The Case for Cargo and Conversions

Converting passenger aircraft into freighters is a multifaceted process, entailing intricate technical, economic, and logistical considerations. It’s not merely about reconfiguring the aircraft; it involves securing certifications, ensuring access to conversion facilities, and perhaps most importantly, addressing the formidable challenge of financing these costly conversions.

According to the reports, the global freighter conversions market has seen substantial growth, reaching a market size of USD 340.0 million in 2021. Projections indicate it will expand to USD 710.0 million by 2027, demonstrating a noteworthy CAGR of 13.06% during the forecast period. This impressive growth has been spurred by the exceptional circumstances brought on by the global COVID-19 pandemic. In a surprising turn of events, the demand for freighter conversions exceeded expectations, manifesting across all regions compared to pre-pandemic levels.

While the numbers tell an encouraging story, it’s important to delve deeper into the challenges and opportunities that define the freighter conversions market. To finance a passenger-to-freighter (P2F) conversion is no small feat, and it poses distinct challenges compared to conventional aircraft financing. However, what’s heartening is the expanding pool of investors and financiers who possess the specialized expertise and the determination to participate in this burgeoning market.

Boeing’s World Air Cargo Forecast 2020-2039 presents an exciting vision of the future. It anticipates a substantial 4 percent annual growth in global air cargo traffic for the next two decades. This surge in demand for freighter capacity is predicted to result in a 60 percent expansion of the global freighter fleet. This translates into a tangible increase, with the fleet growing from 2,010 to 3,260 aircraft. Notably, Boeing’s forecast projects that over 60 percent of these freighter aircraft, around 750 units, will be P2F conversions. If these projections hold true, it signifies approximately 37 conversions each year over a 20-year horizon.

However, as promising as these prospects may be, they are not without their share of unique challenges. The financing of P2F conversions introduces a set of distinctive risks. Key considerations include whether the conversion program is fully developed or still a work in progress subject to crucial approvals, notably the supplemental type certificate (STC). What is the pathway to obtaining these critical approvals, and what happens if they encounter delays or are not obtained as expected?

In case of a default under the conversion contract, the question of step-in rights for financiers or third parties becomes pertinent. The financial health and performance risk of the conversion contractor is also a critical concern. What happens if the contractor encounters difficulties? Who retains ownership of the intellectual property in the program and the STC, and is it accessible to financiers? The track record of the conversion contractor, their resources, and their ability to fulfill the contract within budget and on schedule must all be considered.

The post-COP26 landscape brings a renewed focus on environmental considerations. There’s growing scrutiny of the activities of businesses, financiers, and investors in various industries, aviation included. This stems from the aviation sector’s contribution to greenhouse gas emissions and its role in the pandemic and post-pandemic supply chain. Various green lending frameworks and initiatives are emerging to promote more sustainable financing practices. Yet, the conversion of older, less efficient passenger aircraft into freighters presents environmental challenges. This has the potential to limit the pool of financiers and investors willing to support such projects, particularly those actively engaged in environmental issues. They may face challenges in justifying funding for P2F conversions over newer, greener aviation solutions.

In light of these considerations and the market’s unique dynamics, traditional aviation finance providers have, in the past, tended to shy away from financing cargo aircraft and P2F conversions. The positive news is that a specialized market of financiers and investors with the required expertise is stepping up to meet the demands of this market segment. As the market continues to grow, it attracts new participants eager to finance these projects.

Driving Factors:

Increased Online Shopping: The surge in online shopping has intensified the need for efficient cargo transportation. The demand for timely product deliveries, especially in the e-commerce sector, is a significant driver of the freighter conversions market. Airlines, as well as cargo transport operators like DHL, are key players fueling this market growth.

Need for Conversion: Changing consumer preferences and the need for cost-effective conversion have accelerated market growth. Increased disposable income, coupled with the robust growth in the aircraft sector, has created a substantial demand for cost-effective conversion solutions.

Regional Factors: The regional dynamics of the market are also noteworthy. In Asia Pacific, the rise of e-commerce, coupled with a preference for online shopping and manufacturing activities, is driving market growth. North America is witnessing significant growth due to the need for air cargo services, with several airlines temporarily converting into cargo aircraft.

The freighter conversion market has emerged as a significant player in the aviation industry, capitalizing on the increased demand for cargo capacity. While challenges abound, from financing complexities to environmental considerations, the market is poised for substantial growth. As the world of aviation evolves and the need for cargo transportation continues to soar, the presence of a specialized financing market and a growing pool of investors and financiers bodes well for the future of freighter conversions. With careful consideration of risks, opportunities, and sustainability concerns, the industry can navigate the path to greater success and greener skies.


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