The Boeing 767 is Air Transport Services Group’s flagship freighter for its aircraft leasing and cargo airline businesses. Out of 110 aircraft currently in service, 91 are 767s. The medium widebodies are just the right size for express delivery linehaul routes — not too big, not too small — which require fast turn times and high load factors to make them economical.
So why is Wilmington, Ohio-based ATSG (NASDAQ: ATSG) betting big on the Airbus A330? The primary reason is fleet modernization using an aircraft that has recently become much more affordable and can carry even more cargo by volume than the 767.
Last week, the company announced plans to purchase 20 used A330s, convert them to freighters and lease them to express delivery operators and other customers. It has also placed deposits with a German maintenance and overhaul outfit to secure production slots two years from now.
ATSG is essentially a leasing company that offers many services around the leases — aircraft maintenance, outsourced cargo and passenger flight operations, charter brokerage, training, and warehouse and logistics services – to diversify its revenue stream.
Officials gave a detailed rundown on Friday of the A330’s merits and why the plane is a good fit for its business strategy.
CEO Rich Corrado said the A330-300 will be an excellent plug-and-play replacement for the 767s, which Boeing began building in the early 1980s. A330s began entering service more than a dozen years later and the -300 has about a 20% greater cubic space advantage over the 767. It can also carry about 8% to 10% more in weight.
The A330-200 is equivalent in size to the 767, is slightly more expensive to purchase in the secondary market and costs more to operate because it’s a heavier plane. It has long-range capabilities that aren’t necessary in an express environment but would be of value on other assignments.
Chief Financial Officer Quint Turner told American Shipper the company will consider both variants, depending on factors such as availability.
Officials have previously forecast about 200 767s still operating as passenger aircraft would make good conversion candidates based on their age. As the number of 767s dwindles over the next decade, the A330 will become the next-generation platform, Corrado said.
“The A330-300 looks to be a real solid solution for the same customers that the 767 is providing service for today. It’s a newer-generation aircraft,” he said.
There are about 200 A330s in prime conversion range of 13 to 25 years of age, according to company officials.
Three ATSG customers, including DHL Express, already use the A330 all-cargo aircraft. The in-house airline of Deutsche Post DHL Group has 12 A330s in service, according to Planespotters.net. Several of those are passenger-to-freighter A330-300s, which were converted by Elbe Flugzeugwerke, a joint venture between Airbus and Singapore Technologies Aerospace that will also retrofit the ATSG planes. It has also purchased a few used A330 production freighters.
Corrado expressed optimism that DHL will lease the Airbus freighters and said talks are underway with other airlines.
Cheaper prices are one reason the A330 has recently become so attractive to ATSG. During the pandemic, many airlines were forced to cull their fleets to survive the implosion in passenger travel. Values for the A330 have dropped about 25%, putting the total cost of ownership on par now with the 767, according to the ATSG CEO.
“The economics make sense. … We think it’s going to be a long-term solution in the medium-wide body segment,” he said.
Chief Commercial Officer Mike Berger said the A330 also is a plane that its charter passenger subsidiary Omni Air International could use for its Defense Department contracts and provides interoperability with the Airbus A321 narrowbody freighter that ATSG is beginning to market.
ATSG is a joint venture partner in 321 Precision Conversions, which has designed and obtained regulatory approvals for a conversion package. The company is outsourcing the work to engineering outfits, including ATSG’s own conversion house, PEMCO. Two conversions are underway for outside parties and ATSG will begin receiving some converted A321s early next year.
Berger said the A330 and A321 have a common cockpit, which means pilots only require supplementary flight training rather than a full, new rating for a different aircraft type, making it easy to switch them between aircraft.
“There’s significant crew savings,” he said.
In the driver’s seat
Management reiterated that leasing aircraft offers long-term, consistent cash flow compared to providing cargo transportation, which is more volatile because of its exposure to supply-demand fluctuations.
“We just think long-term it’s a better use of that asset … versus putting it in a charter environment where we’ll get maybe a year-and-a-half of robust usage, but then we’d be back in a situation where we’d be getting into an intermittent usage on both the crew deployment and the asset,” Corrado said.
Airlines and logistics companies are booking leases up to two years in advance to ensure capacity because of the ongoing shortage of air cargo capacity and growth in e-commerce.
The strong market has put ATSG in a stronger negotiating position with new customers, as well as existing ones seeking lease extensions, Corrado said.
Companies with lease terms set to expire in the second half of the year are already asking for extensions. Under normal conditions, lease rates decline with each extension, but ATSG is now able to maintain rates, he added.
Between the A330 conversions and 47 more planned for 767s and A321s, ATSG could have more than 180 aircraft in its portfolio by 2025.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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