Fundamental shifts are taking place in the structure of aviation market that is seeing the Asian markets become stronger and have more capability to enhance routes and fleets. Ultimately this will mean a transition from predominantly belly capacity to regional freighters, according to the head of M&B Conversions. DonaldUrquhart has the story.

While forecasts indicate the intra-Asian trade will soon exceed that of the transpacific, the regional cargo trade still lags behind in its growth, says Joseph Reinherz, managing director at Dublin-based M&B. “Currently, the regional air cargo is carried mainly in the belly of passenger airplanes and has not yet developed into regional main deck cargo carriers. The next few years provide opportunities to create such cargo airlines by local Asian financing.”

He says the absence of these regional freighters is the missing ingredient in building up the new emerging economy’s infrastructure and will eventually account for part of the increase in the market growth.

“For serving these particular routes and carriers we believe the B767-300 freighter provides a very solid solution by combining some good characteristics such as the largest range of its kind, capable of carrying up to 57 tonnes payload in many flexible configurations, a significantly lower fuel consumption and very low maintenance cost in comparison to other airplanes of the same size.”

The B767-300 converted freighter is precisely the reason M&B Conversions was created. A joint venture between Israel’s IAI Bedek and Japan’s Mitsui, M&B obtained the STC for the B767- 300 conversions in December 2009, and includes both the US FAA and Europe’s EASA.

So far two aircraft have been redelivered to customers and the conversion of the third and fourth airplanes is now underway in the facilities of Bedek. M&B currently has a backlog of three more conversions with seven options and its customer list includes: euroAtlantic Airways, Guggenheim Aviation Partners and Cargo Aircraft Management.

Reinherz notes that current level of demand is still slightly slower than they had hoped when launching the programme prior to onset of the global economic crisis. But the demand still meets M&B’s corrected forecast taking into consideration that the effects of the downturn will continue to linger for some time. The impact of the crisis has also fomented a structural shift in the industry, he adds.

“Recently there is even an increase of interest from various locations in the world including Asia and South America which were not the traditional ones in this business before the crisis. This is an indication of a shift in focal freight market in comparison to the markets before the recession.

“We expect that during the next two years the B767-300 demand will increase and we believe this freighter will be the major backbone for regional trade in several markets such as Asia Pacific, Middle East, South America, Africa and over the Atlantic Ocean,” Reinherz says.

As more concrete signs of the industry emerging from the crisis appear, there is concurrently more activity in obtaining more freighters.

A very important effect that will enhance additional conversions in the near future is the fact that many freighter airplanes from older generations that were parked due to the recession will not return to service.

The impact of last year’s global recession on the aircraft conversion industry was “dramatic” says Reinherz, with most of the operators and aircraft owners immediately deferring all conversion activity and many freighters being parked.

“There was no available financial leverage. The only active players were those who had their own airplanes or finance and believed that there was good value in taking advantage of the situation and to get ready for after the recession.” Practically all widebody aircraft conversion activity stopped while there was minimal activity in narrowbody conversions.

Reinherz doesn’t see a lasting impact from the crisis in terms of how operators view conversions verus newbuild aircraft. The ongoing questions about the preference of converted aircraft versus newbuilds “are really a matter of economic assessment by the operators,” he says. “

It all converges to the level of yield that one can obtain in this industry operating specific scenarios. I believe that conversions will continue to be the cheapest way to obtain the adequate economic solution to the cargo carriers all over the world, in particular in the environment that makes it more difficult to obtain financial leverage.”

Conversions will continue to exist as the best solution for maintaining asset values for a longer period and extending the period of productivity throughout their life cycle, he adds.

The increased complications of technology such as majority composite construction of new aircraft and additional regulations will still not diminish the demand for lower cost solutions for the airfreight industry. These developments may change some of the solutions and possibly make them more costly, but as long as the conversions still make sense from an economic point of view, they will continue, he says.

For Reinherz the technological barriers are not in the composite construction, but in the sophisticated avionics of the next generation to be converted.

He also notes a key consideration is whether the new ‘green’ regulations will have schedules for implementation that allow adequate time for the existing generation to be depreciated before becoming obsolete. “Even if a new ‘green’ platform is developed it will be gradual and won’t happen overnight. This is likely to result in several transitional generations, with each generation providing its own opportunity for conversion,” he adds.