Conversion Dilemma
It is a pleasure to host commentator and commercial pilot Chris Cook, who offers his insight into the cargo market competition between the 747-400BCF and 777F.
747-400BCF Squares Off Against Its Sibling, The 777F
The new, advanced and highly-efficient 747-8F is clearly the ultimate large freighter airplane due to its unsurpassed economics, capabilities and profit potential. With a revenue payload capability of 133,900kg at “real-world” market load densities of 158.6kg/cubic meter, the -8F is clearly at the pinnacle in the large freighter airplane market. The 747-8F complements the 777F in a neat fashion, and together, these two technologically advanced freighter airplanes will arguably be the benchmark, or cornerstone, for the large freighter airplane market for decades to come.
However, whilst the business cases for Boeing’s two new large freighter airplane offerings is solid and secure, and promises to have a bright future despite a few recent order cancellations, the business case for their 747-400 Boeing Converted Freighter (BCF) Program may appear to be weaker and less certain than at the time of official launch. As of 1st January 2010, Boeing had secured 49 orders from 9 customers for the 747-400BCF, but with the market size forecast reduced by some 26%, or 121 airplanes, to 340 airplanes as well as the dearth of business at competing customers conversion centres on 747-400 passenger to freighter conversions, is the outlook for this market bleaker than originally thought? Boeing points out that despite a slow down in order activity for their -400BCF program, due to the significant global recession that (arguably) peaked in 2009, they have made significant progress on reducing the time from customer order to redelivery for the -400BCF. This means that with a shorter lead time operators are able to plan the introduction of the -400BCF more closely than with a new production built large freighter airplane.
This in turn, Boeing believes, will see the -400BCF staying strong due to more timely availability. Perhaps another question facing current and prospective -400BCF customers, and other -400 converted freighter customers, is whether these -400s create genuine, long-term return on investment, or whether the 777F and/or 747-400F/ERF/-8F would be the better longer term solution for the air freight solutions?
Boeing is among the first to realize the complexity of the decision facing airlines. “As every carrier has unique business goals, customer sensitivities and regional requirements, they usually make freighter choices based on factors beyond just acquisition or operating costs including market distance and yield, fleet integration, utilization and other more specific considerations,” notes Jim Edgar, Boeing regional director for Cargo Marketing.
In simple terms, the -400BCF does indeed seem to have a good long-term value. History has shown that despite brand-new, fuel efficient and more capable 747-400Fs being available, the 747 Classic passenger-to-freighter modification programs coexisted with the -400F for more than a decade. Between 1993 and 2004, a total of 123 Classic 747s (78 being 747-200s) were converted to freighters. In comparison, in the years between rollout of the first -400F (February 1993) and the last -400F, Boeing secured 126 firm orders for the standard -400F and 40 firm orders for the longer-range, higher gross weight and more capable -400ERF. Boeing projects that the -400BCF will coexist well with the 777F and 747-8F in the large aircraft freighter market over the next decade at least. Further, the -400BCF could be the ideal replacement for the still more than 70 747Classic freighter airplanes still in operation today as well.
Ironically, Boeing has pitched both the 747-400BCF and the highly-efficient 777F as ideal, low-risk replacements for older generation tri-engine and quad-engine freighter airplanes. Ultimately, this has seen the 777F and 747-400BCF entering a showdown that’s set to last for many more years. The 747-400F/-ERF and 747-8F are differentiated from this duel as they offer the unique nose-loading capability, greater payload capabilities and, in the case of the -8F, hugely superior economics. For example, the -400F/-ERF offer 14% better fuel burn/tonne compared to a 747-200F over a 3,000nm trip, whereas the -8F offers a staggering 29% better fuel burn/tonne against the -200F over a similar distance. The -400BCF, on the other hand, offers only an 8% reduction in fuel burn/tonne over the 3,000nm trip compared to a similar capacity -200F. For a customer needing an airplane with a maximum revenue capability of around 105,000kg, the 747-400BCF and 777F fall directly into this bracket. Make no mistake, the -400BCF is an incredibly good airplane, but it’s come up against an even better airplane in many cases in the form of the 777F.
Providing cargo capacity normally associated with larger airplanes, the 777 Freighter can fly 4,885 nautical miles (9,052 kilometers) with a full revenue payload of 226,740 pounds (102,830kg), whilst the -400BCF will be hauling some 107,842kg (237,750Ibs) of revenue payload over 4,091nm (7,580km). Both fly at a similar Mach0.845 econ cruise speed. Clearly, if range is not the requirement, the -400BCF offers compelling attributes, but if an airline wishes to fly a similar payload compared to the -400BCF payload, much further at considerably improved economics, then the 777F is an attractive option. Whilst payload configurations vary, both the 777F and 747-400BCF are closely matched, with the former having a total of around 23,000cubic feet of cargo volume, and the latter some 25,000cubic feet of cargo volume. The 777F offers extremely attractive economics against the -400BCF, but the -400BCF offers attractive acquisition costs.
The big question: Brand-new 777F or older, yet similarly capable, 747-400BCF?
There’s no disputing the fact that the -400BCF offers attractive payload/range capabilities, and coupled with lower acquisition costs than new factory built freighters, the -400BCF is an ideal airplane for many freighter fleet solutions. But, with a revenue payload of only 5% greater than the 777F, a question mark hangs over the viability of the -400BCF in a market place that’s intensely focused on operating the most fuel-efficient freighter airplanes.
“Even with this decline [in air-freight] that we’ve seen, which is now 20%-plus year-to-date, we’re still looking at a very large freight market [in the future],” remarked Bill Flynn, Atlas Air CEO and President. “We still believe there’s a compelling need for modern, efficient freighter assets as the market and economy recovers. And, as the market recovers, the fuel [price] will go higher, or seek levels consistent with demand, and we think that’ll position the 747-400F and 747-8F, very effectively and efficiently.”
Cargolux’s CEO, Ulrich Ogiermann, has emphasised on several occasions that the 747-8F was chosen due to its superior operating costs, class leading fuel-efficiencies and capabilities. “They {customers} will want to be sure that if they have to fly goods, they fly them in the most fuel-efficient aircraft, and that aircraft is the 747-8F,” commented Ogiermann. Further, shippers are becoming increasingly more vigilant of the carbon-footprint of flying freight by air, and are demanding only the cleanest, greenest and most capable airplanes. “Corporations will want to be as green as possible we don’t want to be ¬flying 10 year-old aircraft with yesterday’s engines. We want aircraft with next-generation engines, the largest payload and the best fuel efficiency,” said Atlas Air’s CEO, William Flynn as one of the reasons why the airline opted for up to 26 Boeing 747-8Fs instead of additional -400BCFs.
The -400BCF will find its market niche as either a freighter airplane that’s intended as interim lift, or “bridging” capability whilst a customer waits for new 777Fs or 747-8Fs to be delivered, or as an ideal freighter airplane for an airline requiring 747 freighter capacity and improved efficiency but whom are not able to foot the bill for new built freighters. Also, in the conversion market, there are always carriers that try to “time” the market — awaiting a “bottoming” of aircraft values to obtain the asset for the least possible cost. Additionally, as the freighter market upswing continues in 2010 and beyond, operators will also be all to keen to lap up additional lift capability, and with quicker order to redelivery times for a -400BCF compared to a new production built freighter, and a huge pool of over 400 747-400s, there’s a significant availability of airplanes as well at very low prices.
One particular -400BCF customer, Air China, who operates a small fleet of 3 747-400Fs, has remarked that the commonality between the -400BCF and -400F is a key quality for their freighter fleet needs. “Our 747-400BCFs will provide increased efficiency compared to our 747-200Fs and bring greater operational commonality with our newer 747-400 Freighters,” said Air China Cargo Vice President Xiao Ping.
Boeing predicts that over the next 20 years the freighter market will require 340 converted freighters with a payload capability of 80,000kg and greater. Whilst the 747-400BCF will be the largest airplane in this particular market, it’ll share the spoils with the MD-11BCF and possibly any planned 777BCF. However, with very few MD-11s remaining to be converted, their impact on this market is minimal. The proposed 777-200ER BCF, however, will become a more prominent airplane in this market, but with a payload capability “in the lower end” of the large freighter market, the -400BCF will still be well differentiated and larger. If anything, the 777BCF will serve to be an ideal replacement for the MD-11BCF and compliment to the 747-400BCF. What differentiates the -400BCF further in this market is the fact that with well over 50% of the world’s air-freight capacity being flown in 747 freighters, the -400BCF has better commonality attributes in this market that could make the airplane a more favoured option as the 747 is the benchmark for the large freighter airplane market.
As for the 777F, Boeing predicts that market size over the next 20 years to require 490 new built freighters, with the 777F sharing the spoils with the out-of-production 747-400F/ERF and the in production 747-8F. With the 747-8F having secured 76 firm orders by 1st January 2010, and the 777F close behind at 68 firm orders, of which 16 had already been delivered, the market acceptance of these two new, 21st-century, highly-efficient and capable Boeing freighters has been stupendous. Whilst 2009 was a tough year in the air freight business as air freight traffic plummeted due to the significant world recession, the -8F only lost 2 firm orders in the form of leasing giant Guggenheim Aviation Partners reducing their order from 4 firm to 2 firm. The 777F, however, lost 5 orders during the year, highlighting the difficulties in the present air freight market. The -400BCF, meanwhile, logged no new conversion orders.
Whilst the -400BCF maybe the underdog when compared to the 777F, a noteworthy point to also highlight is that with the -400BCF added into the mix, Boeing is able to offer greater flexibility and options to airlines to meet their needs. “We know that one freighter won’t meet the needs of all carriers. With our team’s deep knowledge of the air cargo market and our experience in providing air cargo lift, Boeing is able to offer a complete line of freighters, production and conversion, to meet the broad and varied needs of the market,“ comments Boeing’s Edgar. Boeing’s large freighter aircraft are the industry leaders, and offer the highest load densities, best economics and best flexibility of any other competing freighters.
With the 747-400BCF, Boeing is also offering customers a greater availability of freighter airplanes to meet their needs, hence Boeing’s drive as offering the -400BCF as a “Life-cycle Solution”. And with Boeing being the OEM for the -400BCF, customers are assured of receiving value for money as the -400BCF is treated by Boeing as a new production built freighter as well.
What remains to be seen, however, over the next few years is whether the large airplane conversion market will really be as large as currently predicted, or whether the airlines will rather opt for the lowest-trip cost freighter or lowest tonne/mile cost freighters in the world, the 777F and 747-8F respectively, in larger volumes than the current forecast.
Click Image To Enlarge
The 747-400BCF is a great airplane to replace older generation large freighter airplanes, such as the 747-200F, and thus it’ll find a small, yet vital market niche to fulfil in the next few years. However, with the growing capabilities of the 777F and it’s virtually identical payload capabilities and significantly superior economics, the -400BCF could be marginalised even further into the future as airlines turn their long term focus to increased productivity and eco-friendly initiatives. Where the clear water really is, is between these freighters and the 747-8F. With 16% more cargo volume, coupled with being 17% more fuel efficient and 16% lower tonne/mile costs than the -400ERF, the -8F is set to rule the upper end of the large freighter airplane market for decades to come.
A large production freighter is quite a large investment, with a list price ranging from US$250 - $300 million. While top carriers are able to make this investment, there are a number of smaller carriers unable to do so — and many of these are the same carriers that have “hunkered down” during the recession - to survive and save the limited capital that they have. Additionally, acquisition cost may be a reason that leasing companies are evident among the 747-8F/777F customer base. They see a need for efficient lift in new production freighters that not all operators can afford at the moment.
The duel between the 747-400BCF and 777F as airlines weigh in options of opting between the two, or indeed opting for both, is however, far from over.
By: Christopher Cook
Commercial Pilot
Johannesburg, South Africa
All images/data courtesy of Boeing
40 comments February 14th, 2010
