Cargo conversion paying off for Boeing
Published 9:00 pm Tuesday, May 9, 2006
The Boeing Co. made a lot of headlines last year by selling a record number of new airplanes. Now, the company is finding profits in converting old planes to carry cargo.
“The demand has exceeded our expectations,” said Marco Cavazzoni, director of Boeing’s converted freighter program, at a media briefing last week.
Boeing expects the world’s fleet of cargo jets to about double over the next 20 years, largely due to skyrocketing demand for air freight in and out of Asia. The reason is simple: Converted jets are cheaper.
Cavazzoni wouldn’t be pinned down on specifics, but he said a 747 passenger jet converted to carry cargo typically is worth $60 million to $70 million. New 747 freighters sell for about three times that amount.
New freighters can carry heavier loads and are more-fuel efficient, but the lower cost of used jets makes them attractive to cargo airlines. Some use conversions as a bridge until they can get new freighters, Cavazzoni said. Others prefer to operate mixed fleets.
Boeing launched a conversion program for the 747-400 in January 2004. The timing was good. Airlines typically start considering retiring passenger jets after 15 years, and the first 747-400s left the Everett factory around 1990.
The engineering work primarily was done in the Puget Sound region, Boeing said, but the labor of converting the planes takes place in China, where it’s done by a joint-venture partnership that includes Boeing, several airlines and an international investment group.
Demand has been strong, Cavazzoni said. Airlines have signed contracts to convert 42 747-400s since the launch. The first was delivered in December to Air China Cargo.
Boeing also is moving forward with plans to convert 767-300s into cargo jets for much the same reason. Those planes are also nearing the 15-year mark. By converting them, airlines can get more money out of them – cash that can go toward new Boeing jets, Cavazzoni said.
About 250 767-300s have hit the 15-year mark, Boeing said, but airlines aren’t giving them up as fast as originally thought.
“The 767 is a very popular passenger airplane right now,” Cavazzoni said. “Airlines don’t want to give them up.”
Those two programs come on the heals of Boeing’s highly successful MD-11 freighter conversion program. The McDonnell Douglas-built tri-jet couldn’t compete with Boeing’s 777 as a passenger plane, but “it makes an awesome freighter,” Cavazonni said. “UPS and FedEx have snapped them up as quick as they can.”
Having three engines means the MD-11 can carry a big payload for its size, while also flying direct routes over water, he said.
The only problem with the MD-11 market is that Boeing is running out of jets to convert. About 60 percent of all MD-11s ever built have been turned into cargo jets, Cavazonni said. By the end of 2008, there will be only 30 or 40 left to convert.
The scarcity of jets is also putting a crimp in the 747 conversion market, Cavazonni said. After the 2001 terror attacks, there were a lot of 747s sitting in the desert. But airlines have been pulling them back into service as passenger levels pick up.
All in all, Cavazonni said, “it’s a tighter market than it was three years ago. It’s pretty tough right now.”
For more aerospace news and analysis, see Bryan Corliss’ Web log at cmg-northwest2.go-vip.net/heraldnet/blog aerospace.
