ATSG to invest in converting A330 passengers to freighter
Air Transport Services Group announced on Thursday that it will begin purchasing Airbus A330 passenger jets and converting them to cargo planes as part of a broader strategy to expand its leasing business in support of network operators express which need larger fleets to keep up with volume growth. The announcement came in the company’s second quarter earnings report, which showed revenue growth of 8% to $ 409.9 million, driven by strong tailwinds in the air cargo industry.
The bundled transport service provider, which includes flying cargo planes for e-commerce giant Amazon, said it has secured 67 coveted production slots for cargo conversions from 2022 to the end of 2025. Twenty of those manufacturing appointments concern the A330, from mid-2023, with the remainder for the medium wide-bodied Boeing 767s which currently dominate the ATSG fleet and the new narrow-body cargo ship Airbus A321.
“The converted A330 freighter, like our 767-300, will be a popular mid-size option for our rental customers,” President and CEO Rich Corrado said in a statement. “The addition of an A330 option will provide our leasing business with a third platform for growth and complement the A321 freighter which we will also be presenting next year. “
At the end of June, the rental arm Cargo Aircraft Management (CAM) announced the purchase of two A321 aircraft and sister company PEMCO will rebuild them to handle containers on the main deck, with delivery to express carriers scheduled for 2022. ATSG ( NASDAQ: ATSG) has another finger in the A321 conversion cake – it’s part of a joint venture, 321 Precision Conversions, which designed the conversion kit and is making money selling licenses to workshops. engineering like PEMCO who do the actual work.
321 Precision Conversions has so far delivered an aircraft that meets European design standards and has two more orders pending after recently receiving Federal Aviation Administration approval.
CFO Quint Turner told American Shipper that Airbus subsidiary Elbe Flugzeugwerke would be awarded the contract for the conversions of the A330, most of which will likely take place at its facilities in Dresden, Germany. EFW is the main rival of the ATSG joint venture for conversions from passengers to A321 freighter and brought the first aircraft to market last year.
The newly acquired 767s will be sent to a longtime partner, Israel Aircraft Industries, for refurbishment.
The growing popularity of online shopping during the pandemic has increased interest in air freight from e-commerce providers looking to meet customer expectations for the speedy delivery of their orders. Experts say this is an age-old trend that is leading to increased investment in all-cargo aircraft and facilitated by the availability of relatively young aircraft at discounted prices as passenger airlines shed more. assets to restore balance sheets decimated by the contraction of air transport.
With air freight capacity still in deficit by 12% compared to pre-crisis levels and the industry recording the highest volume since 2018, the acquisition of quality all-cargo aircraft is a priority for operators. everywhere, not just for express carriers. This is no small feat as the conversion shops are reserved and Boeing, the only manufacturer of large freighters, only builds some 777s per year and the last 747-8s coming off the production line are dedicated to UPS. On Thursday, Atlas Air Worldwide (NASDAQ: AAWW) announced that it was purchasing eight 747-400 jumbo freighters at the end of the lease rather than returning them so that it has enough planes to continue serving its customers.
But when it comes to the A330, which is not particularly old, opinions are divided on its effectiveness as a pure cargo plane, with opinions favoring the stretched version. EFW has a program to convert passengers to freighter, but so far it has not been widely accepted compared to the 767 of the same class. The balance is expected to balance out, however, as more A330s become available in the secondary market.
At a virtual press conference in May, Willie Walsh, chief executive of the International Air Transport Association, said he “wouldn’t be surprised to see some airlines consider the possibility of converting planes to cargo like of the A330s ”, which he described. as “very efficient” and having “a large loading capacity”.
The A330-200 cargo plane has a payload of 71 tonnes, according to Airbus specifications.
Airbus stopped producing a factory-built A330 freighter because it only had 72 orders and only delivered 40 after the others were canceled. More than half of these planes have already been sold by their original owners. “The planes are only 5 or 6 years old, so it’s a pretty clear indicator that the plane was not an efficient cargo ship,” said an aviation consultant who asked not to be named.
Egyptair has started the Airbus conversion program with the A330-200 model, and DHL Express is taking some of the longer-body A330s, which analysts say will be the most popular version due to the additional bulk. DHL also bought several used A330 production cargo ships, for which it probably got very good prices.
“We see the -300 as the obvious choice in terms of volume capacity. The EFW program has been successful and the lower cost of applicants makes it a very viable option, ”said Phil Seymour, President of IBA Group, a London-based aviation intelligence and aircraft assessment company.
The consultant said he is not considering any US freight operator to acquire A330s, as they will likely stick to the types of Boeing planes they are familiar with. But operators in Europe and Asia, where the A330 passenger jet was popular, will take some of the converted freighters.
The bulk of CAM’s leased fleet is dedicated to North America, so the A330 opens up more international opportunities for ATSG.
The company will consider both -200 and -300 for conversion, depending on availability and other factors, Turner said.
ATSG said its growth in the second quarter compared to the same period in 2020 came from its rental and ground services business, offsetting a decline in passenger and military charter operations. Comparisons were also skewed by unusually high sales last year when governments and other entities chartered all available cargo ships for emergency flights of COVID medical supplies.
A 5% drop in contract airline operations is mainly due to a reduction this year in passenger operations for Omni Air customers, the reduction in Boeing 757 flights for the US military by Air Transport International and the withdrawal of four Boeing 757 freighters operated by ATI for DHL. Revenue from freight activities increased sharply for the quarter.
Aircraft usage, measured in hours between pickup and park, for air cargo operations increased 26% in Q2 2020, with most of the gain coming from express delivery customers such as Amazon and DHL. ATSG said it expects continued growth in express network flights in 2021, with 46 B767s in service for Amazon by the end of the year, 13 more than at the end of 2020.
Aircraft leasing and related revenue for the quarter increased by $ 16.7 million, with ATSG having 17 more Boeing 767s on lease since June 2020, including five in the second quarter of this year. In the first half of the year, it delivered seven of the 11 additional Boeing 767s it will lease from Amazon and fly for Amazon this year.
CAM had 15 Boeing 767s that were or were expected to be converted to cargo planes, up from eight at the start of the year. CAM bought 12,767 passengers during the first half of the year for the modification of a freighter, all for a rental deployment in 2021 or 2022.
Officials earlier this year said CAM was placing a record number of freighters with customers and that those leases would provide a more stable long-term source of income than freight and passenger operations.
ATSG’s adjusted operating profit increased $ 2.2 million from the previous year quarter and $ 22.2 million from the first quarter, helping it meet its target to increase adjusted earnings before interest, taxes, depreciation and amortization by 6% to $ 525 million for the year.
“E-commerce merchandising continues to drive strong demand for cargo aircraft capacity around the world, and our Boeing 767s are at the center of this global trend. We have orders from companies such as DHL, Star Air and Amerijet to lease at least 10 more Boeing 767-300s next year, and demand from several customers for more from 2025, ”Corrado said.
The aviation services company will increase its capital expenditure by $ 50 million from previous forecasts, to $ 550 million, to pay for five additional passenger jets to be converted, including four 767-300s and one A321-200, a- he declared.
ATSG now has 110 aircraft in service, including 91 cargo aircraft, 15 passenger aircraft and four dual-purpose aircraft. Three of the planes are owned and supplied by Amazon (NASDAQ: AMZN), with an ATSG subsidiary providing crews, maintenance and insurance.
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