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SEATTLE -- (
Boeing(BA - Get Report) 767 is entering the later stages of an airplane's life, where passenger planes are converted into cargo aircraft.
"Passenger 767s are becoming available, being replaced by 787s or A330s, with aircraft pricing conducive to looking at freight conversion," said Steve Rimmer, CEO of Guggenheim Aviation Partners LLC, a Seattle-based aircraft leasing firm. "They are a good fit for the medium-haul freight market."
Boeing said Wednesday it will convert three Guggenheim-owned 767-300ER jets to freighters. The work will take place at ST Aviation Services in Paya Lebar, Singapore. Guggenheim previously owned one of the planes and purchased two others. Rimmer said the price was "somewhat less" than the price of a similar aircraft from the mid-1990s, which is around $15 million.
The agreement is a landmark in the evolution of 767 usage, said Boeing spokesman Bob Sailing. During the 2010s, Boeing completed seven 767 conversions for Japanese carrier
ANA, but in those cases ANA was paying to have its own aircraft converted. "Once we completed the work for them, we had the 'feedstock' issue," Sailing said. "The residual value of the airplanes meant it was not worthwhile to convert" for parties who did not already have their own airplanes.
At that time, the 767 had a relatively high value as a passenger aircraft. Add to that the cost of conversion, around $15 million per aircraft, and it was clear the 767's time had not arrived. But now, 767s are being replaced by larger, more efficient passenger airplanes including the A330, A350 and A380 as well as the 787, which this week
began flyingintra-U.S. routes for
United(UAL - Get Report).
The airplanes were all slow to arrive, but with the exception of the A350 they are now in service. Additionally, new cargo versions of the 747-8 and the 777 freighter have also become available in the past three years. The large number of new aircraft contributes to a diminution in the value of older 767s. Conversion "is a solution to the problem of what to do with airplanes that otherwise have no market," said aviation consultant Scott Hamilton.
The 767 entered service in 1982 and made history because "up to that point, with the exception of a few charter carriers, all airlines used three- and four-engine airplanes" for trans-ocean flights, Hamilton said. Subsequently, aircraft makers developed additional twin-engine aircraft including the 777 and A330. The 767 remains the preferred trans-Atlantic airplane, flying the route more frequently than any other aircraft, Boeing maintained. But orders for the passenger version have dried up.
On the cargo side, Boeing still produces new 767 freighters. That is because congressional approval of the Air Force aerial refueling tanker program early in 2011 meant 179 more aircraft for the 767 line, making it important for Boeing to keep the line open even before production ramps up. Late in 2011,
FedEx(FDX - Get Report)saw leverage in Boeing's situation: It ordered, presumably at a low cost, 27 new 767s for use in domestic cargo transport.
Who will fly the three planes Guggenheim is converting? Rimmer ticked off the prospects. He said FedEx recently indicated it may be interested in converted 767s.
DHL has new 767 freighters from Boeing.
LAN has a cargo fleet that includes 767 freighters. And
UPS(UPS - Get Report)? "UPS has never taken a converted 767, but there is no reason why they wouldn't," Rimmer said. At times, Guggenheim leases are to aircraft operators who fly for the overnight cargo companies.
The air cargo market deteriorated substantially in the recession, and it has not returned. "We're not seeing the overall and general cargo market recovering," Rimmer said. "We've even got a concern as to, when it does start recovering, whether it will come back in the same way as it has in years gone by. But I do think there are pockets which are changing and where the dynamics are changing."
Boeing expects the cargo market to pick up over the next few years, said Sailing, who acknowledged that for the moment, the cargo aircraft market may be oversupplied. He called Guggenheim's order "a vote of confidence by an important customer that feels (it) can place these airplanes."
Follow @tedreednc-- Written by Ted Reed in Charlotte, N.C.
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