Why Converting Passenger Planes To Cargo Jets Costs Millions

It might not look like it now, but this stripped down Boeing 777 used to be a passenger plane for one of the world's biggest airlines. The galleys have been dismantled. The overhead bins are gone and the more than 300 seats that carried travelers around the world for more than a decade have been unbolted and carted away. This plane is getting turned into a cargo aircraft. Nothing

like some rivet guns going off. Delta retired the plane in 2020 when travel demand collapsed in the Covid 19 pandemic. It's just one of hundreds of older jets. Airlines retired during the industry's biggest crisis. Others were simply replaced with newer planes. The old jets are being put to a new lucrative use hauling goods from produce to pharmaceuticals or even cars around the world. Demand to convert

needs. The air cargo market has moderated from record highs, but the business of turning passenger planes to cargo aircraft is still booming, with slots to convert planes sold out for several years. We turn customers away pretty much on a daily basis. CNBC traveled to one of the biggest hangars in the country in Fort Worth, Texas to see how older passenger planes get turned into cargo jets,

a process that can cost more than $30 million per plane. Airplanes carry high value and time sensitive goods around the world. Air cargo makes up less than 1% of global trade volumes, but accounts for 35% of the value. And customers pay a premium to fly their goods, compared with ocean freight, which can take weeks. These flown goods fly in the bellies of passenger planes in aircraft

built specially to haul cargo and passenger planes like these that get converted into freighters. Passenger freighter conversion market has been around for for 35 years. I mean, it's there's always been a need for freighter airplanes and there's never been an adequate supply of aircraft that come from the manufacturers as new products. So the it's a good second life for airplanes. Converted freighters make up 67% of

the world's cargo planes. Boeing, which along with Airbus, dominates the commercial airplane market, has been converting passenger planes into cargo aircraft for more than 40 years. We can take an aircraft that a passenger paying customer is is essentially complete with. We give it a second life. During the pandemic, air cargo rates soared to a record. Port congestion in the Los Angeles area, coupled with anemic passenger

airline schedules, put a chokehold on air freight capacity while consumers kept buying goods online and supply chain strains continued. In December 2021, just before the holidays, the cost to fly cargo from Hong Kong to Los Angeles hit a record. At that same time, companies that convert passenger planes to cargo jets like Singapore's ST, Israel Aerospace Industries, Precision, Pemco and Boeing saw a slew of new orders.

We don't see it as being peaked. We're on a growth trajectory and we know that we've got a competitive set of options today in the marketplace. Last year, a record 164 of them were converted. It's been extremely high on uncharacteristically high since Covid occurred. I mean, you know, companies that were doing 7 to 10 airplanes a year are now doing 25 to 30 airplanes a year

on in the conversion market, if not more. So it's just absolutely exploded since that event. Converting a passenger plane into a cargo plane is a big job. It takes months. Dozens of people are involved, engineers and technicians and regulators who have to approve the design. The process for a 777 can cost more than $30 million and take longer than four months. Here at Aspire MRO in

North Fort Worth, Texas, technicians are working on converting Boeing 777 passenger planes into giant freighters, which can carry more than 100 tons. Mammoth Freighters converts passenger planes into cargo aircraft. Working with companies like Aspire MRO. The two companies are backed by New York investment firm Fortress Investment Group. Converting an airplane like the 777 includes lots of time consuming tasks. One of them is getting all the

passenger seats out as they leave behind debris in their wake, like pistachio shells and small children's toys. The typical 777 has somewhere around 400 seats. You could see it close to 500. You could see it as few as 300. Based on do you have a first class, a business class and economy or just just your economy? Seats are bundled up and resold. If not discarded. Other

parts come out to from the siding to lavatories to galleys and insulation. So much is stripped out, it looks unrecognizable from its days as a passenger aircraft. Then comes the hard part. The floor is reinforced with aluminum beams to handle the weight of cargo containers, and then the cargo door is cut. The most time consuming job is the actual installation of the cargo door itself, cutting

that that large section out of the aircraft and time consuming is probably reinforcing the floor, preparing that because the aircraft is so large. The price to send goods by air is just a fraction of what it was at its peak. Supply chain shortages have eased. Consumers are no longer quarantined, and some companies are warning of an economic pullback as the public grapples with higher interest rates.

Fedex, for example, under pressure to cut costs, said it would park some aircraft and reduce routes. But many companies are still betting on strong demand for air cargo planes in the future. Boeing has increased capacity to ramp up cargo conversions. We've got strong order base for our three sevens. We've got over 250 orders and we've already delivered 130 plus into service. Our delivery last year was

a two fold of the year prior. And as we look at our six sevens, also very, very strong order base with over 100 secured orders, we've just crossed over 70 plus into service. And both Boeing and its rival Airbus are developing new wide body freighters that use less fuel than older models. Costa Rica, China, Singapore, United Kingdom. And then this last year, we we announced reopening

of a conversion line in Canada that is just now starting. And then most recently, we made a public announcement of our intent to place conversion line into India. So we we definitely are looking at what we currently have, the demographic of that and how do we best respond to the needs of the market, both from a capacity and a geographical location. Amazon in 2016 launched its

own air cargo unit using converted freighters. It plans to start having Airbus A330 join its fleet. Those wide body planes will be operated by Hawaiian Air, the latest airline to operate flights for the division at the e-commerce giant. And anyone wanting to snag a new freighter, at least a 777 will have a long wait ahead. It would be approximately three years at this point in time.

Any program will go through a ramp up and a bell curve type, you know, peak requirement. And then it'll then it'll fall down to more of a steady state.