Texas leasing company goes bonkers for Boeing 737-800 converted freighter

Cargo viewed as good way to stretch investment as aircraft age

Aero Capital Solutions, which specializes in leasing midlife narrowbody aircraft, never had a freighter in its fleet during its first 10 years in business. The new investment strategy calls for 40 Boeing 737-800 passenger-to-freighter conversions.

The Austin, Texas-based lessor on Monday announced its fourth order with Aeronautical Engineers Inc. for an additional six conversions of the standard jet. The company initially ordered four reconfigured aircraft in October 2020, bought 10 more conversion slots three months later and placed two more orders last year for a total of 20 aircraft.

Leasing companies have been extremely active turning used passenger aircraft, especially smaller single-aisle ones, into cargo jets because of the unrelenting growth of e-commerce. Express operators and their partners need regional aircraft that can efficiently be loaded and fly daily “milk runs” to meet expectations for overnight or time-definite delivery.

The boom in air cargo spurred by pandemic-induced supply chain disruptions has created a rush by investors and operators to increase freighter fleets, raising questions about whether there will soon be too much capacity when the global economy cools down or normalizes.

The single-aisle freighter fleet is three times greater than in 2019 (541 aircraft), through a mix of conversions and new production, according to data compiled by aviation analytics provider Cirium.

Earlier this month, Merx Aviation signed a contract with AEI for a single 737-800 conversion. The aircraft is owned by a fund managed by affiliates of Apollo (NYSE: APO) Global Management and serviced by Merx, Apollo’s aircraft leasing unit. AEI said the plane is scheduled for redelivery in August, but no end customer has been announced.

Merx owns and manages about 45 737 Next Generation aircraft, but the order represents its first freighter conversion.

U.S. e-commerce sales alone are expected to  (exceed $1 trillion by the end of 2022 with an expected 9.4% growth rate over 2021, according to eMarketer. Online shopping will represent one-seventh of total retail sales.

“We are confident in the upward trajectory of the air cargo market, and we will continue to invest to meet the increasing needs of global cargo operators and express carriers,” said Jason Barany, Aero Capital Solutions’ CEO and founder, in a news release.

Production schedule

Miami-based AEI has delivered 10 737-800 converted freighters to Aero Capital so far and expects to finish five more within the next two months, said Robert Convey, senior vice president of sales and marketing, in an email. An Aero Capital representative said the company has transferred seven of the freighters to a range of undisclosed cargo operators.

Aero Capital is AEI’s largest customer for the 737-800 converted freighter. It has more than 200 assets placed with more than 35 customers in 24 countries.

The modification touch labor and maintenance work for the new order is being split between AEI-authorized conversion centers Hong Kong Aircraft Engineering Co.’s (HAECO) facility in Xiamen, China, and Taikoo (Shandong) Aircraft Engineering Co., (STAECO) using AEI’s approved design. STAECO is a joint venture maintenance company in China in which HAECO is a partner.

AEI said the latest tranche of aircraft will go to maintenance shops and be recreated as freighters in 2024.

Some conversions previously booked by Aero Capital are being done by Commercial Jet in Miami and KF Aerospace in Canada.

The AEI-converted 737-800 can carry up to 52,700 pounds on the main deck, with room for 11 full-height container positions plus a small container. Conversions for 737-800s take three to four months, depending on which overhaul company is doing the work using AEI’s modification kit. Structural changes include installing a large cargo door, heavy-duty floor beams, a rigid barrier to protect the cockpit from shifting containers and a cargo loading system. AEI versions also have jump seats for five passengers.

AEI is the only conversion company to have a special extended range rating from several aviation regulators that demonstrates the 737-800 is able to fly with a full load and just one engine for three hours in an emergency, an ability that is especially important over large bodies of water.

The company also is certified to modify planes with blended winglets. Split Scimitar winglets create different loads on the aircraft’s frame and engineers need to account for that when designing the modifications

Boeing (NYSE: BA) has the largest conversion program for the 737-800, with more than 112 of the aircraft reconfigured to cargo mode since it launched the program four years ago.

AEI delivered 22 737-800 passenger-to-freighter conversions in 2021 and expects to produce 36 freighters this year, Convey said. 2021 was the first full year of production after the company received FAA certification in 2019 and began ramping up in 2020 amid the onset of the COVID-19 pandemic.

Sources:  Eric Kulisch – American Shipper