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Values of the -400F Stable

January 21, 2019

Until the last few months the increase in airfreight traffic has served to allow values of the -400F to remain stable and even improve slightly.

The B747 was always designed with the intention of being converted as Boeing believed that supersonic transports would become the norm. The original B747F started with the -200, with the first being converted after the passenger market experienced a downturn with the first oil crisis of the 1970s. The B747-400ERF/-400F/-400SF/-400BCF is a versatile aircraft that offers considerable advantages over the -200F and therefore has superseded the earlier B747 freighter. The -400F has replaced the -200F/-200SF over the last decade though the -400SF may be viewed as a more relevant replacement. The B747-8F has been in service for a number of years which provides another shift in capacity.

The B747-400F, featuring a nose cargo door and a shortened upper deck, can carry 124 tons of cargo more than 4,400nm. An additional 26 tons of payload or 1,200nm range is possible compared to the B747-200 freighter. The B747-400 can therefore be operated with 15% greater range than the -200F (9,000 miles versus 7,800 miles). The MTOW of the B747-400F was planned to be 875,000lbs from service entry. The higher MTOW requires additional strengthening of the airframe and undercarriage stiffening. The B747-400ER Freighter has a maximum takeoff weight of 910,000 pounds (412,770 kg). This takeoff weight increase allows the B747-400ER Freighter to fly an additional 525 nautical miles (972 km). Or, it can carry an additional 22,000 pounds (9,980 kg) of payload on long-range flights at maximum takeoff weight. To support the 35,000 pounds (15,876 kg) of additional takeoff weight capability, the B747-400ER Freighter incorporates strengthened fuselage, landing gear, and parts of its wing, along with new, larger tires. The state of the market will also play a part in accelerating or decelerating the rate of retirement.

Boeing adopted Boeing Converted Freighter (BCF) as a brand identifier to distinguish B747-400 and B767-300 passenger-to-freighter conversions from Special Freighter (SF) airplanes. The SF designation had become widely used throughout the industry for any passenger-to-freighter conversion, giving no indication of the level of Boeing involvement in the conversion process. The BCF designator sought to reassure airlines, leasing companies and financiers that Boeing had integrated the entire conversion process, including engineering, parts, quality assurance, kitting, project management, certification, and post-conversion customer support. The presence of Boeing in the conversion process is considered a positive.

As of the end of production for the -400F had reached 126 with an additional 40 -400ERFs and 68 B747-8Fs also having been ordered. Production has now ceased in favor of the B747-8F. The 126 -400F orders were placed by 17 customers. There have been 40 -400ERF deliveries. The B747-8F is displacing the B747-400ERF/-400F just as the -400F displaced the -200F. The previous rise in the number of orders for the -400F is largely due to the demand for higher loads and longer sector capability, both of which serve to reduce unit costs. Boeing had been offering discounts to maintain production of the B747 until the arrival of the -8F. With 110 orders for the B747-8F, the demand for the type is clearly evident. The total for the -8F compares favorably with 126 for the -400F, placed over the course of more than 15 years and 40 for the -400ERF over the last eight years. As a comparison only 20 -400Fs were ordered prior to the service entry of the first -400F in 1993. However, the postponement of the A380F, provided a clear fillip to the -8F order book, when a number of orders for the Airbus product were cancelled.

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With any higher price of fuel there is a clear desire for more efficient equipment offering lower unit costs. The B777-200F offers considerable competition but with the demise of the A380F program, the -8F represents the only large capacity freighter available during the course of perhaps the next five to eight years. However, the demand for more efficient equipment has to be tempered by the cost of alternative equipment. The B747-400BCF is priced at around $10 million and has become available in greater quantities. Similarly, the price of used B747-400Fs and -400ERFs is perhaps a third that of the -8F. Operators therefore have to carefully consider the advantages offered by the -8F versus the additional capital cost. As the price of fuel increases, the operating economics of the -8F improve though the consequence of higher fuel prices will perhaps be lesser traffic and lower margins making expenditure on more modern equipment more difficult to contemplate.

With the first B747-400F entering service in 1993, by 2014 the oldest example are now 25 years of age. The residual value expectations for the B747-8F are promising although with only a few targets for remarketing until such time as the B747-400BCF/-SFs lose their attraction, some difficultly in placing the aircraft quickly may be experienced.

More than 15 years ago Aircastle took advantage of the much reduced prices of B747-400s resulting from investors seeking to exit aircraft financing as quickly as possible. Relatively young B747-400s were acquired and converted to freighters as aircargo demand picked up from 2004 onwards. The values of both the B747 production freighter and converted aircraft have been suffering as a result of the global economic weakness even if older aircraft have been the first to see lesser utilization. The trade routes between the Far East and Europe/North America are crucial for the larger freighters and the on-going economic problems have created flow imbalances as well challenges to yields.

The values of the B747-400, after declining in the face of weak international demand and the significant number of deliveries of new aircraft which have an impact on freighter values, have now stabilized. While the B747-400 continues to be used on a great many international routes, operators are increasingly finding that the type no longer meets its needs. The interiors of the B747-400 may still offer considerable space but operators are finding that the needs of passengers today requires that the type undergoes a multimillion refurbishment program, perhaps equating to $5 million or more. Combined with lesser fuel efficiency the aircraft is increasingly being replaced. The age, structure and design of the B747-400 has caused problems for operators seeking to offer an enhanced passenger experience while reducing maintenance costs. The market for the -400 has undergone readjustment as new aircraft act as replacement, rather than growth, capacity and because the airfreight market has seen little appetite for freighter conversions. The lease rentals of the B747-400F are rising again in the context of an improving airfreight market although the trade war precipitated by the U.S. has the potential to undermine recent gains particularly for the B747-400F which is reliant on traffic to and from China.

The experience of -400F (production freighter with nose loading door) lease rentals over the past 20 years illustrates just how volatile lease rentals can be when compared to values as well as the vulnerability of the airfreight market to rapid swings in rates. With fewer dedicated freighters in operation than passenger aircraft, the disposal or acquisition of a few freighters can have a more discernible impact on lease rentals. an increase in demand, particularly for the B747-400F which offers the versatility of the nose loading door, cannot be easily met by manufacturers or conversion centers. This feast or famine syndrome tends to exaggerate the changes in lease rentals.

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