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IBA Webinar: Covid-19 - Freighter Values and Lease Rates

IBA Webinar: Covid-19 - Freighter Values and Lease Rates

Our senior ISTAT appraiser team review the impact from Covid-19 on current and future asset performance for specific freighter aircraft.

Following on the previous session where IBA presented insight on market performance for narrowbody and widebody commercial aircraft, our panel take a deeper dive looking at the different freighter categories and specific aircraft types.

The panel share opinion on likely market performance in the near and long term, identify which asset types are more vulnerable, flag those that are more resilient and discuss future trends for cargo.Our senior ISTAT appraiser team review the impact from Covid-19 on current and future asset performance for specific freighter aircraft.

The webinar was chaired by Phil Seymour, an ISTAT Senior Appraiser Fellow and former ISTAT International Appraisers' Program Chairman. Phil will be joined by Jonathan McDonald and Mike Yeomans - two of IBA's Senior ISTAT Appraisers.

The slide deck is available to download here. If you have further questions please contact: Mike Yeomans

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Webinar Synopsis - Covid-19 - Freighter values and lease rates: What are my aviation assets worth?
In economic downturns, the freighter market tends to be impacted particularly hard, but is also resilient and quick to recover. There is a distinct correlation between Freight Tonne Kilometres (FTK), the measure of cargo moving around the world, and GDP. Historical slumps such as 9/11 and 2008's global financial crisis have produced a sharp decline followed in each case by a swift bounce back.

We entered 2020 with freight under pressure but, as Covid-19 continues to exert its profound global effect clinically and economically, the freighter market is experiencing demand which we would not have envisaged before the crisis.

Using as our criteria western-built pure jet narrowbody freighters of 18 tonnes or more (such as the Boeing 737-300F) right through to the biggest 133 tonne widebodies (like the Boeing 747-8F series), there are around 2,000 aircraft within the global freighter fleet as at April/May this year which we can split into three categories by category and capacity:

  • Narrowbodies - 662
  • Medium widebodies between 42 and 81 tonnes - 645
  • Large widebodies between 85 and 133 tonnes - 634

These figures include active, parked, stored and damaged aircraft and, by stored, we mean active aircraft awaiting conversion rather than inactive equipment. The most prolific player in the narrowbody fleet is the Boeing 757-200 series with around 300 aircraft since the Airbus A321 P2F is still undergoing flight testing and recertification so has yet to enter service.

Boeing's 767-300 factory and converted freighter lead the medium widebody sector with a similar number, though the Airbus A300-600 also has a significant presence at around 180 due predominantly to their use by UPS and FedEx although FedEx appears to be migrating over to the Boeing 767.

The most populous high capacity widebody is the Boeing 747-400 series which in total is just ahead of the Boeing 777F though, if only active aircraft are counted, the two are neck and neck. With 98 aircraft, the McDonnell Douglas MD 11F is still active but in decline.

Market Values and Lease Rates

We assume good condition, serviceable aircraft and, to pick out some of the most significant within each category:


  • The Boeing 737-800F. These are still very desirable and we see their market value ranging between $20M and $25M depending on age. Some might consider our evaluation of the lease rate at $200K - $230K to be optimistic at its top end but we are confident in the figures. Covid-19 is likely to force between 70 and 80 American Airlines 1999-built aircraft into early retirement and, as their fleets often tend to be converted for freight, we will monitor this closely.
  • The Airbus A321-200 P2F is likely to exploit the Boeing 757 market and we believe its market value is correct in the high $20Ms despite its newness and having seen few transactions to date. Our confidence is based on its high feedstock price and the various feasibility studies we've conducted. We pitch the lease rate between $260K - $270K, particularly for introductory phase aircraft.

Demand for feedstock entering the freighter conversion fleet is influenced by the quality of its provenance and, since Rolls Royce are so dominant in the engine market, by default most freighters are Rolls-powered in the Boeing 757 segment. It's too early in the life of the Airbus A321P2F to say whether the V2500 engine will be preferred over the CFM56 although the first aircraft inducted have all been V2500-powered to date.

Medium Widebodies


  • The Airbus A330-200P 2F and Airbus A330-300P 2F. It's been a slow start for the 200 with three Air Egypt aircraft dominating but more retirements will stimulate activity. Values are in the range of the mid to high $30Ms once you factor in the price of the feedstock.
  • There are three to four 300s in the fleet, all with DHL and, although it too has seen a sluggish start, eight more are queuing at Dresden awaiting freight conversion. So far, most -300P2F are Pratt and Whitney-powered and we consider values to be similar to the 200's in the mid to high $30Ms with an appropriate lease rate of around $350K. So much of the market here is dominated by the Boeing 767, it will take a lot to persuade operators to make the expensive and logistically complex switch to the Airbus A330.
  • The Boeing 767 continues to be the major player due to its good size and the availability of quality feedstock and historically we've seen stock coming out of American Airlines and Thomson (now TUI) as well as others. There tends to be a preference for GE's CF6 engine and the sheer presence of the Boeing 767 explains in part the Airbus A330's slow uptake.

Large Widebodies

  • Most interest here centres around the Boeing 747-400 nose loaders (F and ERF). The high lease values we expect from these are those the investment community sees as realistic due to a spike in demand for the nose-loading cargo variant. Though there were few transactions pre Covid, we believe the value to be in the region of the low $20Ms for a 20-year-old aircraft.
  • The Boeing 777F is a very popular aircraft and could be seen as the McDonnell Douglas MD11's replacement. With deals for new aircraft coming in around $152M - $155M depending on the specification, we would assess $153.75M to be reasonable for a new aircraft and around US$ 85 million for an early one.
  • Depressed values for the McDonnell Douglas MD-11F of $3M - $4M are academic to a large extent. It's fallen so far out of favour and is now largely the preserve of UPS, FedEx, Western Global and Lufthansa Cargo who are retaining some only to ride out Covid and merely delaying their retirement.

IBA's Assessment of Five-Year Value, Lease Rate and Demand Prospects

We have assessed aircraft types by age category and given each a green, amber or red scale rating for their values, lease rates and demand forecasts over the next five years. Some examples:

  • We have given the Boeing 737-400F a green rating due to its continued popularity for conversion. We saw a healthy number last year and it remains a very capable aircraft for less than half the cost of a Boeing 737-800F and a substantially lower lease rate as well. It does have a future though we expect its decline to commence in around five years' time
  • We've rated the Airbus A300-600F an amber freighter: it performs very well and is popular, 150 conversions and factory freighters are in the market currently. However, it lacks the enthusiasm afforded the similar-sized Boeing 767. Fed Ex have retrieved some from desert storage due to Covid-19 but there is doubt about what happens next. Will DHL move towards the Airbus A330?
  • The Boeing 747-400 BCF / BDSF have been granted a temporary reprieve during today's pandemic but due to their age we have given them a red rating and expect their demise post Covid. Some of these aircraft will be 34 years old by 2025.

Conversion Costs

These vary significantly depending on aircraft type and can differ even for the same model. For example, conversion costs for the 737-800 can range from the high $3Ms to the low $4Ms. We have however tried to put together a pricing scale akin tothe median scenario. The figures we list won't be the total cost of conversion since each individual aircraft could generate high maintenance expense with a huge economic impact. For example, last year we witnessed issues with the 'pickle fork' component on the Boeing 737-800 which added over a $1M to the conversion costs in some cases. Each aircraft should undergo thorough analysis before investment decisions are made.

Vulnerable Aircraft Types

Stand out aircraft include: the McDonnell Douglas MD-11F which is busy with Covid-generated work currently but whose future is uncertain; the Airbus A300-600F which is overshadowed by the Boeing 767 and we expect to lose out to the Airbus A330 as feedstock becomes cheaper and the Boeing 747- 400 BCF / BDSF for the reasons cited above.

Though stronger and still influential, the Boeing 737-300F has largely been eclipsed by the Boeing 737-400 and the Boeing 747-400 BCF / BDSF, though providing a useful cargo service during Covid, is unlikely to survive the anticipated downturn.

Aircraft with Greater Security

To pick out a few: the prominent Boeing 757's future is secure longer term and plenty of attractive feedstock is available. We view the Airbus A321P2F as supplemental rather than as a replacement. The Airbus A321-200P2F will become a key player once suitable feedstock starts filtering through. Finally, the efficient Boeing 777-200F is still a desirable and capable aircraft which, despite its large size, should endure the downturn. A long distance, high capacity freighter will still be required and there is nothing to rival it.

Comparative Values: Factory Freighter V Converted Aircraft

Investors interested in the freighter market need to carefully analyse potential aircraft on an individual basis before committing to a deal to ensure it makes business sense. Much depends on the cost and age of the feedstock and the conversion and maintenance expenses in comparison with what a factory-built freighter would cost.
In October 2019, a collaborative Boeing 777-300ER conversion program involving GECAS and IAI was launched with a target entry to service date scheduled for 2023/4. The attractiveness or otherwise of the scheme will be hugely influenced by the price of the feedstock and we have analysed a variety of scenarios to assess their economic appeal.

Historically, the Boeing 777-300ER has displayed solid value retention and comfortably endured previous downturns including 2008's global financial crisis. Significant numbers are forecast to reach their lease ends, however, and if a large supply becomes available for conversion it is highly probable the aircraft's value will need significant revision to allow for the sizable reconfiguration expenses involved.

An example: if a converted Boeing 777-300ER emerges from conversion in 2023 with an anticipated scrappage year of 2039 giving 15 years' use, its value as an asset will be affected by the original operator, the feedstock price, the conversion and maintenance costs and the hours its flown. If the total outlay is $75M including conversion and maintenance, it compares unfavourably with that of a 2009 factory Boeing 777F freighter at $85M which would have a more distant scrappage date and fewer flying hours. Therefore, the aircraft's feedstock pricing appears ripe for softening if it is to compete with a factory freighter.

Whilst short term the freighter market is enjoying a Covid-induced spike, its likely duration will depend to a large extent on how long passenger traffic takes to recover.

Data for this freighter analysis comes from our intelligence platform, IBA.iQ, system demonstrations of which are available here. Please get in touch with [email protected] if you have any questions relating to the session or the services we offer.

The slide deck is available to download here.

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