News / Potential glut of B737 conversions overshadows buoyant air cargo market

The Boeing 737-800 is dominating the passenger-to-freighter (P2F) conversions market, but experts have warned of a potential oversupply against a backdrop of softening demand for air freight.

The aircraft intelligence and consultancy IBA’s latest webinar on aircraft freighter values showed continued demand for freighter capacity led by the B737-800 conversions with a substantial fleet of 121 active aircraft, 47 pending conversions, and 33 in storage. Lease rates remain stable at around $180,000 per month.

The B737-800 has clearly soaked up the sector’s capacity. Conversion centres for the aircraft have sprung up around the world, including at Costa Rica-based MRO provider COOPESA, while Boeing recently opened a facility at London Gatwick to feed growing demand. Other established players like IAI Bedek and AEI continue to support the programme.

Considering the number of conversion sites popping up the risk of too much feedstock going through could quickly result in oversupply.

“We are conscious of a potential for oversupply around the corner. The B737 continues to dominate narrowbody conversions, particularly the -800, but there is that oversupply risk on the -800 freighter,” remarked Jonathan McDonald, manager classic and cargo aircraft at IBA.

Mr McDonald warned that the oversupply could result in softening of values and lease rates. “The increase in capacity and the softening demand could essentially create pressure on cargo yields. The B737-800 P2F has turned out to be a successful programme but can be a victim of its own success. We have to watch out for that.”

Demand for the Airbus A321-200 P2F is coming from operators including Global Crossing Airlines, Express Freighters Australia, IndiGo, Lufthansa Cargo, SmartLynx Malta, and Titan Airways. There are only 10 active aircraft, but 43 pending conversions.

The competing B757-200 P2F has a fleet of 235 active aircraft and 24 pending conversions while 37 are stored.

IBA observers reckon the A321 is not currently a candidate to succeed the aged B757 but rather a supplementary aircraft.

In the mid-sized freighter category, the popular B767 is seeing feedstock drying out and the A330 will be a natural successor. “The A330 is gaining a little bit more traction. Previously, it was the preserve of EgyptAir converting their own aircraft but there is definitely far more universal demand,” Mr McDonald said.

The A330 has seen a drop in values, perhaps due to feedstock pricing coming down on those aircraft, thus driving down the conversion price. IBA reports high demand for the A330-300 P2F with currently 17 active aircraft and another 22 pending conversion.

IBA considers the A330-200 P2F more of a niche freighter, with five active aircraft and a further seven pending conversion.

The wider air cargo market is facing pressures from all sides. IBA has observed headwinds in terms of operational costs, inflation and labour issues. “We have seen those costs being pushed in terms of freight rates. The lower capacity compared to demand has pushed those up, so we are looking at a softening demand environment for air freight and downward pressures on rates.”

The increase in the cost of living is also expected to put pressure on load factors as well as weak export orders, according to Mr McDonald. “It has been more of an issue in Europe and in the US on the dedicated freight supply. It is less of an issue in Asia and particularly China, although we are starting to see some inflation building there.”

There is a steady throughput of conversions in China, noted Mr McDonald. “We’ve seen a big uptick in demand and an increase in the number of aircraft that are being converted. That should balance the dynamic with a weakening outlook for demand and a continuing increase in supply.”

Recently, Boeing and Guangzhou Aircraft Maintenance Engineering Company (GAMECO) marked the first redelivery of China’s first Boeing converted B767-300 from the GAMECO conversion line in Guangzhou.

The first B767-300BCF line started in the second quarter of 2022 and the second line opened in September 2022.