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E-Commerce Impact On Cargo Conversions

As e-commerce grows, so too will passenger-to-freighter aircraft conversions.

Printed headline: Prime Time E-Commerce


It’s kind of ironic that tasks that used to get us out of the house—shopping for groceries, new shoes, a bicycle pump or even furniture—now are frequently done from home with a few clicks. A few
days or hours later, the e-commerce goods arrive at your door.

Many of these goods travel by air, driving air cargo to increase 4.2% per year over the next two decades, according to Boeing’s latest biennial World Air Cargo Forecast.

The International Air Transport Association (IATA) says that airlines transport 52 million metric tons of goods each year, or 35% of global trade—and that revenue from cargo represents 9% of airline revenues, which IATA says “represents more than twice the revenues from the first-class segment.” Cargo is clearly big business and will only get bigger.

The cargo market relies on passenger-to-freighter aircraft conversions. Airbus predicts that 2,400 freighters will be needed over the next 20 years—1,600 converted and 800 new. Boeing’s forecast for the same 2018-37 period calls for 2,650 new freighters—1,670 converted and 980 new. But aircraft feedstock can be tough to acquire, given strong passenger demand and trickle-down effects from new aircraft delivery delays and groundings.

Take the Boeing 767. The “767 feedstock is still relatively scarce,” says Quint Turner, ATSG’s CFO. “It’s a great airplane for passenger airlines, which are not rushing” to retire them, he says, and the Boeing 737 MAX grounding and residual Trent 1000 engine problems for the 787—which is supposed to replace the 767—have reduced options.

ATSG says it is the largest 767 cargo aircraft operator in the world, running airlines, leasing aircraft, providing ACMI services and owning MROs (Airborne Maintenance and Engineering Services and Pemco World Air Services). This mixed portfolio enables it to retire aircraft from passenger service and convert them to freighters—although that is not its primary source.

Some of the 767s are coming from a deal ATSG made with Jetran last year to purchase 20 of the aircraft, most of which formerly flew for American Airlines. “We have purchased five of our Jetran allotment so far,” says Joe Hete, ATSG president and CEO. In early August, he added that “We contracted to purchase three other 767s from ANA, with one to be acquired in 2020.”

Two companies convert 767s into freighters—IAI and Boeing—and so far ATSG has exclusively used IAI. ATSG had 11 767s waiting for or in the process of being converted, as of June 30.

The U.S. Defense Department is ATSG’s largest customer, providing 36% of its second-quarter revenues. Amazon followed, with 20%, and DHL, with 15%.

Amazon operates 22 ATSG aircraft, which will climb to 23 at the end of this month, says Turner. By the end of 2020, Amazon will operate at least 30 767s from ATSG. Given that FedEx and Amazon ended their air delivery relationship in June and will terminate the ground service contract at the end of August, Amazon has a gap to fill.

While Amazon is developing drones to deliver packages weighing under 5 lb., which it says make up 90% of what it sells, drone delivery isn’t ready for prime time yet. 

TAGS: Airframes
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