Air Transport Services Group, an air cargo and services conglomerate based in Wilmington, Ohio, said Monday it has reserved four additional production slots with Boeing to convert 767-300 passenger jets into freighters, doubling its existing order with the manufacturer as shipping demand soars.
The company, which recently reported record 2021 results, has been heavily investing in more all-cargo aircraft it can lease and operate for airlines and logistics companies. It now has more than 80 passenger-to-freighter conversion slots locked up over the next five years.
ATSG’s (NASDAQ: ATSG) leasing subsidiary Cargo Aircraft Management (CAM) acquired the used 767s on the secondary market and will begin sending them to Boeing for retrofitting to full cargo configuration in late 2023. Under the contract, ATSG has an option to convert four more aircraft.
“Demand for the 767-300 platform remains strong among e-commerce and express providers,” said Chief Commercial Officer Mike Berger in the announcement.
ATSG is the world’s largest lessor of 767 freighters and owns two cargo airlines that operate many of them for customers such as Amazon (NASDAQ: AMZN), DHL Express and the Defense Department. It has a combined fleet of 117 aircraft, including 98 B767s, four combination planes for main-deck cargo and passengers, and 15 passenger aircraft.
DHL last month extended its ATSG lease arrangement for five 767-300s for another five years, and by the end of 2022 ATSG will be supplying it a total of 15 aircraft.
The company placed an initial order with Boeing for four 767 conversions in November. Using another airframe specialist besides Israel Aircraft Industries for the first time to modify 767s reflects the tightness in production capacity and the need to diversify to get work done.
Diversification is also why ATSG for the first time is purchasing the Airbus A330-300, another medium-size aircraft, for its fleet. Earlier this month it ordered nine additional conversions from Elbe Flugzeugwerke, an Airbus joint venture based in Dresden, Germany, to go with 20 slots it reserved last summer. The A330s conversions are scheduled from mid-2023 through 2027, with the first planes entering service in 2024. Production will take place in Germany and China.
ATSG this month also began reconstructing its first Airbus A321-200, a new narrowbody freighter type positioned to compete against the Boeing 737-800, as well as the older 757, in the short- and medium-haul express market. Company officials advertise that the A321 offers a 13% improvement in fuel efficiency over the 757-200.
CAM purchased two of the planes last year and is sending them to ATSG’s airframe overhaul subsidiary, Pemco, to do the work. Pemco will install the conversion kits using a U.S. government-approved design developed and licensed by 321 Precision Conversions, a joint venture between ATSG and Oregon-based specialist Precision Aircraft Solutions.
Malaysia-based Raya Airways, which operates in the Asia-Pacific region, has tentatively committed to take the first A321 conversion.
Demand for freighters has increased during the pandemic with the growth of e-commerce and fewer passenger aircraft in operation to carry cargo. Passenger-to-freighter conversion is a complex process that involves removing the seats, galleys and bathrooms, covering windows, cutting in a large cargo door, installing a rigid protective barrier before the cockpit, reinforcing the floor to support heavy containers, and adding a roller system.
Through its multiple subsidiaries, ATSG can purchase passenger aircraft, convert some of them to freighters on its own, and lease them along with the option to provide crew and insurance, maintenance support, ground support and airport operations.
The bundled service approach gives customers more flexibility, with the option to use a bundled suite of services or buy a la carte, but also means ATSG isn’t dependent on just one line of business for revenue.
Conversions can be expensive, but they are much cheaper than factory-built aircraft and many aircraft are available now at lower values because of a glut caused by pandemic downsizing at passenger airlines.
ATSG reported fourth-quarter adjusted net income of $40.8 million on revenue of $482.4 million, up 21% from the prior year. It gave a 2022 outlook for adjusted earnings before interest, taxes, depreciation and amortization of $640 million, about 18% above its earnings last year.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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