Weak Freighter Rentals Mimic U.S. Economy

The difficulties being experienced by Atlas underline the fragility of the freighter market. The period in the run up to the Christmas period provided a respite for freighter operators who enjoyed a measure of growth. The sustained military build up in the Middle East is likely to provide further business...

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The difficulties being experienced by Atlas underline the fragility of the freighter market. The period in the run up to the Christmas period provided a respite for freighter operators who enjoyed a measure of growth. The sustained military build up in the Middle East is likely to provide further business for freight operators as well as some passenger carriers through to at least March. However, the airfreight business and small package industry is heavily dependent on the state of the global economy and while one-off events such as Christmas and military contracts may provide a measure of comfort, sustained economic growth is required to soak up still surplus capacity and allow rentals to increase. The high price of fuel, while less significant to the world economy than in past decades, nonetheless continues to eat into profit margins of operators and spoil the beneficial effect of increased revenues.

Prior to Christmas, the airfreight market enjoyed a measure of growth in the Asia-Pacific market and this has continued as the economies in the region show signs of expansion. The move of operators towards smaller widebody equipment has served to contain the availability of lower hold capacity on passenger aircraft, diverting cargo to dedicated freighters. The continued problems in the U.S. market in particular, is increasing speculation that the B747-400 will be converted sooner rather than later suggesting that the pressure on B747-200SF rentals will remain.

Freighter Lease Rates (Dry) US$ '000s pm - January 2003
Aircraft	Age	Rental	Trend Analysis
A300F4	1976-79	120-150	The A300F4 has proved itself a worthy regional freighter, allowing both new and existing operators to exploit new market opportunities while containing operating costs. With so many A300Fs have been converted on a speculative basis and in view of sometimes weak credits and short lease terms, there continues to be ready availability. Rentals can fluctuate depending on the lessee and term as well as maintenance reserves. Rentals are considered to have weakened slightly.
A300F4	1980-84	140-175	The A300F4 has proved itself a worthy regional freighter, allowing both new and existing operators to exploit new market opportunities while containing operating costs. With so many A300Fs have been converted on a speculative basis and in view of sometimes weak credits and short lease terms, there continues to be ready availability. Rentals can fluctuate depending on the lessee and term as well as maintenance reserves. Rentals are considered to have weakened slightly.
A310-200F	1982-88	125-165	The -200F market remains essentially a closed and theoretical sector given the concentration with FedEx. Rentals, should a -200F be placed onto the open market, are considered to have fallen slightly largely as a consequence of age related issues and availability of A300F4s.
B707-320CH	1965-72	15-30	Environmental compliance, or lack of it, accompanied by every higher maintenance costs and gas guzzling engines make for a heady concoction though the absence of a suitable alternative provides solace.
B727-100C	1965-71	15-30	The -100C remains attractive for some operators, particularly those outside of the U.S. As such rentals can be quite high for weaker credits as can maintenance reserves.
B727-100CH	1965-71	20-40	The -100CH is not so much of a stalwart of the small package fleet as it once was and lease rentals have to take account of the principal market.
B727-200FADV	1972-78	20-40	A great aircraft in so many ways, not least because a replacement or alternative has yet to emerge. Operators outside the U.S. simply cannot do without the aircraft and manage to continue coax reasonable service out of the 30 year old type.
B727-200FADV	1979-83	25-50	A great aircraft in so many ways, not least because a replacement or alternative has yet to emerge. Operators outside the U.S. simply cannot do without the aircraft and manage to continue coax reasonable service out of the 30 year old type.
B727-200FHA	1972-78	25-45	The small package industry may be suffering in the U.S. but such is the minimal capital cost of the -200FHADV that lower utilization or lighter loads are not necessarily a problem. Though the EU may have dropped a hushkit rule the expansion of the bloc will do little to offer new market opportunities to the type.
B727-200FHA	1979-83	40-70	The small package industry may be suffering in the U.S. but such is the minimal capital cost of the -200FHADV that lower utilization or lighter loads are not necessarily a problem. Though the EU may have dropped a hushkit rule the expansion of the bloc will do little to offer new market opportunities to the type.
B737-300QC	1986-91	110-130	Such has been the fall in passenger lease rentals that those of the -300QC or -300F cannot escape unscathed. Rental levels are considered to have weakened slightly though there continues to be some demand for the limited number in service.
B737-300QC	1992-97	130-155	Such has been the fall in passenger lease rentals that those of the -300QC or -300F cannot escape unscathed. Rental levels are considered to have weakened slightly though there continues to be some demand for the limited number in service.
B747-100SF	1969-76	55-100	For once rentals of the -100F are not considered to have fallen - only because they are now considered to be at rock bottom. Lessors are looking to make more money out of maintenance reserves than rentals.
B747-200SF	1971-78	115-150	Rentals on the -200SF continue to suffer from excess supply despite a reasonable Christmas. The problems of Atlas point to a lack of appetite in re-absorbing current surplus capacity while other operators are increasingly recognizing the attraction of the -400F.
B747-200SF	1979-84	145-240	Rentals on the -200SF continue to suffer from excess supply despite a reasonable Christmas. The problems of Atlas point to a lack of appetite in re-absorbing current surplus capacity while other operators are increasingly recognizing the attraction of the -400F.
B747-400F	1993-00	545-910	The rentals on the -400F are considered to have remained reasonable stable as at current levels they represent a cost effective alternative to the -200SF. The low interest rates and pressure of higher fuel costs has meant that lessees are seeking other means of reducing operating costs.
B757PF	1986-93	180-220	Though the B757 passenger market is experiencing some problems the still limited number of B757 freighters has to some extent uncoupled the two sets of lease rentals. An influx of speculative converted units has the potential to see a reduction in rentals. At present, the A300F4 seems to be more cost effective.
B757PF	1994-98	210-250	Though the B757 passenger market is experiencing some problems the still limited number of B757 freighters has to some extent uncoupled the two sets of lease rentals. An influx of speculative converted units has the potential to see a reduction in rentals. At present, the A300F4 seems to be more cost effective.
BAe146QT	1984-89	90-120	Conversion of additional BAe146s has taken on a new significance as the number of surplus passenger units mounts. In its favor is the low noise level though the number of larger turboprops being converted represents a significant threat.
L1011-200F	1975-81	40-90	The market for the L1011F freighter remains rather specialist.
DC8-61F	1968-71	30-60	The market for the DC8 continues to face difficult times. The problems posed by noise, fuel consumption and maintenance are largely insoluble suggesting that the market for the type will continue to contract.
DC8-63F	1968-71	45-80	The market for the DC8 continues to face difficult times. The problems posed by noise, fuel consumption and maintenance are largely insoluble suggesting that the market for the type will continue to contract.
DC8-71F	1968-71	80-125	The -70 series is still a great aircraft and the rise in availability is hardly unexpected. The type continues to have considerable merit though with a changing market structure and availability of alternative types, some of the previous high regard has been eroded.
DC8-73F	1968-71	90-130	The -70 series is still a great aircraft and the rise in availability is hardly unexpected. The type continues to have considerable merit though with a changing market structure and availability of alternative types, some of the previous high regard has been eroded.
DC10-30F	1971-78	105-170	Rentals are facing weakness due to the availability of alternative types, including the DC10-40F. With a ready supply rentals have faced a tough time which is particularly evident during this weak quarter.
DC10-30F	1979-84	150-205	Rentals are facing weakness due to the availability of alternative types, including the DC10-40F. With a ready supply rentals have faced a tough time which is particularly evident during this weak quarter.
MD11F	1990-93	420-530	Rentals for the MD11F continue to decline as enthusiasm for conversion wanes in the midst of weak trading conditions. Though there exists some potential for improvement when trade picks up, for the time being lessors will be hard placed to find lessees.
MD11F	1994-99	500-610	Rentals for the MD11F continue to decline as enthusiasm for conversion wanes in the midst of weak trading conditions. Though there exists some potential for improvement when trade picks up, for the time being lessors will be hard placed to find lessees.
Commentary reflects change from the last update to Freighter Rentals of October 2002.

The operating lease rates above are for indicative purposes only. Rentals are quoted in thousands of U.S. dollars per month and exclude maintenance reserves. They assume a medium credit, average return conditions and an average lease term. Lease rentals for actual transactions may differ. Weaker credits and short lease terms will normally warrant a higher rental. A long-term rental to a strong credit, where such exist, will justify a lower rate.