The air cargo market is not only one of the few silver linings in the aviation sector right now, and the prospect of surplus passenger aircraft should provide feedstock at an economic price for P2F conversions, according to speakers on Airline Economics webinar today, “Coronavirus, the impact on Aviation.
According to Rob Morris global head of consultancy at Cirium, although current passenger figures were down significantly for 2020, most travel bans did not include freight and therefore cargo aircraft were the only airplanes still flying. Morris also pointed to the impact of greater use of home shopping due to the pandemic as a boon to air freight providers.
“The air freight market is perhaps the industry’s silver lining right now, said Morris. “Most aircraft that are flying are in fact freights freighters, certainly this is true in Europe and also for long haul routes.
Earlier in the webinar Morris had pointed to figures which showed air passenger demand was 12% down globally so far in 2020, against IATA’s 2019 predication there would be an increase of 4.7%.
Morris said that this disparity in demand would result in a number of surplus passenger planes that are suitable for conversion reversing the previous dynamic of strong passenger demand resulting in high feedstock prices for conversion.
“The rise of e-commerce will drive demand for more aircraft and there is a lot of single aisle aircraft out there which could be feedstock for a P2f conversion, planes like 737-800s, A321s, aircraft that we were hearing before the crisis were in strong demand as passenger aircraft. And therefore they weren’t sold at a value where it made sense to use as P2F feedstock.”
Morris pointed to American Airlines announcement that it was going to retire its fleet of 767s early, as an example of potential growth of feedstock for the P2F sector.
Fellow panellist Helane Becker, managing director at Cowen, also pointed to other positives in the cargo sector, particularly in terms of a resumption of activity in China, which was the first market to see disruption to its flight network due to coronavirus.
“There are two things that impact the cargo side, one is the resumption of business in China,” said Becker. “And FedEx said last week that they were flying 246 fights a day in China, which was line with a normal March day, and they were flying full. Likewise UPS said that all 50, or so, of their China locations were open so we think that cargo will benefit from current conditions.
And the second reason is because with no passenger aircraft flying belly freight, which is how most freight goes, and supply coming out of China there is a demand for cargo space. Of course there is the problem is that Europe and the UA are shut for business,” said Becker.
Rating agency Kroll has earlier changed a number of aircraft lessors outlook from stable to negative but Marjan Riggi, senior managing head of aviation, transportation and commercial Finance, at Kroll Bond Rating Agency, said it was too early to tell the impact of coronavirus on the leasing sector.
“We still don’t have a sense of how each leasing company is affected, how much impairment they might get, we definitely know that they are in negotiations with airlines over payment holidays, and in some cases, they are granting them. `lessors are thinking about it, they are trying to work out if doing so will generate customer loyalty for the future, said Riggi.
“In the end liquidity of leasing companies is an important factor that we are looking at very closely right now and there are very large ones with liquidity balance sheets and importantly access to capital are much better off.”
To listen to the full webinar, click here.