“A lot of capacity has come into the market and yields have been diluted as a result, however we see this as a temporary deviation from the long term positive trend given the underlying strength of the cargo demand in the region,” says Paul Newrick, GAP’s managing director.
While noting some modal shift from air to sea, he reckons that the drive to just-in-time manufacturing and the trend towards high value shipments that will need to move by air will continue.”The exact line between air and sea willnaturally move backwards and forwarddepending on many factors, but we arevery confi dent in the long term trend,”he says.
GAP, an investment management company that traces its heritage back to the famous Guggenheim family, fi rst entered the freighter market by converting an ex-Swissair MD11 in April 2004. In the same year, it was one of the fi rst backers of the B747-400 freighter conversion programme, ordering nine of the type. In addition, the company ordered six production B747-400ERFs in June 2005.
The majority of these aircraft were sold in January to Aircastle, a listed company owned by Fortress, a leading hedge fund, as part of the normal process of realising investment returns, but Guggenheim will continue to manage the -400s through the conversion process. Five have so far been delivered, with two going to Air China Cargo, two to Martinair and the most recent one to Great Wall Airlines based in Shanghai.
Meanwhile Guggenheim has been placing orders for next generation freighters, including four 747-8Fs and two options ordered in September 2006, three 777-200LRFs and one option ordered in December, and six A330- 200Fs ordered in January.
Newrick explains that freighters make an attractive investment for a number of reasons. One is that cargo is often counter-cyclical to the passenger market, with the SARS crisis an example of a time when the passenger industry slumped, but cargo demand kept going, with the fall in the amount of belly capacity also pushing up freighter demand.
The demand for military lift in times of conflict also increases freighter demand, providing another countercyclical factor, he points out.
But Guggenheim also takes advantage of particular sweet-spots in freighter availability and demand. For the -400 conversions, one key factor has been conversion candidates staying in passenger fl eets longer than expected due to the delay to the A380 and the rise in longhaul low cost airlines such as Oasis.
For new freighters, by buying in the launch phase Guggenheim is able to get attractive prices and early delivery slots on freighters at a time when airlines may be reluctant to commit. Newrick also notes that with high fuel prices making aircraft such as the 747-200F uneconomical, and 747-400 conversions in short supply, many airlines are being forced to consider new freighters for the fi rst time.
Investing in the 777F and the 747- 8F might seem like a fairly safe bet, but Guggenheim’s commitment to the A330-200F raised a few eyebrows. Newrick admits that the 65 tonne payload aircraft will have to carve out a new category for itself, but reckons it will be ideal for intra-Asian routes, as well as north-south traffi c between North and South America, or Africa and Europe. The latter two sectors are still often served by ageing DC-10s and DC8s, he points out.
Meanwhile on intra-Asian routes, there is a vast gap between 737Fs and A300Fs and the 777F which Newrick reckons will be fi lled perfectly by the A330F. Airlines which are phasing out B747 combis, or operating 777-300 passenger aircraft on regional routes with high belly capacity might also make the jump to the A330F.
The A330 also has a payload-range advantage over the 767-300, which Newrick reckons is also an attractive freighter. However, as the aircraft are remaining in passenger service longer than expected, with established carriers awaiting 787s or A350s or using them as a fl exible longhaul aircraft, they are currently too expensive for freighter conversion. – Peter Conway
