Air Transport World

Tough choice: Old or new.

More than 1,000 freighters will enter service over the next 20 years. The question is whether to go with converted passenger aircraft or buy them off the assembly line

Cargo continues to be the fastest-growing segment of the air transport industry, despite Asia's economic problem and its rippling effect throughout the world. Effects of the Asian crisis have been only to slow down that growth, with the 10.1% rise in RTKs of 1997 expected to drop into the 6-7% yearly range, according to the 1998-99 Boeing World Air Cargo Forecast. Capacity is expected to grow at around 5% per annum.

As a result of that continued albeit somewhat more sedate growth, air-cargo traffic should triple over the next 20 years and the worldwide fleet of freighters is expected to grow from 1,434 flying in 1997 to 2,706 by 2017, Boeing said.

Boeing also estimates that of the 1,434 freighters in service today, just about 25% will still be in service in 2017, meaning that more than 2,200 aircraft will have to be added to the fleet. And while about two-thirds of today's fleet comprises converted passenger or combi aircraft, roughly three-quarters of the future freighters will be converted aircraft, according to David Pierce, Boeing's regional director-marketing, cargo. Because of the lower utilization rate of cargo aircraft, "converted aircraft present an attractive alternative to new-production aircraft," he said.

However, as more brand-new freighters go into service, producing very favorable rates of return, the economic advantage of a converted aircraft becomes less and less obvious. Studies have shown that a new aircraft, despite the higher acquisition cost, ultimately can be more economically viable. But then, other studies have shown that converted aircraft are more economically viable.

The problem is that determining whether to buy a new aircraft or convert an older one involves dealing with variables that are, well, variable. To be more specific, trying to determine exactly what an aircraft costs to fly is aiming at a moving target, since variables such as fuel, maintenance and insurance change on a regular basis. Even the cost of the aircraft itself or interest paid on loans can change at any point in the planning process, right up until the contract is signed, depending on the market.

As a rule of thumb, the greater the utilization of the aircraft, the greater the advantage of a new aircraft. …

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