Airbus A321-200 passenger-to-freighter (P2F) conversions are expected to become increasingly prevalent, although the air cargo market may face a potential oversupply of narrowbody freighters. This trend was highlighted in a recent IBA webinar, “IBA Insight: How are Freighter Values Performing?” by analyst Jonathan McDonald.
McDonald noted that while the Boeing 737-800P2F has dominated the market since 2019, this is set to change as A321P2F conversions increase. The availability of passenger feedstock is crucial for ramping up these conversions. Initially, the A321P2F was expensive due to high lease rates needed to justify the initial investments. However, as more feedstock becomes available and more conversions enter the market, lease rates are expected to decrease.
Despite this growth, McDonald warned of a possible oversupply of narrowbody freighters. The surge in conversion activity during the pandemic was driven by high cargo capacity demand. Although air cargo demand slumped in 2023, conversion activity remained high, predominantly for narrowbody aircraft. Boeing, AEI, and IAI are currently running 737-800 conversion programs, with 79 conversions carried out last year alone.
Reflecting on the volume of conversions, McDonald stated that “there’s only so much demand for aircraft.” If the current rate of conversions continues, the market could be flooded with too many aircraft. He emphasized the need for monitoring, noting that the market might need to revert to the conversion numbers seen in 2021-22 or even lower.
This year’s conversion activity is expected to normalize compared to 2023. Reports indicate that newly converted 737-800 aircraft are going straight into storage in the UK, with engines removed for use on other aircraft due to oversupply. Bob Convey, senior sales and marketing at conversion firm Aeronautical Engineers Inc., mentioned that some engines are valued higher than the freighters themselves.
The robust demand in the passenger market has airlines scrambling for more capacity, exacerbated by issues with Pratt & Whitney engines. This has led to the removal of engines from parked 737-800Fs, reflecting their high value.
Limited availability of feedstock, driven by passenger market demand for aircraft, is also expected to constrain future conversion activity. Meanwhile, conversions of older models such as the 737-300SF, 737-400SF, and 757-200PCF are in decline and are expected to conclude soon due to the limited remaining aircraft, McDonald added.