Cargojet reduces Boeing 777 conversion plans on weaker outlook

Cargojet is cutting the number of B777 freighter aircraft it plans to convert into freighters due to the weakening economic outlook.

In announcing its full-year results, the Canadian freighter operator said that for now, it would now only pursue four of eight previously announced B777 freighter conversions as it curtails capital expenditure in response to “recent forecast for the slowing global economy”.

One of the four aircraft being deferred was previously announced, two aircraft it had already purchased will now be sold and the fourth had yet to be purchased.

These four B777-300 freighter aircraft would have been used by Cargojet to expand its own freighter operations. The other four, all B77-200s, will continue to be converted and are earmarked to be deployed as part of a strategic agreement with DHL.

However, the company said that it would maintain access to the conversion delivery slots.

“Arrangements with our MRO partner give us full flexibility to maintain optionality on these valuable B777 conversion slots for 2024 through 2026 while at the same time better timing our capital commitments taking into account global recessionary risk,” the aircraft operator said.

The airline has also deferred conversion of two Boeing 767-200s from 2023 to 2024, in order to preserve capital further.

During the year, the company reported a 29.3% year-on-year increase in revenues to C$979.9m, earnings before income taxes were up 9.6% to C$220m and net earnings were up 13.9% to $190.6m.

Domestic revenues were boosted by an increase in e-commerce and B2B volumes. ACMI scheduled and ad-hoc charters were boosted by new routes to the US, South America, Europe and Asia

However, peak season demand was lower than expected.

“As the result of a slower-than-anticipated peak season in the later part of the fourth quarter, management anticipates reductions in consumer spending for 2023,” the company said in its outlook.

“Reductions in consumer spending from a global economic slowdown could adversely impact the amount of air cargo shipped and the number of block hours flown per aircraft.

“However, given the nature of Cargojet’s key customer contracts that provide minimum volume guarantees, these volume guarantees will help mitigate revenue risks associated with both domestic and ACMI revenue.”

At the end of the year Cargojet operated 39 aircraft compared with 31 the previous year. This included 21 B767 freighters and 13 B757 freighters, with the rest made up of passenger aircraft.