Jetrader -May/June 2013 - 24

The

Future of Freighters

Fuel prices and regulations challenge forecast for narrowbody freighters
By Julie Ahlgren, Jetrader editor
With ﬁve decades of tested and more than
300 cargo conversions, PEMCO World Air
Services is the world’s leading provider of
narrowbody aircraft cargo conversions. Over
the past four decades, PEMCO has brought
26 different cargo platforms to market.
Jetrader spoke with PEMCO President Kevin
Casey about his thoughts on the current
cargo market and where the market is
heading.
Jetrader: Tell us about the current narrowbody cargo aircraft market, including
the challenges and opportunities in the
sector?
Kevin Casey: At the moment, there
is an unusual challenge of keeping up
with orders because there seems to be a
conﬂuence of factors driving demand for
narrowbody freighters. More broadly, there
are challenges complying with regulatory
restrictions on age. The older aircraft
are costly to maintain as a result of the
increasing requirements for aging aircraft
inspections and associated maintenance.
Regulatory agencies, particularly in
developing markets where there is not
necessarily the same level of expertise from
a maintenance standpoint, have increasingly
imposed age restrictions. A recent one is
on leased aircraft in China—24 years of
age. There have been importation restrictions of 15 years and 20 years in places
like Africa, Asia and Russia. The idea is
to make sure that aircraft coming into the
country are not so maintenance intensive
as to pose a risk to the safe operation of
those aircraft. So a broad stroke of how to
accomplish that is setting age restrictions.
The other restrictions are aging aircraft
restrictions and maximum operating ages.
This is driving out some of the “Jurassic”
aircraft. Why? Because they are old, there
are special inspections and additional maintenance associated with those inspections.
They are extremely expensive to maintain.
So if you ﬂy them often, the operating

economics combined with the maintenance
economics are prohibitive.
The other challenge is fuel. Fuel tends
to go up. Without an obvious reason for
a course correction, it is really putting
a lot of the older airplanes in an uneconomical position. If you ﬂy an aircraft
a lot, you have to pay attention to the
operating economics, as well as the
maintenance economics, which has to
be balanced against the capital cost of
acquiring the airplane.
JT: How are you working to meet those
challenges?
KC: We’ve had a 737-300 and -400
conversion program for many years. We
originally completed a deal with Boeing
to acquire and use their design data for
the 737-300 and -400 to design, build and
certify our freighters, our quick change
and our combi- products. We’ve continued
to advance the design. Today we’re on
our third-generation design. We’ve gone
through mean time between failure (MTBF)
analysis with a variety of high-volume
PEMCO customers to determine what’s working about the airplane and any areas that
we can work on to improve the reliability
even further. Presently we’re at 99.4 percent dispatcher reliability. That continuing
design evolution has contributed to a very
reliable product that is operating in some
of the most challenging environments.
There are more than 20 regulatory domains
where our aircraft are operating. We have
now more than 35 customers. We are also
excited to note that we have our 100th
737 aircraft in the works.
JT: With economic factors in mind, where
do you see the cargo market heading?
KC: A lot of people thought the 737s
were done a few years ago, and we saw
hundreds of passenger aircraft retired by
major airlines, particularly in the United
States. Those aircraft have retired at such

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

numbers and increasingly at younger ages,
so that the price of those retired passenger
aircraft is very attractive and now makes it
possible to convert those aircraft at total
package economics that make it feasible to
replace 727s, DC-9 freighters, etc. with a
fuel burn that is dramatically less than the
“Jurassic” freighters. We’re seeing a huge
change over to modern freighters like the
737. My guess is that these aircraft can
easily be converted seven, eight or even
10 years from now. The youngest airplanes
were 1999 models with 20,000 to 30,000
hours. They are just barely broken in. These
aircraft were designed to be operated at
least 25 to 35 years, and when they go
through a modiﬁcation and a maintenance
check on them to the extent that we do
during conversion, we add a lot of life to
that airframe.
We’ve had a huge number of aircraft
operating for as many as 21 years on just
our 737, and those were the early designs.
I think our third generation could certainly
eclipse that—aircraft that are operating
today that are 10 or 15 years old could
ﬂy for another 20 years.
Higher utilization operators are going
to be paying closer attention to fuel burn.
The 737NG and other modern types will
ultimately start coming in to take some of
the orders that the Classic could have ﬁlled.
The timing will be driven both by the price
of the feedstock and the fuel cost. If we
see fuel continuing to go up the charts,
I think you could easily move the needle
closer. Some people are predicting 2016 or
2017 for the 737NG. The economics have to
be right so that the deployed cost of that
asset as a freighter on the ramp is right. I
think at some point in the not too distant
future, we are going to see the 737NG in
the market together with the Classic for
several years. Eventually the 737NG will
pick up the mainstream, lower-utilization
operators and the Classic will start to
feather down.
http://www.ISTAT.org
Jetrader -May/June 2013

Table of Contents for the Digital Edition of Jetrader -May/June 2013
