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IBA's Cargo Update: The Outlook

This webinar, moderated by Mike Yeomans and featuring Jonathan McDonald, provided a comprehensive update on the cargo market and discussed the outlook for the future.

Summary

The market is experiencing an increase in capacity, with a strong demand for air cargo that was expected to stabilise though the tide is turning. The conversion activity is dominated by narrowbodies, particularly the 737-800 and A321-200 P2F. Widebodies are primarily 767s, with a gradual increase in A330s. The A350F and 777-8F were highlighted, with Airbus having a wider customer base than Boeing.

 

The impact of Amazon ending its relationship with Atlas was also discussed, indicating a potential oversupply and a shift towards larger cargo. The A350F is expected to integrate well with the passenger fleet due to its global distribution and crew commonality. The 777-8F faces challenges due to delays in the 777-9 passenger program. Market Values and Lease Rates have fluctuated, with the A321P2F and 737-800 while the 757 will probably see a decline in value. Despite the potential oversupply of narrowbody aircraft, the cargo market remains resilient, with new conversion programs expected to meet freighter aircraft demand. 

Presenters

  • Mike Yeomans, Director - Valuations and Consulting, IBA. ISTAT Certified Senior Appraiser

  • Jonathan McDonald, Manager – Classic & Cargo Aircraft, IBA. ISTAT Certified Senior Appraiser

 

Watch on-demand

Key Takeaways

  1. Resilient air cargo market: The air cargo market has shown resilience during the Covid years, with a rising level of capacity in terms of pure freighters and belly cargo, and strong demand which was expected to stabilise, but the tide is now turning.

  2. Narrowbody conversion dominance: The conversion activity in the cargo market is dominated by narrowbodies, particularly the 737-800 and A321-200 P2F, which are expected to continue leading the market.

  3. Widebody conversion trends: Widebody conversions are dominated by 767s, but there is a gradual increase in A330s, and the 777-300 ER programs are also gaining traction. 

  4. A350F's competitive advantage: The A350F is expected to operate well alongside the passenger fleet due to its mature fleet of hundreds of A350-900s and 1000s and well-established global distribution of passenger aircraft, giving Airbus an inherent head start. 

  5. 777-8F market challenges: The 777-8F faces challenges due to delays in the 777-9 passenger model, and even if the -9 enters the market by 2025, it will take time to ramp up the fleet. Ultimately it will be a success mind. 

  6. Fluctuating Market Values: Market Values and Lease Rates have fluctuated, with the A321P2F and 737-800 seeing a slight increase in value due to high conversion costs, while the 757 has seen a decline in value due to its age. Conversely, IBA has seen A321-200P2F and 737-800SF lease rates slide slightly. 

  7. Resilient cargo market demand: Despite a potential oversupply of narrowbody aircraft due to many 737-800s being converted, the cargo market remains resilient, and current and future factory new programs, along with conversion programs, are expected to meet the demand for freighter aircraft. 

 

"It is still a challenge to find decent passenger Airbus A321-200 feedstock. Good provenance aircraft are finding their way to P2F, but the quantity remains small. There are a lot of very good later build standard A321-200s that remain hot in demand as passenger aircraft. At some point, they will be replaced by A321NEOs, meaning they will be ripe for conversion. These will make lovely converted freighters while uprooting some of the ageing 757 fleet."

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