Israel Aerospace Industries And Etihad Tap Into The Booming Market Of Converting Passenger Jets To Cargo Planes.
Israel Aircraft Industries (IAI)
Demand for cargo jets has increased strongly since the Covid-19 pandemic, due to a sharp rise in e-commerce and the fall in belly hold capacity available for cargo stemming from the ongoing reduction in passenger flights.
The numbers are telling. Worldwide belly capacity, measured in available cargo tonne-kilometers, was down 38.9% in June on June 2019 levels while capacity onboard dedicated freighters grew to 29.7% above pre-crisis 2019 levels, data from the International Air Transport Association (IATA) show. For the first six months of the year, industry-wide air cargo capacity remained constrained at 13.7% below pre-Covid-19 levels, but global demand rose by 8.4% compared to first half in 2019—its strongest first-half performance since 2017. Because demand outpaced capacity, both load factors and yields continued to improve. Air freight rates were 55.9% higher in 2020 overall compared to 2019, according to IATA. Revenues from transporting goods by air rose by 27.2% in 2020, to $128.2 billion, “this is a new all-time high,” the global airline trade body noted.
“Air cargo is doing brisk business as the global economy continues its recovery from the Covid-19 crisis,” asserted IATA’s Director General, Willie Walsh. Air cargo, he said, “is a revenue lifeline for many airlines as they struggle with border closures that continue to devastate the international passenger business. Importantly, the strong first-half performance looks set to continue.” Hence airlines’ interest to add full-freighter jets to their fleets.
In parallel, the pandemic has led to the accelerated retirement of passenger aircraft fleets and thus to an increase in aircraft available for freighter conversion.
Almost 200 narrowbody and widebody aircraft have joined the worldwide freighter fleet between May 2020 and February 2021, according to data from aviation industry consultant IBA. Some are factory-build freighters including 29 older Boeing 747-400F re-entering into service from storage or brand-new freighter jets such as the Boeing 777F and the Boeing 747-8F. Most though are converted models, including the Boeing 737 Classics, Boeing 757-200s and Airbus A321-200s in the narrowbody segment and the Boeing 767-300ER and the Airbus A330-300 in the mid-size widebody segment.
The latest aircraft type to be added to the P2F conversion market is the 777-300ER. The IAI-Etihad partnership will focus on this model.
The Abraham Accords
Under the terms of the agreement, Etihad Engineering will initially establish two P2F conversion lines for 777-300ERs at its facility in Abu Dhabi. “The Boeing 777-300ERSF is not only extremely attractive to customers but a technological breakthrough, given that it’s the first in its size category to offer extensive cargo solutions,” said Tony Douglas, group chief executive of Etihad Aviation Group. “Not only do we see the demand, but we view it as a greener, more profitable, highly innovative solution for our airline customers, and an excellent way to drive value for our business.”
The cooperation comes a year after the UAE and Israel agreed to normalize relations under the U.S.-sponsored Abraham Accords. The treaty, explained Yossi Melamed, executive vice-president and general manager of the Aviation Group at IAI, enabled IAI to meet Etihad’ s managers “first-hand, to see their ability and dedication, in addition to witnessing the company’s great capabilities in the field of jet maintenance.” The agreement adds “a significant tier to the relations between Israel and the Gulf States. I have no doubt following this agreement, additional agreements with companies in the region will arrive, and they will economically benefit the sides involved,” he stressed.
The peace accord has also led to the UAE and Israel launching commercial air services between the countries.
The Big Twin
Dubbed “The Big Twin,” the 777-300ERSF will be the largest ever twin-engine freighter aircraft. The $400 million conversion program was launched two years ago, in July 2019, and is jointly funded by aircraft leasing company GE Capital Aviation Services (GECAS) and IAI. The protype aircraft—a GECAS owned ex-Emirates Airline aircraft—began its structural and systems modification a couple of weeks ago at IAI’s engineering and maintenance facility near Tel Aviv Ben Gurion International Airport. IAI’s Aviation Group expects the prototype conversion process will take approximately 130 days and said it aims to finish the certification process in 2023.
“The demand for converting the Boeing 777 aircraft is high, and I expect that the open spots for conversions will be quickly filled,” commented Yossi Melamed, executive vice-president and general manager of the Aviation Group at IAI. “Since IAI does not have wide competition in the field of passenger to freight conversions, we expect to receive over 50 aircraft that will undergo conversion,” he added. For GECAS Cargo senior vice president and manager, Rich Greener, the 777-300ER P2F “is a very well thought out and credible program combining GECAS’s and IAI’s experience in developing a very efficient freighter to meet the current and future air cargo requirements.”
GECAS registered an “immense interest” in the new 777-300ERSF because operators are recognizing the aircraft’s affordability, “best in class economics” and the expanded capacity, Greener said.
The aircraft leasing company anticipates that the GE-90 powered 777-300ER converted freighters will achieve up to 21% lower fuel-burn per metric ton than the larger, four-engine 747-400 freighters and offer 25% more cargo volume than the current twin-engine 777-200 production freighter. “And all this with the range capability [of up to 7,370 nautical miles] to seamlessly replace aging 747-400 and MD11 freighters,” it pointed out.
GECAS has already committed 18 777-300ERs (including the prototype aircraft) from its portfolio to the Big Twin program and it holds an additional 12 options. Kalitta Air is the launch airline and in June signed up for two more operating leases for the new long-haul freighter, growing its 777-300ERST contract with GECAS to five examples. The Michigan-based provider of scheduled and on-demand charter service in the U.S. and around the world currently operates a fleet of more than three dozen cargo planes, including 747-400F, 767-300SF and 777F.
Converting a passenger jet to a cargo plane is no easy task. It includes changing the structure, which involves installing a new cargo door, replacing and strengthening the aircraft floor, installing reinforcements near the cargo opening, and modifying electrical systems to enable safe and convenient operation. In addition, the 777-300ERSF process will include receiving certification for the converted aircraft by the Civil Aviation Authority of Israel (CAAI), the Federal Aviation Administration (FAA), among others.
It also does not come cheap. GECAS or IAI did not release the 777-300ERSF conversion cost, but IBA estimates the conversion cost of a 2005 built Boeing 777-300ER to be around $32.5 million. When also considering acquiring a feedstock aircraft and other associated costs, IBA estimates the total outlay for an aircraft of this age to be around $54.5 million.