Authors
Read time: 2 minutes
Background
During and just post-Covid-19, demand in the air freight sector sparked interest from lessors; airlines; maintenance, repair and overhaul service providers (MROs); investors; funds; and other financial institutions. Many were keen to invest in the area, either to hedge their existing passenger aircraft exposure, create new business lines around it and/or build out their existing expertise (in the case of MROs/conversion specialists) to increase the capacity and range of conversion programs on offer.
But has the demand continued post-Covid-19, and if so, are there any limiting factors prohibiting further investment and/or growth?
Financial and investment considerations
Analysis of current market dynamics
- Demand for freight: The trend toward e-commerce, coupled with the ongoing challenges in global supply chains, has solidified the demand for air freight. This demand is expected to persist, driving growth in the freighter market.
- Feedstock availability: The retirement of aging passenger aircraft fleets has provided a steady supply of suitable feedstock for conversion. This has eased concerns about the availability of feedstock, which were more prominent in the early stages of the market's growth.
- Freight pricing: Freight rates have remained buoyant due to the imbalance between demand and supply of goods. The limited availability of conversion slots has further constrained capacity, supporting strong pricing.
- Conversion slots: Despite the expansion of conversion facilities, demand for conversion slots continues to outpace supply. This has led to extended wait times for operators seeking to convert their aircraft. While new facilities are coming online, it may take some time to significantly alleviate this bottleneck.
- Emerging challenges. While the overall outlook for the air freight market remains positive, several factors could pose risks:
- Rising fuel costs: Increased fuel prices would impact the operating costs of freighter aircraft, affecting profitability.
- Geopolitical tensions: Global conflicts or trade disputes could disrupt supply chains and impact demand for air freight.
- Economic downturns: A significant economic downturn could lead to a decrease in trade activity and, consequently, a decline in demand for air freight.
Conclusion
The air freighter market continues to present a strong investment opportunity, driven by robust demand for air freight and limited capacity. While challenges such as conversion slot availability and potential economic headwinds exist, the underlying fundamentals remain supportive of growth.