company says that could expand.

"A lot of the deployment that we've got in 2018 is with existing customers, although we are on schedule to deliver two aircraft to a new customer in Asia," says ATSG COO Rich Corrado. "But we're getting calls not only from airlines, but from non-airline companies that are looking to put up aircraft in a network situation that we've never got calls from before—some logistics companies."

ATSG's deal to operate 20 767s for Amazon is an example of the kinds of arrangements that non-airline companies are seeking to move goods within their networks. Corrado says that the Amazon deal isn't likely to be replicated in terms of scale. Rather, companies with specific needs may tap a few dedicated freights to alleviate their reliance on airlines or freight operators.

"These are companies that are in businesses that have specific supply chain flows and needs in a much smaller portfolio, where they're looking for a captive solution as opposed to relying on your traditional belly space, or trying to buy space on main deck freighters," Corrado says. "So looking for more of a dedicated solution, mainly to pick up service dedicated to a manufacturing or distribution environment."

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