Jetrader - Winter 2014 - 11

The main challenge
in the near-term,
at least for our
classic fleets, is
going to be finding
acceptable feedstock.
This will certainly
affect conversion
levels moving
toward 2016.

in cases where there are security concerns,
but those instances are being reduced. And
I don't ever see it fully coming back for
widebody platforms.
The medium widebody market is suffering from some of the same circumstances
affecting the large widebody sector, but
not to the same degree. The future is a little
more optimistic, but I don't think you are
going to see large numbers. You'll see six
to 10 a year being converted compared to
what we used to see with 20 or 30 a year
being converted.
The narrowbody-gauge aircraft really
don't have much capability for freight in
the bellies. So the shipping options for
1,000 to 2,000 nautical miles are to send
it via truck, train or dedicated narrowbody
freighter. There aren't a lot of passenger
options to the smaller city pairs. Also, the
integrators are a big part of our business.
We supply converted aircraft to TNT, DHL
and to third-party airlines flying for FedEx

and UPS, who typically don't operate narrowbody aircraft themselves.
JT: Tell us about the status of your active
programs.
RC: The active programs include the
737-200, which is still in production but
not likely to see any conversions due to
the age of the fleet. Next is the 737-300.
We have two variants of this-a nine pallet
and a 10 pallet. It is active, but we're only
seeing two to four conversions per year at
the moment.
The 737-400 is the shining star right
now. We'll do 28 total conversions this
year. We're predicting a total of 33 conversions next year, and 26 of these will be
737-400s. The primary driver is the cost of
the airplane. It's become very economical
to buy the passenger feedstock and then
covert it. The worry with the 737-400 is
feedstock; there's just not a lot available
in the condition or with the hours/cycle
that our customers are looking to convert
so in between the transition between the
737-400 and the 737-800, we may see a
slight uptick in the number of 737-300 and
MD80 conversions.
The MD80 is off to a slower-thanexpected start. We are forecasting two to
three units converted a year. We are the
only conversion company to offer this platform option and have about six customers
who are actively using the airplane. There
are plenty of conversion candidate MD80s
available, and the extremely low upfront
capital investment for the aircraft platform
will make this a good option for many thirdtier operators. The user base for the MD80
is growing, but it is certainly overshadowed
by the current popularity of the 737-400.
The CRJ200 is in development. About a
year from now we expect to have the STC.
Currently there are 26 orders in the backlog. It will be operated by smaller airlines
which fly for FedEx, DHL, UPS as well as
general charter. It will most likely operate
out of cities where you need the jet speed
but you don't have the volume to support
a larger freighter.
When I look at new programs, I'm trying
to stitch together a seamless set of conversion programs and find programs that will
keep our production and manufacturing
going. The CRJ is the right airplane at the
right time, and it fit the requirements of
the smaller operators. There were 1,100

manufactured, and the older units continue
to drop in price, which makes it a perfect
conversion candidate. We've been doing
this long enough that we know which aircraft are suitable for conversion. We try to
time our programs appropriately to fit the
overall market needs.
The 737-800 is the latest program. We're
in talks with several customers now for
launch positions for that aircraft. It will be
replacing the current 737-400s and some
of the 737-300s. It will be the freighter of
choice for the next 20 or 30 years. We know
we are early, but I'd rather be upfront and
ready for the wave before it hits.
JT: Where do you see demand for these
main types coming from?
RC: On the -400s, we're seeing new
demand from the U.S. We have not seen
narrowbody freighter demand in the U.S.
for the last 20 years. Europe has been a
very big consumer. They seem to be replacing the 737-300s and moving to 737-400s.
Africa is continuing soft. I think the aircraft
is still too expensive for that region. We
are doing quite well in Central America,
specifically Brazil and Argentina. In comparison to Europe, it is limited growth. Asia
is continuing steady. What China is looking
forward to is the NGs. I think we'll see a
lull in classic conversions in China for a few
years and then they will be one of the first
to operate the NGs.
JT: What challenges do you foresee ahead
for the passenger-to-freighter market,
and what type of demand are you forecasting for the coming years?
RC: The main challenge in the near-term,
at least for our classic fleets, is going to
be finding acceptable feedstock. This will
certainly affect conversion levels moving
toward 2016.
In addition, the NG is an expensive
airplane today, and it still will be in 2018
when we ramp up our production. Our
thinking is that the initial conversions
for that aircraft type are going to be from
companies that already own the passenger aircraft, such as leasing companies,
banks, and airlines that have passenger
and freight operations. It's probably too
early to tell where the lease rates will be
in a couple of years, but if you own that
asset already, you will have more flexibility
with the rates.
Jetrader  *  Winter 2014 11
Jetrader - Winter 2014

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