Israeli company rides Covid boom with freighter conversions

The passenger doors on the jumbo jet were just too small. So engineers at Israel’s main airport sliced a new hole the size of an SUV into the side of the fuselage – and hoisted a massive hatch into place.

In many ways, it’s the doorway to the post-pandemic future of the battered airline industry.

As global tourism struggles to its feet after two harrowing years of coronavirus restrictions, Israel’s state-owned aerospace company Israel Aerospace Industries (IAI) is cashing in on the growth of e-commerce by converting grounded passenger planes into cargo jets for global giants like Amazon and DHL. The work reflects what analysts think is a permanent, pandemic-driven boom for shipping the stuff people buy.

Bargain conversions

To adapt, IAI early in the pandemic sped up and expanded what amounts to its assembly line. The sales pitch: At about US$35 million an aircraft, the metamorphosis is a bargain compared to buying a new cargo plane four or five times that price.

IAI began operating the B767-300 conversion line in Israel in 2007 together with M&B Conversions, a joint venture with Mitsui, and received the STC (Supplementary Type Certificate) in 2009. In 2017, IAI opened an additional B767-300 conversion facility in Mexico, increasing operations to meet global demand for the converted widebody aircraft. Last year, IAI announced that it will open new cargo conversion facilities for the B777-300 aircraft in Ethiopia, Italy, UAE, South Korea, and China, in partnership with local companies.

Now, the company says, it transforms about 25 planes a year, up from about 18 annually before the onslaught of Covid-19. It recently announced the completion of the 100th B767-300 conversion.

Learn about Air Canada’s first Boeing 767 freighter conversion with time-lapse video.

The company has emerged as a top player in this market, competing with others like Boeing. Its numbers continue to grow, and IAI officials say orders are booked for the next four years.

“This is about the relationship between passengers and cargo and pandemic,” said Shmuel Kuzi, executive vice-president and general manager of the company’s aviation division. He says IAI now converts Boeing 737s and the much larger 767s.

Adding 777s to the repertoire

The company has now moved on to convert even bigger 777s – the first in the world, he says, with the work at a new plant in Abu Dhabi. That’s partly a result of the U.S.-brokered “Abraham Accords,” which formally established relations between Israel and the United Arab Emirates. And it’s a sign, Kuzi says, of the demand for converted jumbo jets.

Analysts say the explosive growth in online buying is likely to settle a bit as the pandemic wanes, inflation rises and people spend less time at their laptops. But the cost of shipping goods, exacerbated by tangles in the supply chain, is expected to challenge even the largest businesses. Amazon, for example, pointed in part to rising shipping costs when it boosted its Prime membership on Feb. 18 from $119 to $139.

E-commerce jumped by double-digit percentages at the start of the pandemic, accelerating a trend driven by shutdowns that kept people inside. Instead of traveling, people ordered online and expected speedy doorstep service.

That’s a big part of the reason that demand for cargo planes has held up throughout the the pandemic.

Bellyhold disappeared

Before the crisis, 50 percent of all global air cargo traveled in passenger planes. But when the pandemic began, some 80 percent of passenger planes stopped flying. The price of freight shipped by sea soared.

Read how shippers struggled to find capacity during the pandemic in this Inside Logistics feature 

Air freighters needed a workaround – and grounded passenger planes provided one.

Eytan Buchman, chief marketing officer of Freightos, a Jerusalem-based booking platform, said one of the easiest and most cost-effective ways to increase capacity was converting passenger planes into freighters.

Meanwhile, people and businesses are expected to keep up their online buying.

“People are still stuck in the mindset of, `I want to buy more goods,”’ Buchman said. But he expects a “rebalancing” as the pandemic subsides.

For now, even as air travel begins to rebound, the number of passengers flying remains far below pre-pandemic levels.

Air cargo demand continues

“We don’t anticipate passenger network recovery to be for several years,” said Glyn Hughes, director general of the International Air Transport Association. Air cargo demand, he said, is expected to grow by as much as five percent per year.

The International Trade Administration, part of the U.S. Commerce Department, forecasts that worldwide e-commerce sales will continue to grow steadily by about eight percent per year through 2024.

Richard Aboulafia, managing director of Michigan-based Aerodynamic Advisory, a consulting firm, said that while demand for refitted planes is robust, there is a danger that IAI and others are betting too heavily on the market. “There’s that risk of, will demand stay high?” he said.

Through 2025, Kuzi says, IAI is booked with conversions, a sprawling engineering and technical process that takes about three months. The company earlier this month announced it had completed its 100th conversion of a 767-300. IAI, Kuzi said, leads the world’s conversions of that model.

The transformation involves much more than removing seats and installing new doors.

The cargo conversion process includes modifying the aircraft structure, including the installation of a new cargo door, replacing and reinforcing the cabin floor, installing reinforcements in the cargo door area and adapting the electric network and other systems to enable a safe and convenient operation. In addition, this process includes receiving certification for the converted aircraft from the Civilian Aviation Authority and the US’ Federal Aviation Administration (FAA).

When done, the planes will be able to carry about 60 tons of goods on two floors.

“The pandemic makes the e-commerce very, very popular,” Kuzi said. “So in this case, it was a good thing for us.”