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MAY 17
Vol. 39, No. 5C
IN THIS WEEK'S UPDATE
Nanjing aviation project announces launch of 777 P2F program

This week, Nanjing’s Jiangning Development Zone announced a $1.7 billion (RMB 11.8 million) multi-phase aviation project that includes developing a supplemental type certificate (STC) for 777 p-to-f conversion, and constructing a large MRO facility at Nanjing Airport (NKG) to handle engine maintenance projects and, later, p-to-f conversions and other widebody maintenance projects. According to the announcement, Israel-based IAI is also expected to be involved in STC development. For its part, IAI confirmed that it “does not have a contract with anyone regarding a 777 cargo conversion program,” but did not elaborate regarding any ongoing discussions with potential partners.

Two Beijing-based companies with no known experience developing a conversion program will provide initial funding for the project – which would make for a steep learning curve were it not for the fact that IAI is expected to offer up its technical expertise, according to a release from the Development Zone. The scope of IAI’s collaboration beyond STC development is not yet clear, but the Israeli conglomerate is certainly experienced in the types of airframe and engine maintenance projects Nanjing would like to bring to the facility. Kunlun Aerospace and Beijing Ruihe Xinye Investment Co., Ltd., meanwhile, will finance the three-phase project.

See also: Cargo Facts Asia: New large widebody freighter conversion programs ahead?

Regarding the 777 STC itself, technical details and a timeline for the program’s development were sparse. Stakeholders in the Nanjing project, however, are very bullish on the prospects for a conversion program. Wang Chen, Investment Director, Beijing Ruihe Xinye Investment Co., told Civil Aviation Resource Network News he expected the facility to convert twenty-four 777Fs per year once it was operational. Such a figure seems like quite a stretch based on conversion numbers Cargo Facts has seen for previous widebody programs (even in the current heyday of 767 conversions, neither Boeing nor Bedek has managed to convert more than 24 per year), not to mention market demand. Still, the figure gives some insight into the expected size of the MRO facility.

No AOC yet for CargoLogic Germany

Startup carrier CargoLogic Germany has still not been issued a German Air Operator’s Certificate from the Luftfahrt-Bundesamt but remains confident in its ability to do so. In an email, CLG confirmed to Cargo Facts that the carrier “continues to engage constructively with the LBA as part of the comprehensive process around receiving an EASA-compliant AOC in Germany and anticipates a positive outcome.” CLG added that it is still “refining its mid-term plans,” but long-term, is “expecting to incorporate additional aircraft into the fleet as per its network and commercial requirements.” 

Others are more skeptical of CLG’s ability to gain approval from the LBA. In March, when Lufthansa Cargo announced its 2018 results, CEO Peter Gerber said that he believed it would be difficult for CLG to acquire a German AOC because of the requirement to be both European-owned and European-controlled. Gerber added that he was sure the German authorities would “look at this very thoroughly and do the right thing,” and that if the requirements are not fully met, Lufthansa Cargo would consider “all the legal possibilities.” While the lengthy AOC approval process is indicative of a thorough evaluation, LBA has not outlined any conditions that would prevent CargoLogic Germany from receiving a local AOC.

Nevertheless, the carrier continues to add to its freighter fleet – most recently with the delivery of a second 737-400SF. Read more about that aircraft in this week’s list of Freighter Aircraft Transactions.
Cargo traffic falls across the board in April first look
Despite a bounce back from earlier declines that major carriers reported for March, sharper year-over-year traffic slowdowns in April indicate the month was the worst so far this year for many of the carriers that have reported results so far. Of the carriers tracked by Cargo Facts, only Air France-KLM reported an increase in traffic, totaling 3.3%, for April.

Carriers reporting declines in April include Air China, China Southern Airlines, Singapore Airlines, and EVA Air in the Asia-Pacific region; Lufthansa Group, Turkish Cargo, and International Airlines Group in the Europe and Middle East region; and LATAM Cargo and Delta Air Lines in the Americas. Meanwhile, Cathay Pacific and China Airlines have not yet reported April results.

Turning to those carriers reporting the largest year-over-year changes:

Singapore Airlines reported April cargo traffic down 7.5% year-over-year to 534 million FTKs, while cargo tonnage declined by 5.7% to just over 100,000 tonnes. Year-to-date, cargo traffic is down 7.0% to 2.1 billion FTKs.

Taiwan-based EVA Air reported a sharp 12.7% y-o-y decline in traffic for April to 272 million FTKs. April’s falling traffic was the steepest drop reported by the carrier so far in 2019. Tonnage also fell by 12.7% to roughly 48,000 tonnes. Year-to-date, EVA’s cargo traffic is down 8.1%, and tonnage is down 9.0%. 

Turkish Cargo reported its first y-o-y decline in cargo tonnage since we began collecting regular data in 2011. Overall tonnage fell by 12.9%, to about 99,000 tonnes, representing a month-to-month decline of 28.4% from March, for the lowest monthly tonnage the carrier has reported since February 2018. Year-to-date, the carrier’s cargo tonnage is still up 8.3%, compared to the same four months in 2018, but the sharp decline in April brought year-to-date growth down into the single digits.  

See also: Turkish Cargo’s April volumes plunge on international declines

Delta Air Lines reported April cargo traffic down by 11.9% y-o-y to 235 million RTKs. Year-to-date, traffic was down 5.5% to 948 million RTKs. 
Cainiao shifts focus to import logistics as trade war intensifies
China-based Alibaba Group made no attempt to avoid discussion of the trade war following the release of its 4Q19 earnings. Instead, during a call with analysts this week, company CEO Daniel Zhang called the tense negotiations between the United States and China “an opportunity for the Chinese economy.” Rather than focus on export declines, “China will expedite its journey to transform from an export-driven economy to a consumption-driven economy,” added Zhang. Cainiao, Alibaba’s smart logistics platform, appears to be preparing accordingly with a renewed interest in import logistics.  

Cainiao said it will continue developing its ability to fulfill cross-border orders placed through its China-facing Tmall Global platform and its outward-facing AliExpress platform. To handle imports, Cainiao utilizes two methods for bringing the goods into China: Bonded warehouses for large consolidations, and direct shipping for parcel-level shipments. AliExpress uses similar models to handle exports from China. For the month of March 2019, Cainiao reported its “proprietary fulfillment and logistics solutions” handled more than 75% of AliExpress parcels. 

Returning to the company’s earnings, Cainiao logistics reported revenues were up 35% year-over-year to $575 million – about 4% of the group’s overall revenue for the quarter. The group reported net income down 5% y-o-y to $1.3 billion on revenue up 51% to $13.93 billion. Alibaba blamed the lower profit on a one-off charge, due to a $250 million class-action lawsuit.  
Recent freighter aircraft transactions:

National Airlines acquired three 747-400BCFs (25068, 26547 and 27217, all ex-Cathay Pacific) from Boeing Aircraft Holding Company [FATs 004875-4877]. 

Cargolux acquired a 747-400ERF (35232, ex-ASL Airlines) from FedEx [FAT 004878]. For more on the aircraft’s history see the story on our website here

FedEx took delivery of a 777F (37731) from Boeing [FAT 004879]. The new aircraft was flown from Paine Field (PAE) to the FedEx World Hub in Memphis (MEM).

SF Airlines took redelivery of a 767-300BCF (28979, ex-TUI Airways), following conversion to freighter configuration by Boeing at its authorized conversion center in Taipei (TPE) [FAT 004880].

Cargo Aircraft Management took redelivery of a 767-300BDSF (26912) following its conversion to freighter configuration with Bedek [FAT 004881]. This is the second of three ex-Air New Zealand 767s acquired by CAM since 2018 – the first (26915) was redelivered by Bedek in December 2018, and the third (26913) is in storage at Wilmington Airpark (ILN). Cargo Facts expects the third unit will also eventually make its way to a Bedek MRO facility.

Cargo Aircraft Management acquired a 767-300 (24983, ex-Delta) and ferried it from Wilmington (ILN) to Shannon (SNN) ahead of expected conversion to freighter conversion [FAT 004882]. 

CargoLogic Germany acquired a 737-400F (27673, ex-NewGen Airways) on lease from Vx Capital Partners. Following conversion to freighter configuration by AEI at the KF Aerospace facility in Kelowna (YLW), the aircraft was ferried to Leipzig (LEJ) [FAT 004883].

 
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