By Jamie Freed, Ari Rabinovitch and Allison Lampert
SYDNEY/JERUSALEM/MONTREAL (Reuters) - From Air Canada to China's CDB Aviation, airlines and leasing firms are rushing to permanently convert older passenger jets into freighters, betting on a boom in e-commerce as the value of used planes tumbles amid the pandemic.
That has created a huge opportunity for passenger-to-freighter (P2F) conversion companies, including Singapore Technologies (ST) Engineering Ltd, Israel Aerospace Industries (IAI) and U.S.-based Aeronautical Engineers Inc.
Aviation analytics firm Cirium expects the number of P2F conversions globally will rise by 36% to 90 planes in 2021, and to 109 planes in 2022.
"We estimate that most slots are sold for 2021 and at least 40% for 2022," Cirium Head of Market Analysis Chris Seymour said. "There is an increase in newer-generation programs, notably the 737-800 and A321 as well as the A330, although older types like the 767 continue to see strong demand, driven in the past few years by Amazon building their own fleet."
The market value of 15-year-old planes has fallen by 20% to 47% since the start of the year depending on the model, according to advisory firm Ishka, which makes freighter conversions more attractive.
Air Canada is looking to convert several of its Boeing Co 767s, Russia's S7 Group is acquiring its first 737-800 converted freighters from lessor GECAS, and lessor CDB Aviation has ordered two Airbus SE A330 conversions from ST Engineering's EFW joint venture with Airbus.
The P2F conversions are a step beyond the cheaper temporary conversions many airlines have implemented during the pandemic, which remove passenger seats to carry more cargo.
Permanent conversions are a financial bet that air freight demand, which was weak before COVID-19, will remain strong for years to come as shoppers turn to e-commerce. The airline industry estimates it will take until 2024 for passenger traffic to recover to 2019 levels.
Freight markets are notoriously volatile, however, and have been beset by extended downturns; shortage can quickly turn into overcapacity, analysts warn.
Normally about half of the world's cargo is carried in the bellies of passenger planes, but the hit to demand has left the world more reliant on dedicated freighters.
"2020 has seen record high freighter aircraft utilisation, and our view is that the pandemic has accelerated the long-term structural shift towards increased e-commerce demand," said CDB Aviation chief executive Patrick Hannigan.
Boeing said cargo yields had risen by 40% through September because of the pandemic-related passenger disruptions, and it forecasts more than 60% of freighter deliveries over the next 20 years will be conversions rather than new widebody freighters like the 777. Narrowbody freighters are almost all conversions.