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Widebody Rentals Achieve Some Stability

February 20, 2017

The airfreight market is managing to achieve a measure of improvement with traffic increasing by nearly four percent according to data from IATA which is allowing a measure of stability for some freighters.

The growth for the world amounted to some 3.8 percent with the Middle East recording the greatest improvement with 6.9 percent for the year and 11.2 percent for the month of December, when compared to December of 2015. This increase in freight tonne kilometers still lags behind that of passenger growth which is in excess of five percent. The rise in freight traffic is allowing a measure of stability in lease rentals.

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While the overall growth is a positive it is noted that capacity has outpaced demand such that load factors have been imapcted. More widebodies are being delivered offering greater lower hold capacity and while production rates may be low, Boeing is still delivering B777 and B747 freighters. With load factors of only 43 percent the pressure on yields remains even with the benefit of “fuel surchages” which seem to remain in place whatever the price of fuel. With such low load factors, operators are not generating the types of returns seen by the passenger market. With such limited growth this makes it more difficult for freighter conversions to take place. For widebodies in particular, the limited interest in freigther conversions is also impacting the residual value prospects for passenger aircraft.

Rentals provided by The Aircraft Value Analysis Company Limited www.aircraftvalues.net, www.aircraftvalues.com.

Freighter Lease Rates (Dry) US$ ‘000s pm – February 2016
Aircraft Age Rental Trend Analysis
A300F4 1976-79 65-80 There are so few A300s in service as to make the market very difficult for lessors. The type has provided good service for some two decades after being converted in numbers in the 1990s. The A300F4-200 belongs to a bygone age and one which has been supplanted by much more capable and economic aircraft.
1980-84 80-90
A300-600RF 1994-981999-06 85-140110-240 Rentals are remaining steady and at these levels offer value for operators. The -600RF can still be classed as a modern freighter despite the advancing age. The market remains difficult for the type though the regional airfreight market has not suffered to the same extent as for the long haul sectors. The conversion of B767s continues apace but not so for the A300. The type will remain a feature of the market for some years to come.
A310-300F 1985-97 85-120 The -300F offers operators economic capacity on longer thinner routes, particularly where volume rather than weight is the issue. Inevtiably aircraft of this vintage tend to be used less intensively and this can spread the maintenance costs over a greater number of years thereby keepoing costs down and extending service life. As the A321 is converted in the coming years then there may be an alternative but for the time being the aircraft has its attractions.
A330-200F 2009-16 285-720 The rates for the -200F have suffered in recent years as the type competes with older types, despite the better economics. For the youngest examples, rates are particularly fragile and have experienced a decline, a trend that is expected to continue. The arrival of converted A330s pose a threat. Airbus is not really pushing the type as it knows it may have to sell each new example at cost.
B727-100C 1965-71 15-30 An aircraft of yesteryear and that belongs in the museum. With so many scrapped and in storage there is no upside for lease rentals.
B727-100CH 1965-71 20-35 The aircraft can be bought for small change but maintenance and operating takes rather deeper pockets. The lease rentals can only go so low however.
B727-200FADV 1972-78 20-45 Rates can sometimes be higher than those quoted not least because of the short term nature of many operator’s requirements. The leasing of the aircraft still takes place given that it is an inexpensive alternative to the B757 and other younger freighters. There are a good many in service particularly in regions where noise is not an issue.
1979-83 20-45
B727-200FHA 1972-78 25-40 The number of aircraft in service continues to be a surprise given the extent of B757 conversions. The reason is that the B727 is cheap and the low cost of fuel will make it even cheaper to run. The performance of the aircraft and availability of spares is high.
1979-83 40-50
B737-300SF/QC 1986-911992-97 70-9085-125 The -400SF remains the darling of the airfreight market given that it meets the growing demand for speedy delivery of internet based products. The rates can vary depending on the credit and the term but a six year lease will generate more than a resonable profit even after taking into account the cost of conversion. It has to be noted that the A320 and B737NG are now on course to be converted to freighters and as such the heyday of the B737 Classic freighter is today. Winglets can be economic on both types as long as utilization is sufficiently high.
B737-400SF 1988-97 90-150
B747-100SF 1969-76 N/A There is no place for the -100F in todays market even though it was once held in high regard.
B747-200SF 1971-78 65-90 The market for the -200SF is sporadic at best and has long since been overtaken by the -400F market. Rates for the -200F are more than likely to focus more on power by the hour agreements whereby a minimum number of hours is set at a specific price and then addiitonal hours are charged at a set rate. The type is sometimes used as a backup but as a mainstream type, the aircraft is of little relevance.
1979-84 70-90
B747-400F 1993-981999-09 130-230230-460 Rates are holding reasonably steady although it is noted that a number remain in storage and which may never return to service. The market for the type is improving slightly but the -8F continues to be delivered in numbers. The rise of the Middle Eastern carriers has an impact on the need for large dedicated freighters.
B747-8F 2011-17 795-1700 The aircraft has been in service for a number of years and rentals have to be realistic particularly with respect to the oldest examples. Boeing is desperate to place the aircraft and there are deals to be had. Production at perhaps six per annum look likely now through to 2019 due to the UPS order but this cannot obscure the problems that the type faces.
B757SF 1986-93 90-120 While there is often talk of lease rentals for the B757SF dipping this never seems to materialize. The type is still in demand and looks set to be favored for some years to come not least because of low utilization rates. The type remains ideal but the B737-800 is now being converted and the A321 is not that too distant.
1994-98 105-150
B767-200SF 1981-92 90-110 The -200SF has had reasonable success and continues to play a role in the airfreight market. There is however, limited interest. The lack of capacity is an issue but there are some routes which will not support a larger aircraft. The volume is attractive to operators. Rentals are at a level that makes further falls unlikely and uneconomic.
B767-300F 1995-992000-07 150-250220-350 The small package carriers still like the aircraft and the move by Amazon points to continued utility. Rates at the upper end may be declining. There are much younger -300Fs being operated but rates have to be realistic. There cannot be too much of a gap when considering the lease rentals of the oldest and the youngest as both essentially perform the same duties. The regional market is managing to shake off some of the problems associated with the larger types as economic growth on an intra-regional basis remains positive.
B777-200F 2009-17 460-1300 The economics of the aircraft speak for themselves. The need to utilize the aircraft to their fullest extent inevitably means that only a relatively few operators are capable of using the aircraft. Lease rentals are falling. Volume and efficiency are key in this difficult market.
BAe146QT 1984-89 50-60 There are some 30 in service as freighters which is a reasonable number but placing the type may be a drawn out process requiring persistence. There are attempts to reinvigorate the freighter verison.
MD11F 1990-93 80-120 There exists little demand for the MD11 freighter and operators are increasingly withdrawing the type from service such that there are few in service. Some have seen less than ten years of service after being converted. There are too many alternatives on the market for a trijet to compete with and this is only intensifying.
1994-99 90-150
Commentary reflects change from the last update to Freighter Rentals of November 2016
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