Holding pattern for freighters: values are down, but so is traffic, so when does it make sense for new freighters to take off?(Feature Focus: Freighters)

As we enter the final quarter of 2003 the global freighter fleet totals 1,649 jets, just 2 percent higher than it was three years ago. That is stark evidence that the industry has not yet recovered from the unprecedented decline of 7 to 10 percent in global air freight traffic in 2001.

In the past, cargo traffic has rebounded sharply following a decline, but that has not happened this time. Traffic levels were up only 6 percent in 2002, even with the beneficial impact of a West Coast duck strike in the U.S. that diverted considerable ocean freight to the air. Events this year, including the war in Iraq and the SARS outbreak, had a severe impact on passenger traffic but a much less significant impact on freight.

But the numbers for freight are hardly robust. The International Air "Transport Association reported a 6 percent increase in global freight traffic through August, but reports from airline groups in Europe, North America and even Asia were far more anemic.

Because of the tough comparisons to late 2002, when the West Coast dock turmoil fed strong freight numbers, the Air Cargo Management Group estimates that full-year air freight traffic results for 2003 will he up less than 5 percent over 2002.

In other words, traffic will be on par with 2000, which means that predictions early in 2002 that we would lose three years of traffic growth in the post-September 11 downturn are coming true. No wonder freighter fleet totals have not changed.

Things even look worse when you take into account the fact that we have experienced some retirement of older narrowbody freighters in this period, while newer widebodies have been added. This move to widebodies has resulted in increased freighter capacity even though the absolute number of freighters has remained constant.

As a result, we find there is an oversupply of freighter capacity today, and that oversupply must be dealt with before the fleet can grow even after traffic levels rebound.

The long-term prognosis is good, however.

We believe that growth in the global economy can sustain a long-term growth rate of 6 percent per year in the air freight market. At this growth rate the global traffic level will triple through 2022. As shown in the accompanying bar chart, ACMG predicts the global freighter fleet will increase to 3,540 units over the next 20 years to meet this increased demand.

In making this …