What’s Going on in the Used Passenger-Plane Market?

Converting used passenger-planes to freighters is a booming business, but overcapacity looms.

By MC01, a frequent commenter on WOLF STREET:

Air freight has been hot over the past few years. Just to give an example AirBridgeCargo, the wholly-owned subsidiary of Russia’s Volga-Dnepr Group set up to operate Western-made aircraft, has seen its volume grow from 340,000 tons in 2013 to 700,000 tons in 2017, and this is in spite of everything politics could throw its way.

According to the IATA (International Air Transport Association), goods sent by air cargo amount to less than 1% of worldwide trade volume, but account for a massive 35% of value. It estimates that in 2018 air freighters will move US $6.2 trillion of goods, or 7.4% of world GDP.

Goods shipped by air freight range from climate-controlled containers filled with drugs and vaccines produced in India for the European market to young giraffes raised in South Africa for Asian zoos.

And this business is predicted to grow, a lot. Over the next 20 years, the worldwide market for freight aircraft is frequently estimated to run in the 2,000 to 2,500 units to replace aircraft at the end of their life cycle and to satisfy new demand (this may be optimistic for reasons I will explain in a moment).

This demand cannot be met by new aircraft alone. Boeing, which dominates the market for new freighters, manufactures just 36 767-300F per year, and that’s after doubling previous production due to ebullient demand.

And these new freighters are very expensive. The 767-300F lists for $212 million, while the larger and more capable 777F and 747-8F are far more expensive.

That’s where the conversion of far more numerous passenger aircraft comes in, and will become more and more important.

Passenger aircraft are typically active for 25 years after their first revenue-generating flight. But according to the 2017 IBA White Paper, there’s strong evidence this is contracting. Typically, the first owner, whether airline or leasing company, will withdraw the aircraft from service after 10-12 years and reassess its value.

Sometimes the aircraft is simply put back into service after midlife maintenance. But these days, this is less and less the case. Airlines and leasing companies that can afford to buy the latest, most fuel efficient, and least maintenance-intensive aircraft will do that at first opportunity.

More often, the aircraft are sent to “aircraft graveyards” such as those in the Mojave Desert in California, Tarbes-Pau in France, or Luqa in Malta to await their fate. Usually the aircraft are at first put up for sale “as is,” which in the air-transport industry usually means stripping them of their previous owners’ livery and sealing them against the elements and especially insects.

If a buyer is not found after a certain time (usually about six months), the owners will again reconsider their options.

The first option is to have the aircraft “cocooned,” meaning prepared for long-term storage, hoping that at some point a buyer for the aircraft “as is” will materialize. This is not exactly an attractive option: due to high aircraft prices, it means having lot of capital sitting idly for an unknown length of time.

The second option is to break up the aircraft for spares. This is an attractive option if the owners know there’s very little, if any, market for used aircraft such as theirs. This is the fate that earlier this year befell the first two Airbus A380s to enter commercial service, after their previous owners could not find a buyer.

The third option is to list the aircraft as available for a freighter conversion, which these days is an increasingly attractive option.

The cost of a used passenger aircraft varies hugely, and mostly depends on three factors.

  1. How much life the airframe has left in it. The closer an aircraft is to 25 years, the less time it has left to pay its owners back and make them a profit.
  2. How fuel-efficient and maintenance-intensive the aircraft is.
  3. Availability of crews certified to fly the type. No point buying a cheap jetliner if there are only a handful of crews certified to fly the type commercially; and training new crew members costs a small fortune.

As a measure of comparison, a 13-14 years old Boeing 737-800, one of the workhorses of no-frills airlines such as Ryanair, will set you back $19 million. Boeing is still taking orders for the 737-800 and lists it at around $100 million, with the exact price varying according to cabin configuration and order size. Too good to be true?

Well, no. And yes. Your used 737-800 has at the most 12 years to pay itself back and while finding a certified crew is not a big issue, maintenance may be, at least if you want to keep flying in markets such as Europe and the US, whose aviation authorities have stringent requirements for maintenance of aging commercial aircraft.

A late production (1999-2000) 737-300 can be had for under $4 million and a slightly later (2001-2002) 767-200ER for about $10 million. There’s a huge market for used airliners out there.

Converting an airliner into a freighter is a far more complicated and expensive endeavor than merely stripping it of passenger seats, lavatories, and galleys and cutting a large door in its side (image via Precision Aircraft Solutions):

The aircraft needs extensive structural modification, so much it needs a new airworthiness certificate to operate. And since high-level maintenance is routinely carried out during the conversion, sometimes serious issues, such as corrosion or fatigue cracks, may be discovered.

Conversions are usually developed by the aircraft manufacturer in cooperation with the firms that will physically carry out the conversion itself: Airbus and Boeing are running at full capacity and have no manufacturing capacity left to carry out the conversions. Among the firms carrying out freighter conversions are:

  • IAI, Israel (operating under the Bedek brand)
  • Precision Aircraft Solutions, Portland, Oregon
  • ST Engineering, Singapore.

As designing and certifying a conversion is time-consuming and expensive, it is only done if there’s an adequate “feeder stock,” meaning a sufficient number of aircraft out there with enough life left in their airframes to justify the investment.

To give an example of the latter, the last freighter conversion of a Boeing 747-400 was carried out in 2017 by IAI for Asiana Cargo of Korea and most likely will be the last one ever performed: The youngest 747-400s in passenger service are now 13 years old, meaning they have relatively little time left in their airframes to pay their owners back, let alone turn a profit.




The price of a conversion depends on the aircraft itself. For example, converting a 757-200, a favorite of air freighter companies such as DHL, costs about $5.0 million, while converting a 737-400 is $2.8 million.

So far, these “Old Generation” or “Legacy” aircraft have dominated the air freighter market, but over the last five years a lot of effort has gone into designing and certifying conversions for “New Generation” aircraft, such as the 737-800 and several members of the ubiquitous Airbus A320 family. The Boeing aircraft cost $4 million to convert, the Airbus will set you back $5 million.

Carrying out a conversion typically takes three to four months. But overruns seem to become more common these days. This is all the time the aircraft will spend in pieces inside a hangar instead of in the air generating revenue, meaning there’s an additional cost for the owners, usually estimated at around $1 million. If maintenance turns up some nasty surprises, the extra costs can climb all the way up to $2.5 million.

So far freighter companies, especially those operating on the Asian market, have overwhelmingly relied on smaller, cheaper aircraft, the so called “narrowbodies” (with six or fewer passengers abreast in a typical passenger configuration). These include the Boeing 737, but also a plethora of smaller regional airliners such as the ATR 72, Embraer Brasilia, and the Saab 340. While much cheaper to acquire and to convert into freighters, these narrowbodies lack the flexibility of “widebodies” such as McDonnel-Douglas MD11, the Airbus A330, and the Boeing 777.

The rate of widebodies to narrowbodies is expected to change radically over the next couple of decades in favor of widebodies, thanks in part to increased availability of feeder stock as airlines replace their aircraft with newer, more fuel efficient and less maintenance-intensive types.

ST Engineering has started to market a freighter conversion for the Airbus A330 widebody. It lists these conversions at $15-16 million each, a lot of money for a freighter conversion.

Of note, while the passenger version of the A330 is widespread and much liked by airlines, the purpose-built freighter version has been a dismal sales fiasco for Airbus, failing to even scratch at Boeing’s supremacy in the purpose-built freighter segment.

On the other side of the spectrum, Boeing is presently working with IAI to design and certify a freighter conversion for the 777. The purpose-built freighter variant has so far sold extremely well, especially considering the monster price tag, well north of the $300 million mark, but demand is far outstripping supply so a freighter conversion makes a lot of sense.

There’s also another hidden motive behind this decision: Each 777 converted into a freighter is one less 777 on the used jetliner market, meaning higher chances for Boeing to sell more new aircraft and get some cash from the conversion royalties as well. A win-win situation in short.

Enthusiasm for freighter conversions is so ebullient right now there are already some in the industry openly talking about “Next Generation” conversions, meaning the conversion of the latest generation of passenger aircraft such as the Boeing 737 MAX, which first entered revenue-generating service in May 2017.

But such enthusiasm may be excessive: While there’s already a small market for used Next Generation aircraft – see the Airbus A321neo planes owned by the recently deceased Primera Air of Denmark and now parked in Luqa – it’s less than insignificant compared to the enormous feeder stock of New Generation aircraft that is becoming available at increasingly affordable prices. For example, Ryanair has 450 Boeing 737-800 in service that will be replaced with 737 MAX starting next year. This large number of 737-800s coming on the used market is bound to pressure New Generation used prices over the next three to four years.

While air freight is not as cyclical as trucking, it has been suffering from overcapacity for a while. And in spite of everything, that overcapacity is not going away.

Available Freight Tonne Kilometer (AFTK) is a parameter of travel for “empty” freighters on average. It’s calculated monthly by multiplying kilometers traveled by total available carrying capacity in tonnes, then by subtracting average effective load. The higher AFTK is, the less revenue generating payload aircraft are carrying on average while flying around the world.

Post-2008, AFTK bottomed at 41% in early 2016 and has since been steadily creeping up. It now stands at 46%. It means overcapacity is increasing, not by leaps and bounds like one would have in a recession, a brutal affair which is usually over quickly, but in a steady fashion as new capacity steadily outpaces demand. That is bound to cause serious problems sooner than anybody likes. By MC01, a frequent commenter on WOLF STREET

As companies splurge on the largest ships, consolidation rages, and no one wants to back off, but overcapacity reigns. Read…  The Global Container Shipping Industry since the Hanjin Collapse  
 

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  56 comments for “What’s Going on in the Used Passenger-Plane Market?

  1. nick kelly
    Oct 13, 2018 at 3:47 pm

    One percent of volume but 35 % of revenue.
    I.e. Very expensive way to move freight.

    Sounds like another indicator of a peaking economy.
    And it’s already oversupplied?

    • nick kelly
      Oct 13, 2018 at 3:49 pm

      Typo: 35 % of value (not of revenue)

    • Maximus Minimus
      Oct 13, 2018 at 10:17 pm

      Think tulips and flowers ferried to a certain market in the Netherlands and distributed to local markets all around the world. Sound like a civilization close to if not past it’s peak.

    • MC01
      Oct 14, 2018 at 1:16 am

      One ton of 62% purity iron ore: $68.44
      One ton of fresh mango: $1,600

      Which one do you want to travel by air and which one do you want to travel by sea? ;-)

      • VarAway
        Oct 14, 2018 at 2:15 am

        Answer: BOTH!
        Look what Dole, Delmonte, Chiquita are doing….
        All goes by big 40′ reefer containers nowadays.

        Flowers YES, airfreight!

        But I thank you for your high quality reports re.
        Maritime Shipping and your present aircraft conversion
        article.

        • Nicko2
          Oct 14, 2018 at 3:06 am

          One ton of iPhones is even better.

        • MC01
          Oct 14, 2018 at 3:16 am

          I did not pick fresh mango by chance: besides spoiling quickly, it’s sold in relatively very small shipments, three tons at most. There’s a market for it, but not as large as for apples, oranges and especially bananas, which are the prime movers of the tropical fruit trade.

          The Panama Disease changed the fruit industry radically (and launched Chiquita on the stage) and killed off the old fast banana ships which had carried bananas from Africa to Europe as the Cavendish banana cultivar is far better suited to refrigeration.
          Now TR4 is here… but we are already straying too far. ;-)

        • sierra7
          Oct 15, 2018 at 10:58 pm

          Decades ago the company I worked for worked with another in Santa Clara Valley called “Tectrol”. We shipped containers of highly perishable foods such as strawberries etc. to Hawaii from CA. On the high seas for 5 days and when arriving were just a “fresh” with high color etc as the day loaded in CA for the trip. I imagine today it is more advanced process and outside of fruits that “mature” en route by their own gases more products can still travel by ship container.

      • DV
        Oct 15, 2018 at 6:54 am

        Gold is moved around on planes too.

  2. Crysangle
    Oct 13, 2018 at 4:53 pm

    Hello MC01, that was very well laid out and well up to Wolf’s standards.

    I am wondering if you see large drone airfreight, say as with Natilus, having a future and eventually taking market share from passenger based aircraft ?

    A while back I noticed other plans for low altitude freight aircraft, which theoretically would have been very efficient using the higher density air just above sea level…but not noticed since, are projects like that still around?

    Thanks.

    • MCH
      Oct 13, 2018 at 7:13 pm

      There has been a lot of talk about unmanned air frightens or remot pilots versions. But a lot of regulations would have to change in the process. Imagine the first time some jerk decides to hijack an unmanned freighter via remote means and do whatever with it. I think the dangers can’t be overstated there.

      For example, UAVs from the military can’t be used easily around US air space today, there are all sorts of requirements to enable even a single flight. FOr the drone freighter market to take off a lot has to happen first.

      I think we will see fully autonomous ocean vessels first before large scale drone freighters the size of a 737.

      • Crysangle
        Oct 13, 2018 at 8:14 pm

        That is what I thought also. Even though many of the ideas are trans-ocean only, they are going to have to approach more sensitive airspace as well. The AIA is pushing for regulation, they talk of introduction “over the space of the next twenty years” and give a substantial market share as aim.

        A while back, and not remember where (maybe at Mish’s site or even here?) we had quite a deep discussion on autonomous ocean vessels, drew up a lot of cost and technical info plus opinion of those in know, and the strong conclusion was that crew number could not feasibly be reduced below the minimums now sometimes being used.

        For cargo aircraft the scenario is a bit different in terms of maintenance etc. so maybe possible with acceptable loss of aircraft ? In discussions for passenger flight my view, and that of pilots, is a big no – not at all feasible. So I guess large drones would be working just to keep aircraft losses to an acceptable minimum.

        Something to watch maybe.

        • Oct 13, 2018 at 11:11 pm

          “A while back, and not remember where (maybe at Mish’s site or even here?) we had quite a deep discussion on autonomous ocean vessels…”

          here:

          https://wolfstreet.com/2018/09/01/challenges-fully-autonomous-cargo-ships/

        • nick kelly
          Oct 14, 2018 at 12:04 am

          ‘so maybe possible with acceptable loss of aircraft ?’

          The auto- plane has to land at an airport. The largest loss of life in an air accident (500+) was a runway collision with another plane.

          To be remotely feasible, freighter auto-planes would need their own dedicated airports.

        • Crysangle
          Oct 14, 2018 at 9:00 am

          Thanks Wolf, I looked up the one I was commenting on and that was at Mish but same kind of arguments. They have managed to whittle down crew to absolute minimums in some cases, but a large part remaining are engineers ( to keep engine running… sort of nescessary) and required hands for lookout, maintenance and takeover . I think fully autonomous ships are possible ( and they are being built), just not going to be feasible, or cost effective even, unless they achieve very high reliability , in most circumstances. MC will know about large engine maintenance probably ( I don’t) , but I do know about many other variables (including human error) that make it very difficult to imagine fully automated ships succeeding – it makes little sense not to have a small crew, even only two or three, for all the duties they are able to perform….but maybe that is the aim, to have no one humanly responsible and any loss just a footnote in the corporate margin. Cannot have people getting in the way of that now.

          Nick, they were talking seaports… but still does not offer guarantee, and I agree that the push for regulation is just that. I guess they want to open the perspective, and not that there is any system waiting to be implemented. All the AV tech is going to be very gradual and many decades before it finds whatever place it is going to take IMO. A lot of it might just be deemed not worthwhile, or simply unwanted, in practice.

      • Crysangle
        Oct 13, 2018 at 8:26 pm

        Just for the sake of it, this is the AIA link that appeared, but it is paywalled or something so I just copy search results :

        “AIA Forecasts $150B Market For Large Commercial UAS | AWIN_Commercial content from Aviation Week
        aviationweek.com › awincommercial › ai…
        Feb 26, 2018 · Natilus. The advent of large, commercial unmanned aircraft systems (UAS) for cargo and passengers is closer than most people believe, and legislators and regulators should begin work now to enable…”

        No way Jose I would fly in autonomous passenger aircraft though, pilots are very clear about the limited role autopilots are currently able to play.

        • MCH
          Oct 13, 2018 at 8:42 pm

          I would be happy to fly in autonomous aircraft as long as the CEOs of the companies and the engineers who designed the system flew on the same flight with me.

          Autonomous has a long way to go. This is a bit off topic, but if you look at the autonomous cars today, they are literally not ready for prime time because they’d have to share the roads with us nasty humans. Although in reality, the technology involves so many parts, and not just a little guess work that cars are far more complicated than aircrafts.

          Without knowing any more, ships I can see potentially as autonomous, simply because out of sight, out of mind. But I bet that’s not how a CEO might think of his expensive roboship with its cargo.

          I do know that there are people using drones to deliver stuff already, medical test tubes, small defibrillators and such, but the ranges on those things are pretty limited. But what they are proposing with Nautilus is a quantum leap from that idea. Good luck with security, and insurance on that thing is going to be a bitch.

        • Crysangle
          Oct 13, 2018 at 9:21 pm

          I would wave the CEOs and designers adios from the airport cafeteria.

          If you think fully autonomous aircraft are possible just talk with some pilots. It isn’t a question only of how often they have to intervene now or how limited autopilot is , the point is that if no one is there and able to intervene on the ( then hypothetically rare) moment needed , not good. It is a big discussion though, and not one I would want mid-autonomous-flight.

          The trouble with autonomous ships if I remember included : Cost or practical impossibility of replacing everything crew do with eq. , liability hence insurance cost and legislation, the small fraction of total cost crew take up and the fact that the maintenance work they do will need to be done anyway, and so on.

          There are small examples of ships that are autonomous, but they work in very contained environments.

          I think it will take a lot more time than many people imagine for this kind of technology to find whatever place it is going to take, as limits are shown and then passed…or not.

        • nick kelly
          Oct 14, 2018 at 5:30 am

          ‘The advent of large, commercial unmanned aircraft systems (UAS) for cargo and passengers is closer than most people believe, and legislators and regulators should begin work now to enable….’

          Note the internal contradiction in the proposed scenario: ‘Gee it’s happening and we don’t have our legislation ready…’

          The tech has to satisfy the regulators, not the other way around. Barring the use of private air space and runways, testing can’t begin without regulatory approval.

          Of course, ‘closer than most people believe’ is impossible to prove or falsify.

          What can be proven is that most people don’t know how long it takes to certify a new airliner with NO new technology.

    • MC01
      Oct 14, 2018 at 1:38 am

      Perhaps one day, but not in the foreseeable future.

      California-based Matternet has been making much of their air-delivery drones in Switzerland, but I am honestly very skeptical about them because they make no economic sense. It seems to be a venture that stays afloat due to the usual deadly cocktail of low interest rates, investors ready to take a big risk for no return and the fact that Switzerland is basically a world apart when it comes to domestic air regulations (see the Tante Ju still in revenue-generating service even after this year’s horrific crash) and especially healthcare.

      The other “aircraft” you are mentioning are the ekranoplane, which were ground-effect vehicles developed in the USSR.
      Marshall Dimitri Ustinov, the then ministry of defense, liked the idea of the ekranoplan both for the potential military applications and to showcase Soviet scientific prowess, and allocated to ekranoplan development a lot of funds and resources.
      Soviet ekranoplan were huge, unlike the puny vehicles one sees at air and sea shows nowadays, and very fast due to their projected military applications. This highlighted a laundry list of practical problems which had not been seen on small prototypes and which in the long run have proven to be impossible to solve. Longitudinal stability in particular has proven to be a deal-breaker for large ekranoplan.
      When Ustinov died, his successor Serei Sokolov personally ordered the ekranoplan program scrapped and personnel transferred to other ventures as he believed it to be a waste of time and resources.
      Perhaps the longitudinal stability issues which plagued the huge Soviet ekranoplan can be solved, given time, money and brainpower, but the associated development costs are so high as to make these vehicles a non-starter against conventional freighter aircraft.

      • Crysangle
        Oct 14, 2018 at 10:57 am

        I flit about over all kinds of sites, and the picture I remember was a prop powered herculese looking aircraft…but it was a design concept only I think using the first 100ft. To me what is most interesting is the tradeoff in terms of fuel cost /speed of delivery and I think that is always going to be the main defining parameter, but no reason that airfreight will not be a sought after and profitable line . I just spent an hour trying to calculate crew costs for ship freight, because in the link of Wolf’s someone mentioned 20 to 60 %. This is way out as far as I understand and must just look at restricted daily operating costs, not total costs including fuel, capital repayment, basically all the built in company costs associated with moving any good from A to B… the crew at very very @ $ 5000 per day maybe are a pittance in comparison… but sure that is a cost that would be cut if possible. The autonomous ships offered are much more expensive though…doesn’t add up to me.

        I had seen the ekranoplane somewhere also before, as troop carrier I think… but I could not picture it with even a mild swell, that definitely would be a longitudinal stability issue even if the other was solved :-( .

        • MCH
          Oct 14, 2018 at 7:59 pm

          https://en.wikipedia.org/wiki/Lun-class_ekranoplan

          A Wikipedia link for anyone that is interested. The plane was supposed t be a combination of assault troop carrier with the ability to conduct patrol like what hydofoils did back in the 70s and 80s. I think it was flown at least once.

          I don’t think the Nautilus idea will necessarily work mainly because of financing. For this to occur, it would take a company on the scale of Boeing to make it happen. In today’s quarterly driven environment, that’ll never occur. Just think about Boeing’s struggle with bringing the NMA online, and all that would be is something sized in between the 737 and the 787. Same look, same design, pretty much same everything. Yet Boeing can’t make up its mind to initiate. It’s sad. Although may be Boeing’s Aurora Flight Sciences can make something happen.

  3. Michael Gorback
    Oct 13, 2018 at 5:20 pm

    Why is this news? Southwest turned its fleet into cattle cars a long time ago.

    My boarding pass two weeks ago said my number was Stall 37.

    • Matt P
      Oct 13, 2018 at 7:53 pm

      Southwest’s boarding procedure is far better than half the passengers jockeying for space while waiting for the boarding to start.

    • MCH
      Oct 13, 2018 at 8:44 pm

      You know, of all the airlines around, SW is one of the least bad. UA, Delta, American are all worse by comparison, and don’t get me started on Spirit, Alligeant and such.

      The decent airlines IMO are Jetblue, Alaska, may be Hawaiian.

    • Unamused
      Oct 13, 2018 at 8:58 pm

      ->My boarding pass two weeks ago said my number was Stall 37.

      Passenger flights became obsolete when domestic carriers converted to flightworthy tins for extra-jumbo sardines.

      It might be worthwhile to explore alternative means of transportation if you’re particularly adventurous and/or desperate:

      – If you do third-class air freight you only get five security checkpoints instead of the usual eight, but you’re charged extra for oversize baggage.

      – Depending on points of departure and arrival, a slurry pipeline might be possible, but you’ll need a wet suit, scuba gear, and goalie pads.

      – Knights of the Road can advise you on how to get where you’re going, but luggage is typically limited to the traditional bindle. On the plus side, schedules are flexible, rates are much lower than Amtrak, and as a hobo your social status is superior to that of the tramp or bum.

      – Stowing away on the wing of a plane at night in a storm is supposed to be feasible, if you can avoid Shatner taking pot shots at you, as is stowing away on passing Vogon spaceships. Bring a towel. Avoid any craft propelled by a bistro or improbability drive.

      – Site-to-site transporters are quick, easy, and free if you’re up to date on Star Fleet protocols.

      – Never go anywhere by diplomatic pouch or UPS. Don’t ask.

      – You can charter a private flight to anywhere if you can come up with $56k for fuel.

      – Astral projection is free but tedious and notoriously unreliable. Space shuttles will take you anywhere in the world at government expense except where you want to go. It may be illegal to go anywhere in LA on foot.

      I don’t fly. I’m never in a hurry because I manage my time properly, and find I can get always get to where I’m going (Plitvice is nice this time of year) on Norwegian Cruise Lines, eurorail passes, and rented minis. And if I can’t, it obviously wasn’t worth going.

      • Javert Chip
        Oct 13, 2018 at 11:00 pm

        unamused

        Of course you always have the option of flying on a private plane. It only costs (more) money.

        Don’t know if it was intended, but your “Never go anywhere by diplomatic pouch” comment was ironic in light of what appears to have happened in Turkey.

    • MC01
      Oct 14, 2018 at 8:06 am

      I’ve never flown with SouthWest but I’ve read it’s actually rated higher than Ryanair, whose “cavalier treatment of passengers” (The Economist speaking) has become the stuff of legend, albeit Vueling is rapidly earning a similar nasty reputation.
      I guess Jeremy Clarkson is right: there’s not such thing as “cheap and cheerful”, only cheap and dreadful.

      To be honest I originally wanted to write something about no-frills airlines, because it’s a sector that has been literally booming for over a decade now and it’s bound for a correction (which will come and will be tied to the cost of servicing debt, not fuel costs or passenger volumes), but then I realized it would have been too Asian- and European-centered.
      I need to think it over a few times before putting pen to paper as to make it interesting enough.

      • Dave Chapman
        Oct 15, 2018 at 4:15 pm

        SouthWest is pretty bad. As we say in the States, “middle of the pack”.

        The best airline I have ever been on was Air New Zealand, but they do not seem to have service to Philadelphia.

        Air travel was a lot better in the 1960s, but tickets cost four or five times as much (in constant dollars). You get what you pay for.

        As for converting passenger aircraft to freighters, it sure looks like a marginal activity. We either are in the middle of a temporary uptick in air freight, or we are going to see a large increase in production of new cargo planes.

        My guess is that this is temporary.

        • MC01
          Oct 16, 2018 at 1:54 am

          Neither Airbus nor Boeing have any spare manufacturing capability to manufacture freighters besides the few they already do. Boeing is so short on capability it’s reactivating the old “surge line” at Everett, Washington, to start assembly of the new 777X.
          I’ll give you some numbers to show you how tight operations already are: it takes Boeing 7 days to assemble a 737-800 or MAX and 3 more days to paint it. Then in 14 days the aircraft is tested and certified with the FAA, the EASA and other relevant ruling bodies and finally delivered to the customer.
          Outside of wartime that’s the shortest time one manufacturer can deliver a multi-engine aircraft, albeit once assembly of the Airbus A320neo picks up at full steam it will probably beat that by one or two days.
          I am sure if you can find any spare capability to build freighters both Airbus and Boeing would be very grateful. ;-)

          Now, where the purpose-built capability really comes into play is for large-volume freighters with the ability to carry oversized cargo and/or to operate from unprepared airstrips, which has long been the preserve of Soviet-designed aircraft.
          But that’s another story for (maybe) another day.

        • Dave Chapman
          Oct 16, 2018 at 10:17 am

          Right. I live in Seattle (suburbs), and the pile-up of new aircraft in Renton and at Boeing field is quite impressive. (I don’t drive past Everett, but I expect that it is the same.)
          Anybody who drives on the I-5 or the I-405 can clearly see what the production levels are.
          The strange thing is that a lot of these aircraft are “White Tails”, with no owner’s paint. Maybe they belong to leasing companies and will be painted when the final paperwork is complete. . .

        • MC01
          Oct 16, 2018 at 10:43 am

          You are absolutely right: brand new white aircraft = leasing company.
          GECAS, SMBC, Air Lease Corporation… you name it.
          Other more remote but more exotic possibilities include government customers, usually but not exclusively meaning Gulf States, which buy aircraft “bare naked” and have them outfitted with customized interiors and painted in discrete colors as VIP transports. The Japanese government has just had a 777-300ER outfitted this way at Basel-Mulhouse and ARAMCO maintains a small fleet of VIP-outfitted 737’s and 767’s for the private use of the House of Saud and other powerful Saudi nationals.

  4. raxadian
    Oct 13, 2018 at 5:48 pm

    This was interesting, thank you.

    Could you do trains next?

  5. Unamused
    Oct 13, 2018 at 9:39 pm

    A very instructive article. Makes me feel like I should be paying tuition except I don’t remember having enrolled.

    The costs and complications involved in aircraft conversion are impressive. I’d be terrified of being able to stay in business. It would be interesting to see a case study of a successful, profitable conversion, and to compare that to an unsuccessful or unprofitable conversion, which I imagine would be something of a nightmare, even given the expertise needed just to get started.

    I’m always impressed by guys who can pull off big, complex engineering and construction projects. They’re the ones who make the world go ’round and make it all work. Not the bankers, who have the easier job of just printing up the money and skimming the profits.

    • MC01
      Oct 14, 2018 at 2:22 am

      Thank you.

      Plainly put a conversion is considered “successful” if enough aircraft are converted to at very least break even the development, certification and tooling costs.
      That’s the reason so many eyes are on the A330 conversion offered by St Engineering: it was a big gamble by ST Engineering with only minimal backing from Airbus. ST is not just charging a large amount of money at random: Airbus freighter conversions are always difficult, and this particularly so.
      But the feeder stock is out there, and with the A330neo coming into revenue-generating service more is becoming available.
      We’ll see.

  6. Maximus Minimus
    Oct 13, 2018 at 10:05 pm

    Great article. What is the current status of A-380 and the elongated Boeing 747-8?

    • Javert Chip
      Oct 13, 2018 at 11:06 pm

      Emirates (about the only buyer) & Airbus are at loggerheads over new A380 engines. While there have been recent A380 deliveries, there have been no new orders in a couple years.

      ps: list price is about $425M (don’t know what all that includes); avg sale price around $375M (don’t know what that includes either).

      Other than it’s noisy as hell to fly in, I know nothing about 747

    • MC01
      Oct 14, 2018 at 2:34 am

      I may write a bit more about the subject in the future so I’ll be brief here.
      Suffice to say the 747-8 is likely to be the first true commercial money loser for Boeing in several decades despite the freighter version doing very well. The future of high-capacity Boeing passenger aircraft rests with the 777X.
      And the A380… let’s just say while my esteem for the Airbus management is always extremely high, it’s a project that should have been scrapped on the drawing table.
      McDonnell-Douglas did just that with the very similar MD12 and it was the right thing to do.

  7. ZeroBrain
    Oct 13, 2018 at 10:31 pm

    Hi MCO1

    Nice article. A few questions though –

    How do inspectors determine how much “life” an airframe has left in it – is there a regulation enforcing 25 a year cap? I would think that things like mechanical stress might not be visible up until catastrophic failure.

    Also, what causes the drop-off in profitability for an aging passenger aircraft? If a new 737 is $100M and a 14 year old one can be had at $20M, everyone should go for the latter in terms of cost amortized over remaining life. So what factor most explains this? For example, do maintenance costs rise dramatically, do consumers have such a strong preference for newer aircraft, or what?

    Thanks

    • MC01
      Oct 14, 2018 at 3:06 am

      The 25 years limit is not technical limit, but economic: it’s the lifespan after which keeping an aircraft in the air and turning a profit becomes really hard if not impossible.

      As you rightly surmised, the cost and frequency of inspections and major maintenance rise dramatically as the aircraft ages.
      When the original Boeing 747 was introduced, it did more than merely change the way people flown. With it came the Maintenance Steering Group (MSG), a body to to formulate the logic process used for development of the initial maintenance schedule for any aircraft.
      The MSG is not merely there to advise aircraft manufacturers about what regulators such as the FAA demand to keep an aircraft in commercial service, but also to help bridge the gap with airlines, the final users.
      The Concorde aircraft, designed and built without even consulting airlines, was a fiasco still fresh in everybody’s mind: while the aircraft was breaking records and dazzling crowds around the world, it was also losing Air France and BOAC (later British Airways) a lot of money, partly because it was so maintenance intensive.
      On top of this, the MSG works with all parts involved to develop a maintenance program as aircraft are used in real-life conditions and age and regulators introduce new revisions, for example mandating different sensors to be installed or additional inspections to be carried out following accidents (which mercifully are usually not total hull losses and result only in an aborted flight).

      In short your 13 years old aircraft may be cheap to buy, but at that age has a growing pile of checkups (not unlike mankind) and components may be wearing out, or may be approaching the moment of a much feared major engine overhaul. As engines “mature”, meaning new and improved variants are introduced, the interval between shop visits increase: the much widespread CFM56 has gone from 24,000 hours in the 80’s to the present 50,000. But so do maintenance costs: highly trained specialists with very specific tooling do not come cheap. ;-)

      • dave jr
        Oct 14, 2018 at 6:56 am

        To help address “life” the limit isn’t just age but also the number of stress cycles; because all metals have an endurance limit where aluminum is quite low. If a structural member were to fatigue crack, the only fix is to replace it, followed by more and more replacements. This is where costs would skyrocket if operators were allowed to keep the airframe in service.

        Can you tell me, if after cutting in the huge cargo door, is the freight cabin no longer pressurized?

      • Paulo
        Oct 14, 2018 at 7:56 pm

        Not just age but pressurization cycles plus landings and takeoffs determine AC lifespan.

        warning: anecdotal comment
        I have an old friend who flies freighters for KLM and has done so his entire career. From what I understand he likes it. Lucrative, stress reduced, etc.

        However, here is where the feasibility of air transport falls apart. Fuel costs. $100+ oil makes the marginal contracts collapse and just about everything uneconomical in air transport, including most tourism flights and regular scheds. $150 oil = life support for the entire airline industry. Talk of payback makes little sense in this climate.

        I started flying freight 40+ years ago for HBC, and more recently in Yukon. I had forgotten about it until just now as I write this. On slow days we used to fill our bush planes to about 150% over gross and away we went. I flew tons of stuff. I also flew core samples and jade. Tons of drill mud. Tons of pop and beer into large mining camps. First Air still supplies many northern Canadian settlements several times per week of both basics and perishables. Same drill, just newer equipment.

        Somehow flowers and out-of-season berries seems just plain wrong and is analogous to the overreach of modern society. Except for remote communities most air freight for food and supplies is beyond wasteful, imho. I’ve flown key spares and parts required to keep a large pulp mill up and running, (and that made sense), but my most crucial flight other than med-evacs was a bag of Quell ointment when a large logging camp broke out in crabs. One guy was suffering so bad he used Raid insecticide on himself and then shaved (all over). :-) Now that was necessary air transport. Grown men were crying in desperation and all work had stopped.

        regards (now off to supper and another glass of cab/sav)

  8. Javert Chip
    Oct 13, 2018 at 11:34 pm

    Aircraft maintenance is tightly regulated. Planes receive A (daily), B and C (structural check every few years) mandatory maintenance checks. As wear & tear on the airframe increase, so does the cost of maintenance.

    However, fuel efficiency is the most significant determinant for a replacement decision. Currently, a fully loaded 747 (63,000 gallons) at $5.20/gallon is about $325,000 for a single long-haul flight + reserve.

    Assuming you never used the reserve (bad weather, etc) you’re required to carry, and your 747 flew 360 days per year, that’s easily over $100M/year in fuel for your 1 airplane (with a useful life of 12 years, that’s over $1.2B in fuel costs).

    • ZeroBrain
      Oct 14, 2018 at 12:21 am

      Thanks much for the info. Great site, great commenters.

    • nick kelly
      Oct 14, 2018 at 11:11 am

      Glad you have fuel cost per flight ready. So after fuel, depreciation, and maintenance, the cost of the pilot and co-pilot does not loom as large.
      Assuming they get 10,000 for the day, it’s 3 % of the fuel cost and maybe 2 % of total.

      One thing about those numbers: they make the self- driving taxi look pretty good.

  9. subunit
    Oct 14, 2018 at 1:42 am

    Just popping in to say MC01s posts’s are always fascinating stuff.

  10. Peter
    Oct 14, 2018 at 4:10 am

    @Wolf

    https://www.marketwatch.com/story/the-pain-threshold-approaches-for-the-housing-market-analyst-warns-2018-10-11?dist=realestate

    “What many in 2016 thought would never happen again is now reality,” writes Wolf Richter of the Wolf Street blog. “A line in the sand has been breached.”

    • Oct 14, 2018 at 10:01 am

      Yeah, word gets out.

      MarketWatch has been citing my stuff for a while. Nice to see.

  11. Jay Anderson
    Oct 14, 2018 at 7:16 am

    Wolf
    I always appreciate you and your columnists. The topics are diverse, informative, reveal insight, and are well crafted.
    Thanks,

  12. Dale
    Oct 14, 2018 at 12:06 pm

    I’ve become accustomed to the exceptional quality of articles provided by Wolf and the enigmatically-named Don Quijones. This article lives up to that standard. Hopefully MC01 will be a frequent contributor.

  13. Subz
    Oct 14, 2018 at 1:37 pm

    Instead of option 1-3, aircraft owners should significantly reduced the ownership price and convert it as affordable accommodations or hotels. Like what swedish did.

  14. interesting
    Oct 14, 2018 at 6:48 pm

    “ebullient”

    I had to look that one up, that’s a fun word I will enjoy using.

  15. Lune
    Oct 16, 2018 at 11:21 am

    Thanks for an informative article. My question though is, if old planes are so uneconomical for passenger airlines, how are they profitable for freighters? A pound of human flesh costs just as much to carry as a pound of cargo. So if maintenance schedules and fuel costs make old planes unviable for transporting passengers, I’m curious how freighters make the numbers work out?

    And conversely, if the economics of a new plane are that much better, why wouldn’t freighters buy new planes themselves?

    Thanks for a great article!

    • MC01
      Oct 17, 2018 at 6:14 am

      Think just one thing: insurance and crew costs are far lower.
      No pesky passengers to insure against loss of life and limb and you only need two pilots, no cabin attendants.

      On top of that always remember that a passenger weighing 45kg pays exactly the same ticket as a passenger weighing north of 100kg while freight rates are charged by weight and volume.

  16. Rob73
    Oct 16, 2018 at 1:13 pm

    Interesting topic. My first post then after following this site for a while. As a freighter aircraft professional for +20 years I would add the following: standard airfreight doesn’t make the real money. The big bucks are earned by the so called integrators: FedEx, DHL, UPS. FedEx alone have like +500 aircraft registered. Typical air freight from let’s say China to Europe will be quoted to the freight forwarders in the region of 2 – 3 USD / kg plus some surcharges for security and fuel escalation. Compare that to the 100 usd for a letter (flyer) or 200 usd for a small box DHL express from Europe to US. The major driver for these companies record profits is of course the global E – commerce.
    The integrators are fighting to get their hands on suitable feedstock aircraft. All the interest goes to big widebody machines, even they are mostly flying short sectors of only 1 – 2 hours.
    The big question was always how to make a small fortune in aviation. The answer is… you start with a big one.

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