Jetrader - May/June 2010 - 20

Cargo Conversion
How to spot the winners and losers

Candidate Aircraft
By Stephen J. Fortune, Principal, Fortune Aviation Services through a significant reduction in transit time (hence inventory costs), frequent and more reliable schedules, and the ability to build larger shipments that took advantage of the 747’s 10-foot high main deck. Subsequently, as the 747 passenger fleet aged, operators were attracted to the compelling economics of freighter conversion. In 1978, FedEx launched overnight U.S. domestic door-to-door envelope and small package service with full-sized aircraft and single handedly created a requirement for narrowbody short-haul freighters, particularly the Boeing 727. FedEx’s success was made possible by its revolutionary Memphis-based hub and spoke system combined with the 727’s speed and volumetric capacity. UPS followed suit in the early ‘80s and eventually several hundred 727 freighters, mostly ex-passenger aircraft, were placed in service. As FedEx’s domestic market grew rapidly, so did their need for larger volume, longer range aircraft, hence their introduction of the DC10-10, a regional widebody freighter in 1981. The DC10 had superior operating economics and technical characteristics than any other widebody available, and FedEx eventually opted for the DC10-30 for its international routes. Until the mid-90s the 747, DC10 and 727 converted freighters dominated the market. The venerable DC8 and, to a lesser degree the 707, primarily fulfilled niche requirements for long, thin routes and high density, lower value cargo (e.g. auto parts). Three distinctly different market segments had now developed—the long-haul intercontinental market served with the 747, DC10-30 and MD11 and very recently the 777; the regional widebody market for high volume, medium range routes served


In my Jetrader article last year, the principal question posed was: Are freighter conversions good investments? To summarize, the “four Cs” were found to be necessary for success—Candidate aircraft, Conversion capacity, Customers and Cash. Provided an aircraft type was in demand at a time when conversion capacity was available and the aircraft owner had the financial resources, the ingredients existed to extend the useful life of a passenger aircraft and earn a compensatory return on the additional investment. In this article I will examine in more detail the aircraft attributes necessary to be a successful conversion candidate. Which aircraft types are winners and why? An understanding of these attributes allows the owner/lessor to make the appropriate strategic decisions for the “end of life” period for their asset types. Evolving Freighter Market Requirements – Since the development of the air freight market in the 1950s, the requirements for cargo aircraft have changed to reflect changes in the market. With apologies to commercial aviation historians, commercial air cargo truly came of age with the advent of the 747 freighter. As the transition to a global economy began, the 747 was ideally suited to carry large amounts of high-value goods on intercontinental routes. Prior to the 747, if an international shipper had a large volume shipment, their choices were limited to the narrow confines of a DC8 and 707 or much slower oceanic container ships. A regularly scheduled main deck 747 flying on key Atlantic and Pacific routes provided a financial benefit to the customer

Regional Widebody Feedstock Age Distribution
60 50
Number of Aircraft

Conversion Zone

40 30 20 10 0 1 3 5 7 9 11 13 15 17
Aircraft Age Aircraft Age?

767-300ER A330-300 A300-600 19 21 23

20 The official publication of the International Society of Transport Aircraft Trading


Jetrader - May/June 2010

Table of Contents for the Digital Edition of Jetrader - May/June 2010

Jetrader - May/June 2010
A Message from the President
Q&A: Steven F. Udvar-Hazy
ISTAT Shines in Orlando
The State of Aviation Finance
A Closer Look: Airbus A380
Cargo Conversion Candidate Aircraft
Emerging Entrants
Help Yourself
Bavarian Splendor
Flying Higher
Aircraft Appraisals
From the ISTAT Foundation Index
Jetrader - May/June 2010 - Jetrader - May/June 2010
Jetrader - May/June 2010 - Cover2
Jetrader - May/June 2010 - A Message from the President
Jetrader - May/June 2010 - 4
Jetrader - May/June 2010 - Contents
Jetrader - May/June 2010 - 6
Jetrader - May/June 2010 - Calendar/News
Jetrader - May/June 2010 - 8
Jetrader - May/June 2010 - Q&A: Steven F. Udvar-Hazy
Jetrader - May/June 2010 - 10
Jetrader - May/June 2010 - 11
Jetrader - May/June 2010 - ISTAT Shines in Orlando
Jetrader - May/June 2010 - 13
Jetrader - May/June 2010 - 14
Jetrader - May/June 2010 - 15
Jetrader - May/June 2010 - The State of Aviation Finance
Jetrader - May/June 2010 - 17
Jetrader - May/June 2010 - A Closer Look: Airbus A380
Jetrader - May/June 2010 - 19
Jetrader - May/June 2010 - Cargo Conversion Candidate Aircraft
Jetrader - May/June 2010 - 21
Jetrader - May/June 2010 - Emerging Entrants
Jetrader - May/June 2010 - 23
Jetrader - May/June 2010 - Help Yourself
Jetrader - May/June 2010 - Bavarian Splendor
Jetrader - May/June 2010 - Flying Higher
Jetrader - May/June 2010 - Aircraft Appraisals
Jetrader - May/June 2010 - 28
Jetrader - May/June 2010 - From the ISTAT Foundation
Jetrader - May/June 2010 - Index
Jetrader - May/June 2010 - Cover3
Jetrader - May/June 2010 - Cover4