Date: Tuesday, May 25th, 2021
Some car owners will only go to the dealer for maintenance, while others are perfectly happy with an independent mechanic. The same thinking holds true in aviation when used airplanes are turned into freighters.
A Bulgarian air cargo company will soon start transporting packages for an express carrier with a 737-800 newly converted to carry containers instead of passengers after ditching Boeing (NYSE: BA) for a smaller engineering outfit to do the job.
Cargo Air canceled its order with Boeing for two passenger-to-freighter conversions and placed the aircraft with Aeronautical Engineering Inc. because the latter offered more favorable production slots, said Angel Petrov, Cargo Air’s commercial and fleet acquisition director.
The decision spotlights a perpetual choice for all-cargo carriers and leasing firms that outsource retrofits: whether to go with the original equipment manufacturer or a third-party provider. Reasons to pick the independent provider, besides production flexibility, include price, ease of doing business and technical differences.
“The OEM is typically more expensive and preferred by some operators, while non-OEM conversions are less costly but still require a certain level of OEM support. In terms of the quality of the work, I don’t think you’re going to see a very big difference,” Steve Fortune, an aviation industry veteran who advises companies on investments in secondhand aircraft, told FreightWaves.
The biggest consideration right now is availability of production slots.
Express delivery companies and their transport providers are snapping up narrow-body cargo jets like the 737-800, which is well suited for short- and medium-haul milk runs, and putting them through conversion programs as the popularity of e-commerce drives higher volumes. The feedstock of used aircraft available for conversion is higher than before the pandemic because financially distressed passenger airlines have downsized fleets and some are turning to the next-generation 737 MAX, which is more efficient. But waiting times for available production slots can be lengthy in many cases, experts say.
Some facilities are able to reconstruct aircraft faster than others. Turn time can be influenced by a facility’s staffing level or more flexible labor contracts that increase time on shift, added Phil Seymour, president and head of advisory at U.K.-based appraiser IBA Group.
Cargo Air’s decision to switch service providers was based on Boeing not offering a production window until February 2022, while longtime partner AEI was able to work on the planes this year, Petrov said. Robert Convey, AEI’s senior vice president of sales and marketing, added that Cargo Air was having trouble locating a second airplane to acquire and bumping up against a hard Boeing deadline to commit, which would incur hundreds of thousands of dollars in penalties if missed. AEI was willing to accommodate Cargo Air’s shifting timeline.
The Miami-based company recently redelivered Cargo Air’s first 737-800 freighter after the European Aviation Safety Agency this month approved its design for commercial use. Commercial Jet, an authorized conversion partner, is scheduled to commence work on the second unit in June and have it ready for operation within four months.
Petrov said the new aircraft will fly under contract with a large express carrier between Cologne Bonn Airport and Italy. Cargo Air’s three B737-300 and eight 737-400 freighters primarily fly for DHL and UPS in Europe and sometimes on short assignments for the Italian postal service and small carriers.
Cologne Bonn is UPS’ European air hub and a DHL Express regional hub.
AEI has several other advantages over other conversion products, Petrov said, without making any direct comparison to Boeing or Israel Aircraft Industries.
“In the end, after working with AEI since 2007 to convert 11 of our 737-Classics, we felt their product was very good and we trusted in their abilities,” Petrov said in an email.
Changing the guts of an airframe is a complex task that requires extensive engineering, certification and manufacturing of installation kits. Licensed maintenance and repair shops cover the windows, remove the seats, add heavy-duty floor beams so containers can be loaded on the main deck, add a thick bulkhead behind the cockpit to protect pilots from shifting cargo and make a series of other modifications.
Independent shops often pay original equipment manufacturers for design data and in Boeing’s case for customers to access a database called MyBoeingFleet, which allows them to update the condition of their aircraft and have continued access to maintenance, engineering and flight operations data, according to aviation appraisers and analysts. Having access to original design data can save money when doing stress modeling and simplify calculations, but some conversion companies are able to obtain necessary certifications without such information.
Different approaches, similar results
Convey was eager to tout AEI’s capabilities relative to Boeing. In addition to a price tag that is at least $1 million more, Boeing adds large charges when customers request change orders, he and other industry experts note.
“It’s just Boeing versus a small company. They just don’t do things nimbly,” Convey said in an interview. “Boeing tries to make the airplane new again and we take the approach that we’re remodeling your kitchen. We’re not building a new house. There’s always something you find when you’re remodeling your kitchen that’s going to cost you extra money and take a little more time.
“As a converter you need flexibility and understanding. If you take a hard line with everything, it drives the cost up. And that’s what my customers who have left Boeing are telling me.”
But several factors can influence the selection process for a conversion specialist, Seymour noted. Customers may prefer certain overseas locations because they are more local. And working with Boeing can help speed up technical and engineering issues that inevitably arise during the conversion process.
“Converting old aircraft can unearth previous modifications and repairs that have changed the original structure. Corrosion may also be found that needs additional engineering support,” he said.
Boeing freighter conversion advantages include OEM design, fully integrated manuals and technical support through the converted aircraft’s life cycle, Mike Doellefeld, vice president of commercial programs for Boeing Global Services, said in an email.
“Boeing has more than 40 years of successful experience in passenger-to-freighter conversions, relying on original design data and a deep understanding of the needs of the air cargo industry to deliver superior, integrated freighters,” Doellefeld said. He declined to comment on whether customers are subject to penalties for changing their order, but added, “We do work closely with our customers to understand variables and how we can best support their freighter needs.”
In response to the strong market demand for the 737-800 converted freighter, Boeing continues to increase conversion capacity with new, and existing, maintenance repair partners, creating additional slots in 2022 and beyond. The airframer this month announced it has signed Costa Rica-based Cooperativa Autogestionaria de Servicios Aeroindustriales (COOPESA) as an authorized conversion center, with two production lines scheduled to open next year. In February, Chinese maintenance-and-repair organization Guangzhou Aircraft Maintenance Engineering Co. Ltd. (GAMECO), one of Boeing’s partners, announced plans for a third conversion line for the B737-800.
AEI requires much less lead time to lock in a production date, Convey insisted. Boeing wants notice seven months in advance because it needs the manufacturer’s serial number (MSN) identifying the airplane to be converted. That’s because the manufacturer does conversions through a service bulletin that changes the type certificate (the regulatory approval of aircraft’s design and all component parts) rather than through a supplemental type certificate that approves a design modification. Only an OEM can make that change because it owns the type certificate and Boeing does an engineering review to make sure the aircraft matches the service bulletin.
Small cargo operators typically buy airplanes one or two months out because they can’t afford to have idle aircraft on their books, Convey said. Boeing’s requirements are easier for large leasing companies that already own the passenger aircraft to be converted.
Fortune recalled negotiating a 767 conversion contract with Boeing that included a requirement to provide a specific aircraft MSN well in advance of the induction date and earlier than required with a non-OEM conversion.
Boeing customers either already have the aircraft available or an acquisition plan to have the airplane ready by the scheduled induction date, Doellefeld responded, without providing specifics on the timing.
Convey said the AEI product also has a better configuration. Containers sit back farther in the main deck, allowing the last container to be loaded through the middle of the cargo door, while the last container on the Boeing plane is loaded close to the forward jam because the row sticks into the entranceway and can strike it during loading if the person operating the hydraulic lift isn’t careful. One reason for that is that AEI’s rigid bulkhead protecting the cockpit sits further back than Boeing’s.
Having the cockpit barrier farther back also helps to maintain the aircraft’s center of gravity since 737-800 engines sit forward of the wing. And the 5-inch narrower cargo door eliminates hundreds of pounds of weight, according to Convey.
Fortune said the door position is a minor issue that isn’t pushing customers one way or another in their choice.
And sales figures appear to bolster the notion that buyers aren’t bothered by any structural differences. Since Boeing launched its 737-800 conversion program in 2016, it has transformed more than 140 aircraft, with 40 more orders booked. ATRAN Airlines, part of Russian-based Volga-Dnepr Group, recently received a 737-800 from GE Capital Aviation Services (GECAS) that was converted by Boeing Shanghai Aviation Services, with a second play slated for delivery later this month.
AEI, which didn’t start production until 2019, so far has completed 12 737-800 retrofits and is on track to do 26 this year. GECAS, a large lessor, has also placed a large conversion order with AEI.
Both versions have almost identical payload capacity (about 52,800 pounds) and can carry the same number of pallets.