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By Chris Seymour, Head of market analysis, Cirium Ascend Consultancy

Cargo conversions of the Boeing 737-800 have been a success story since the first aircraft was modified in November 2017, as the fleet approaches 250 aircraft in the second quarter of 2024. Yet there are concerns that there is now some oversupply emerging. This may be borne out by the fact that 45 aircraft are currently parked.

737-800 annual cargo conversions 2017-2023

The number of aircraft converted annually has steadily increased, with a new peak of 72 aircraft modified during 2023. There are three programmes available, from Boeing, Aeronautical Engineers (AEI) and IAI-Bedek. Boeing’s -800BCF has proven to be the most popular, accounting for almost two thirds of conversions, followed by AEI at 27% and IAI with just 7%. Three quarters of aircraft have been converted at MROs in China, notably in Jinan, Shanghai and Guangzhou.

The -800 freighter is now in service with 62 operators in 38 countries, notably in Europe, China and the rest of Asia-Pacific. It will soon surpass the combined conversions of the predecessor 737-300/400SF; the extra pallet and 10% more volume than the -400SF has made the -800 a popular successor. Yet three quarters of conversions have actually been for growth rather than replacement, mainly to cater for expanding e-commerce demand.

Operating lessors have largely driven the conversion market, accounting for almost 80% of business to date.

Direct conversion orders by airlines/integrators have been limited, with ASL Group, China Postal and DHL the largest customers.

The popularity of the conversion with lessors is evidenced by some thirty different entities modifying their aircraft. AerCap leads with a quarter of conversions to date, followed by BBAM at 10%.

Driving the increase in conversions, especially in 2021-22 was the availability of passenger feedstock aircraft as the market struggled to recover from the Covid-19 pandemic. Surplus mid-life+ aircraft, typically after two leases, had conversion as an attractive option to extend their useful life. The average age at conversion has been 19 years in the past two years and across all conversions the ages have ranged between 10 and 25 years.

But this scenario has now shifted, as airlines are struggling to add passenger capacity due to delays in getting new aircraft, due to supply-chain problems and the ongoing Max issues.

Thus lessors are seeing much more activity in the passenger market, with lease extensions and being able to quickly place aircraft coming off lease. AEI noted late last year that it was seeing some conversion slot deferrals and indeed converted fewer -800 aircraft in 2023 than a year prior.

However, a slowdown in conversions may not be such bad news for supply and demand, as almost 20% of the converted fleet is parked.

Of the 45 currently parked, six can be effectively excluded as they are in Russia. Of the remaining 39, 11 are with airlines or integrators and most are yet to enter service post conversion. This leaves 28 lessor aircraft, of which 15 have been placed with lessees but are yet to enter service. Some of these were converted as long ago as mid-2022, indicative of the issues some lessors have had in placement. Thus just 13 are with lessors and have no future lessee yet identified; one of which was converted 15 months ago, so there is certainly some surplus of supply.

This softening of demand has driven the Current Market Lease Rate down in the past three months, albeit they still remain close to the levels enjoyed in 2018/2019, as can be seen in the chart using data from our new Value Trends module.

737-800 freighter Market Lease Rate trend

Announced conversion orders halved last year to 34, but the backlog remains robust at around 120. The number converted in 2024 looks set to be lower than 2023, driven by the aforementioned feedstock issues, but the fleet is forecast to ultimately double, and conversions to continue into the 2030s.

There remains the opportunity of significant replacement of over 200 737NGs and competition is limited. The rival A320 conversion programmes have gained limited traction to date as most focus is on the larger A321.

So yes, there is some short-term surplus of converted 737-800s and impact on lease rates, but the headline number of 45 parked does not tell the whole story.

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