For Israel Aerospace Industries, Abu Dhabi hub offers route to soaring global demand for freighter conversions
IAI last year landed major conversion deals from Emirates and Etihad
Dubai: The UAE market will assume a central role in Israel Aerospace Industries’ push for a bigger share of the surging global demand for cargo freighters. The Israeli company already has signed freight conversion agreements with Emirates airline and Abu Dhabi’s Etihad Airways.
“The issue of conversion of passenger aircraft to cargo is very ‘in’ right now because the pandemic has changed the ratio between passenger jets and cargo,” said Shmuel Kuzi, Executive Vice-President and General Manager of IAI’s Aviation Group.
IAI’s conversion hub in Abu Dhabi will serve the global demand and comes at a ripe time too. The company will begin converting two highly popular aircraft models – the Boeing 777 and Airbus A330 – over the next few years.
At the Dubai Air Show in November, IAI signed a deal with Emirates Skycargo to convert four Boeing 777-300ER passenger aircraft into full freighters. The agreement also included an option for further Boeing 777-300ER conversions at a later stage.
The deal with Emirates was the “first step” because the company only recently developed a solution for the 777, said Kuzi, adding that IAI was open to the possibility of working with other UAE-based carriers. “Demand is big, but we are interested in working only with elite companies,” he added. “The Coronavirus accelerated a lot of things and this trend of conversion will be valuable in 10 years because the difference between the cost of a new cargo plane and a converted airplane is huge. It is about two or three times more expensive to buy a new airplane.”
Omicron adds to the woes
The IAI executive said the company was doing “everything” to make the supply chain work even during the current situation. “We have to think about all the threats – we have the Omicron variant and two weeks from now we’ll have something else,” said Kuzi.
We're going to stay in this situation - not for one or two years. We are going to stay here with this problem for a long time.
IPO plans
IAI plans to sell 25 per cent of the company on the Tel Aviv Stock Exchange in the first-half of 2022, according to reports. The potential listing, first announced in 2019, has faced several hurdles due to regulatory approvals and security issues. There have also been talks about only allowing Israeli investors and institutions.
“There has been a lot of interest from all over the world and even Israel too,” the official added. “The idea is not mature yet and we are going to talk about it when it is ready. We are more than happy to take this step because it will put us in a good place and allow us to make more investments.”
Cargo boom
When COVID-19 hit the airline industry in March 2020, two-thirds of the world’s freight tonnage was carried on passenger flights. Passenger fleet services have still not returned to normal and, as a result, capacity is still lagging demand.
Meanwhile, cargo demand has continued to soar with consumers thronging to e-commerce platforms and online shopping websites to buy goods. While the shipping industry grapples with severe congestion and supply shocks, freighters have become all the more important.
Cargo demand – expressed in the form of industry-wide cargo tonne-kilometers (CTKs) - increased by 8.7 per cent in the three months to October 2021 versus the same period in 2019. “Manufacturing activity, new export orders and confidence have eased since the second quarter due to issues on supply chains and inflation, but they remain broadly supportive for air cargo,” said the International Air Transport Association (IATA) in its report earlier this month.
“Air cargo continues to outperform other modes of transport, as it is competitive both in terms of price and for its speed as businesses rush to meet demand during the key year-end period.”