Freighter leasing market review and opportunities

As of today, there are approximately 31,000 active and stored regional, narrowbody and widebody commercial aircraft. The top 120 lessors worldwide have a combined fleet of about 13,000 aircraft, which amounts to about 42% of the world’s commercial airplane fleet. The top-10 lessors account for over 40% of the non-operator owned or financed fleet. The overall order book for new commercial jets stands at about 10,000 aircraft. Freighters make up approximately 8%-10% of the world’s commercial airplane fleet, depending on whether piston-powered utility aircraft and smaller turboprops are included. Currently, there are approximately 2,000 narrowbody, medium widebody and large widebody freighters in service or in storage. The in-storage share is low, at approximately 5% of the global fleet. With the current high level of demand, pretty much every freighter that can operate is operating. The role of lessors varies across the freighter business The role of lessors in the freighter business varies greatly across operators, customers, geography and aircraft type. Overall, about 25%-27% of the world’s freighter fleet is leased, depending on whether viewed from a customer or operator perspective. The distinction between customer and operator is important as almost two-thirds of the world’s freighter fleet is operating for only five customers: FedEx, UPS, DHL, Amazon and SF Express. While FedEx, UPS and SF Express operate most of their own capacity, DHL relies on large number of subcontractors to meet its lift requirements across the globe. FedEx and UPS provide business opportunities for subcontractors outside the United States, particularly in Europe, Canada and Mexico. But scope clauses in pilot contracts provide few opportunities for third parties on U.S. routes. The interactive dashboard below provides an overview of the importance of lessors across different geographies, customers, operators and aircraft types. The dashboard gives a true picture of the lessor penetration across the industry as it excludes intra-company leases, for example when one part of ASL Aviation Holdings leases to one of its own airlines. The dashboard provides a snapshot of the active and stored fleet as of the beginning of August 2021.

Some important takeaways from our analysis: The lessor share across integrators varies substantially: While FedEx, UPS and SF Express own almost all of their fleets, about 41% of the fleet operating for DHL is leased. Amazon has until now been geared entirely toward leasing its capacity, but this is changing with the purchase of 14 aircraft from Delta and Westjet at the end of last year. So far, 100% of the company’s operations remain outsourced. The narrowbody segment, at 31%, has the largest share of leased aircraft. Within the segment, the lessor share is highest for the 737-400 and the 737-800. Most 757s are owned and operated by UPS and FedEx. Of leased fleets, 41% are based in Europe, 20% in Asia and only 17% in North America. However, when excluding FedEx and UPS, more than half of the North American fleet is lessor-owned. Generally, the lessor share is higher for the newer generation than older generation types. For example, 31% of the world’s 777-200 freighter fleet is leased, but this number is 39% when FedEx is excluded. Top lessors Overall, we count almost 100 leasing companies with a total combined portfolio of 500 freighter aircraft. Only about eight of those companies have 10 or more aircraft in their portfolio. This includes GECAS with 77; CAM with 74; Vx Capital Partners with 38; Titan with 27; DAE Capital with 13; Automatic with 12; and Airwork and BBAM with 10 apiece. The most popular leased aircraft are the 767-300, 737-400, 777-200 and 747-400. The current backlog of conversion orders will lead to changes over time, particularly for the 767-300, 737-800, A321-200, and the A330-300, the latter which is beginning to rack up orders. As of late August, the known backlog of 767-300s was around 50 aircraft, mainly for CAM and LATAM Group. The announced A330 backlog is about 40 aircraft, around 20 of which are attributable to CAM. The A321-200 backlog is about 50 aircraft, with BBAM emerging as the largest customer for the type with about 18 outstanding orders, which also potentially could include A320s. The biggest backlog is for the 737-800, which currently stands at well over 100 units. Most of the customers in this segment are leasing companies, including GECAS, BBAM and Aero Capital Solutions. Risk and opportunity Much of the order activity related to the 737-800, A330-300, and to a lesser extent the A321-200, is speculative. The 767-300 backlog, on the other hand, appears to be largely committed, partly thanks to Amazon’s hunger for aircraft. While the 777-300ER will also provide opportunities for lessors, the in-service date is a few years away. It is worth reminding ourselves that although there is a large operator based for narrowbodies and medium widebodies, the vast majority of these types operate for on behalf of FedEx, UPS, DHL, Amazon and SF Express, whose capacity requirements will cap the number of aircraft required in those segments. The figure below shows the freighter fleet by operator business model in each category. (A)CMI operators tend to operate for either DHL, Amazon or outside the United States for FedEx or UPS. The customer base in the large widebody segment is less concentrated, with combination carriers and all-cargo carriers accounting for a much larger share of operating capacity. The biggest potential upside from a lessor perspective is to crack into FedEx and UPS, which operate a combined 660 aircraft, only 2% of which are leased. FedEx also has a backlog of around 50 new 767-300 freighters. So far, FedEx and UPS have not made moves to switch from owning to leasing, although UPS has been leasing additional capacity from CAM during the past years, partly because of the need to get additional capacity quickly. However, as we come out of the pandemic — and the topic of MD-11, A300 and 757 fleet renewal becomes part of the agenda — this could create opportunities for A330 and A321 lessors. With a sunset date on the 747-8 program next year, UPS will also have to start considering options for its future widebody fleet. Options are few and far between, but there is potential for the 777-300 to enter this space and, for what it’s worth, Airbus has announced an A350 freighter program, albeit one that is light on detail. There is also increased interest from combination carriers, both with and without existing freighter fleets in freighter capacity. This will provide opportunities for leasing companies geared toward smaller customers, who can offer a product that includes capabilities and service on the maintenance side.

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