Freighter Rentals Remain On Even Keel

The loss of some military contracts has taken the edge off the boom time for the freight industry, but the run up to the peak Christmas period will provide sufficient solace to keep rentals at current levels. Military contracts represent a vital source of revenue for a number of operators, helping to...

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The loss of some military contracts has taken the edge off the boom time for the freight industry, but the run up to the peak Christmas period will provide sufficient solace to keep rentals at current levels.

Military contracts represent a vital source of revenue for a number of operators, helping to maintain utilization and keep the desert parking lots from filling with older freighters. Some volatility in this segment of the market has always been evident. The short term nature of contracts can leave operators with surplus equipment or lesser utilization, with little notice. However, the civilian cargo market continues to grow at a sufficient rate to stimulate demand for ever more new freighters, Emirates became the latest customer to announce an order for new B747-8Fs.

While some segments may be suffering, the overall cargo market remains sufficiently buoyant to allow some rentals to show an improvement. The pressure on interest rates also poses an issue for lease rentals, which may rise as a result while offering lessors no net advantage.

The following lease rentals reflect average lease terms to a medium credit. Rentals provided by The Aircraft Value Analysis Company (http://www.aircraftvalues.net).

Freighter Lease Rates (Dry) US$ '000s pm - October 2006
Aircraft	Age	Rental	Trend Analysis
A300F4	1976-79	120-1551	The demand for mid sized freighters remains sufficiently strong as to allow mid point rentals of the A300B4-200 to show a measure of improvement. The rentals are benefiting from the limited conversion rate of such types as the B767-300. The A300 therefore has the ability, in terms of capacity and range, to meet the needs of a variety of operators in both established and burgeoning markets. The market for the type is expected to remain sufficiently strong as to allow lease rentals continued stability in the short term. In the medium term, the arrival of the A300-600R conversions, offering greater payload/range will take their toll.
A300F4	1980-84	135-170	The demand for mid sized freighters remains sufficiently strong as to allow mid point rentals of the A300B4-200 to show a measure of improvement. The rentals are benefiting from the limited conversion rate of such types as the B767-300. The A300 therefore has the ability, in terms of capacity and range, to meet the needs of a variety of operators in both established and burgeoning markets. The market for the type is expected to remain sufficiently strong as to allow lease rentals continued stability in the short term. In the medium term, the arrival of the A300-600R conversions, offering greater payload/range will take their toll.
A300-600RF	1994-98	290-460	The production freighter remains a stalwart performer in terms of lease rentals. In contrast to the passenger sector, the cargo segment is not so dependent on a limited distribution in terms of units or operators. Placing freighters can be easier than passenger aircraft though this is perhaps more evident in a growth market. The A300-600RF has considerable merit for operators due to range and capacity but as soon as more B767-300ERs start to be converted, then the -600RF may feel the pinch. The launch of the A330-200F may impinge on the traditional market of the -600RF but not in the near future.
A300-600RF	1999-06	350-620	The production freighter remains a stalwart performer in terms of lease rentals. In contrast to the passenger sector, the cargo segment is not so dependent on a limited distribution in terms of units or operators. Placing freighters can be easier than passenger aircraft though this is perhaps more evident in a growth market. The A300-600RF has considerable merit for operators due to range and capacity but as soon as more B767-300ERs start to be converted, then the -600RF may feel the pinch. The launch of the A330-200F may impinge on the traditional market of the -600RF but not in the near future.
A310-300F	1985-97	155-215	The -300F continues to be in demand as it offers widebody capacity for regional sectors. Lease rentals have improved slightly as a result of the sustained improvement in the market and the pressure on lease rentals. The twin engines and main deck space make for a viable alternative compared to the larger narrowbodies, including the B757SF. Due to the greater capability, the -300F seems to possess broader support than the -200.
B707-320CH	1965-72	15-35	The B707 has little relevance to the market not least because of its age and gas guzzling engines. Maintenance remains a real issue though simplicity of design ensures that the "flying spanner" can rectify many faults.
B727-100C	1965-71	15-30	There has been little evidence over the last quarter that the market for the older B727s has improved. While a few operators cling to the type for a variety of reasons, the mainstream operators have moved onto newer territory. Lease rates will only move if interest rates rise.
B727-100CH	1965-71	20-40	Noise and environmental compliance continues to be an issue — with or without hushkits. The type is showing its age in terms of maintenance, operating costs and condition. Only low utilization keeps the type in service but as soon as a D check appears on the horizon, the options are restricted.
B727-200FADV	1972-78	20-55	Despite the announcement by FedEx that it intends to replace its fleet, lease rentals have improved slightly, at least for quality examples. There has long been recognition that the profit lies in the lease rental rather than the asset.
B727-200FADV	1979-83	25-55	Despite the announcement by FedEx that it intends to replace its fleet, lease rentals have improved slightly, at least for quality examples. There has long been recognition that the profit lies in the lease rental rather than the asset.
B727-200FHA	1972-78	25-70	While the lease rentals of those in lesser condition remain exposed, there continues to be sufficient demand for quality units to warrant a slight increase, a change from so many years of neglect. The fall in the price — albeit temporary should OPEC have its way — will provide some solace for operators.
B727-200FHA	1979-83	45-80	While the lease rentals of those in lesser condition remain exposed, there continues to be sufficient demand for quality units to warrant a slight increase, a change from so many years of neglect. The fall in the price — albeit temporary should OPEC have its way — will provide some solace for operators.
B737-300SF/QC	1986-91	115-150	The rates for the -300SF have increased slightly as a consequence of sustained general demand and interest in the specific aircraft. The type is well liked by operators offering as it offers the ability to service regional routes without being overly concerned about noise.
B737-300SF/QC	1992-97	145-180	The rates for the -300SF have increased slightly as a consequence of sustained general demand and interest in the specific aircraft. The type is well liked by operators offering as it offers the ability to service regional routes without being overly concerned about noise.
B747-100SF	1969-76	60-100	The -100F has long since fallen from grade except as a back up. The type has managed to last some 30 years which should give some indication of the prospects for those 15 year old aircraft that are now being converted.
B747-200SF	1971-78	125-200	Though the price of fuel may be easing there remains considerable negatives for the -200F which preclude any advancement of lease rentals. With so many newer freighters being ordered the -200F is being increasingly sidelined. Lessors need to extract the maximum rental and longest term while the market is at the current peak.
B747-200SF	1979-84	180-290	Though the price of fuel may be easing there remains considerable negatives for the -200F which preclude any advancement of lease rentals. With so many newer freighters being ordered the -200F is being increasingly sidelined. Lessors need to extract the maximum rental and longest term while the market is at the current peak.
B747-400F	1993-98	590-930	Rentals for the -400F have nudged upwards in the mid range as a consequence of strong demand. The type remains one of the strongest of assets because it offers the capacity and range that meets the needs of the current market. The B747-8F is not due to enter service for sometime and the lack of conversion slots for the -400BCF suggests that the market will be not be unduly swamped with capacity.
B747-400F	1999-05	890-1350	Rentals for the -400F have nudged upwards in the mid range as a consequence of strong demand. The type remains one of the strongest of assets because it offers the capacity and range that meets the needs of the current market. The B747-8F is not due to enter service for sometime and the lack of conversion slots for the -400BCF suggests that the market will be not be unduly swamped with capacity.
B757SF	1986-93	165-220	The rentals of the B757SF may seem some slight improvement in the near term by virtue of FedEx taking up conversion slots. However, in the meantime rates have remained unchanged. The conversion of 90 aircraft by FedEx at last validates the aircraft as a freighter. Part of the reason for the lack of uptake of conversions to date is due to the absence of availability. The resurgence in interest in the B757 has kept availability down to low levels. The fitment of winglet will aid performance and make for an even more viable freighter. Those B757s featuring a higher MTOW, 240-255,000 lbs, offer the greatest potential for those seeking the maximum payload/range.
B757SF	1994-98	200-280	The rentals of the B757SF may seem some slight improvement in the near term by virtue of FedEx taking up conversion slots. However, in the meantime rates have remained unchanged. The conversion of 90 aircraft by FedEx at last validates the aircraft as a freighter. Part of the reason for the lack of uptake of conversions to date is due to the absence of availability. The resurgence in interest in the B757 has kept availability down to low levels. The fitment of winglet will aid performance and make for an even more viable freighter. Those B757s featuring a higher MTOW, 240-255,000 lbs, offer the greatest potential for those seeking the maximum payload/range.
BAe146QT	1984-89	80-125	The BAe146QTs continue to operate in a market all of their own. The capacity, range and quietness ensures something of a niche role. The development of more turboprop freighters represents strong competition but for the present at least, rentals remain unchanged. The four engines do not aid fuel consumption but where use is limited to a night time operations, the low rate of utilization and limited range contains direct operating costs.
L1011-200F	1975-81	40-70	Surprisingly a few Tristar freighters are still in service, flying a few routes here and there.
DC8-61F	1968-71	30-60	The DC8 may lack more modern environmental compliance but its combination of performance and low cost make for a still attractive package — to some.
DC8-63F	1968-71	45-80	The DC8 may lack more modern environmental compliance but its combination of performance and low cost make for a still attractive package — to some.
DC8-71F	1968-71	80-120	The -70 series offers better performance for operators but the age is a major concern. There will be a few years left in the type but there should be no expectations of an improvement in rentals.
DC8-73F	1968-71	85-125	The -70 series offers better performance for operators but the age is a major concern. There will be a few years left in the type but there should be no expectations of an improvement in rentals.
DC10-30F	1971-78	95-145	Rentals of the -30F have declined in line with higher fuel prices and the preference for more modern equipment offering only two engines and a two person cockpit.
DC10-30F	1979-84	130-220	Rentals of the -30F have declined in line with higher fuel prices and the preference for more modern equipment offering only two engines and a two person cockpit.
MD11F	1990-93	395-560	The improvement in the rentals of the MD11SF has been sustained over the course of the last few months. The decision of Lufthansa to seek alternatives is not good news in view of the carriers contribution to the overall improvement in recent times. The arrival of the B777-200LRF will pose some competition although the MD11F has a much lesser lease cost.
MD11F	1994-99	520-610	The improvement in the rentals of the MD11SF has been sustained over the course of the last few months. The decision of Lufthansa to seek alternatives is not good news in view of the carriers contribution to the overall improvement in recent times. The arrival of the B777-200LRF will pose some competition although the MD11F has a much lesser lease cost.

Commentary reflects change from the last update to Freighter Rentals of June 2006.