Amazon has four fewer Airbus package freighters for peak season than planned because the company responsible for converting the planes from passenger to cargo configuration is behind schedule and temporarily shifting production out of the United States until it can build a qualified workforce and supplier base. That has prompted charges of mismanagement from the lessor providing the aircraft.
Elbe Flugzeugwerke GmbH (EFW), a joint venture between aircraft manufacturer Airbus and Singapore Technologies Engineering, promised to deliver 10 rebuilt Airbus A330-300 widebody jets by the fourth quarter for use by Amazon’s private cargo airline. Amazon (NASDAQ: AMZN) has received six of the A330 cargo jets since September 2023 and placed them with Hawaiian Airlines to fly in its domestic air distribution network under a 10-year transportation services agreement.
In an interview earlier this year, EFW Chief Executive Jordi Boto acknowledged shortcomings with the production process at sites in San Antonio and Mobile, Alabama, which he attributed to subpar training and workforce shortages stemming from the lingering effects of aviation industry layoffs during the COVID crisis. He said the company planned to relocate freighter conversion work to facilities in Asia and Europe until training and recruiting could be brought up to standard.
Final work is being carried out on the remaining aircraft at both modification sites, and no more conversions will be carried out in San Antonio and Mobile in 2025, EFW spokeswoman Anke Lemke said in an email last week.
Amazon is leasing the Airbus cargo jets from Seattle-based Altavair, which owns the aircraft and contracted with EFW to retrofit them for carrying shipping containers on the main deck.
Altavair CEO Steve Rimmer said EFW’s problems mostly resulted from a deliberate decision to prioritize ST Engineering’s more lucrative airline maintenance and repair work at the U.S. production sites, not supply chain disruptions plaguing the entire aircraft manufacturing and conversion industry. ST Engineering’s commercial aerospace unit is a global provider of maintenance, repair and overhaul services (MRO) for aircraft, engines and components.
Rimmer accused EFW of protecting a majority shareholder’s interests over customers when it moved skilled labor from the Mobile conversion line to fill gaps at ST Engineering’s next-door maintenance shop and Airbus’ manufacturing plant for A220 and A320 family passenger jets as airline operations recovered and demand for aircraft increased.
“They saw an opportunity as Airbus’ production lines in Mobile started gearing up again to rent labor to Airbus. Conversion customers were clearly left behind in the dust. The skilled labor is there. They’ve just chosen to allocate it to other higher-yielding things,” Rimmer told FreightWaves in a phone interview.
He characterized the Mobile operation as “an unmitigated disaster.”
MRO companies typically charge about $250 an hour for maintenance compared to $180 an hour for conversions. Tearing down and rebuilding an A330-300 for cargo service costs more than $20 million, not including additional maintenance, and takes about four months under normal conditions, experts say.
ST Engineering’s facility in San Antonio does MRO work and cargo conversions of A321 narrowbody aircraft. EFW also has production lines at its headquarters in Dresden, Germany, and Singapore, as well as third-party sites in Istanbul and in Chengdu, Guangzhou, Shanghai and Tianjin, China.
A representative with another EFW customer, who asked not to be identified so as not to jeopardize ongoing business ties, said the conversion process in Mobile “was a horrible experience” that involved late deliveries, invoices that were 40% to 50% higher than initial estimates and poor communication.
EFW’s customer list includes AerCap (lessor), BBAM (lessor), Air China Cargo, Air Transport Services Group (U.S. freighter operator and lessor), DHL Aviation, CDB Aviation (lessor, part of China Development Bank), Turkey-based MNG Airlines, Qantas, and SmartLynx Airlines.
Each A330 for Amazon has been delivered about six months late. Rimmer said the remaining aircraft should be delivered by the end of the first quarter.
How the delays have impacted Amazon is difficult to quantify. An Amazon spokesperson declined to comment about the A330 deliveries. But Hawaiian Airlines has hired new pilots and maintenance technicians who can’t generate revenue yet without a full complement of freighters. Aviation experts say airlines need at least six to eight cargo planes for optimal operating efficiency and spare capacity when repairs are conducted. Amazon likely would want to carefully coordinate routes operated by A330s and its Boeing 767 and 737 aircraft to minimize capacity mismatches and delays.
Labor challenges
Demand for all-cargo aircraft spiked during the pandemic when shipping activity surged and the grounding of most passenger flights eliminated some 50% of global air cargo capacity. Shippers experienced capacity shortages and high rates during the airline industry’s slow recovery in 2021 and 2022. Leasing companies that lost revenues because passenger assets were grounded hurried to repurpose narrowbody aircraft as freighters and speculative investors entered the conversion market for the first time.
Modifying a passenger jet for dedicated cargo operations is a complex process in which the aircraft is stripped to the bones and retrofitted with a ruggedized interior, reinforced flooring and bulkheads to support heavy containers, a large cargo door, a cockpit barrier, and new wiring.
The global economic shutdown during the pandemic created massive dislocation up and down the supply chain, with factories at limited capacity, port congestion, vessels off schedule, overcrowded warehouses and empty store shelves. Most companies laid off workers during the crisis and then had trouble restaffing when business picked up.
The aerospace industry has struggled to fully recover. Some suppliers went out of business. Aircraft manufacturers and repair facilities experienced huge delays for parts and raw materials through 2023 and let go of skilled employees they didn’t think would be needed. Many workers left the industry for other jobs and never came back. Other industries, especially the defense industry after Russia’s invasion of Ukraine, poached aircraft machinists with offers of better pay and work conditions.
Boto said EFW’s assembly facilities in San Antonio and Mobile were hard-hit by the shortage of trained technicians at the same time the workload was increasing. With work quality and production rates suffering, the decision was made to transfer conversions to EFW facilities in other parts of the world. The company intends to bring back conversions to the U.S. in three or four years once it revamps the entire production and labor process, including recruiting and training, and figures out how to create a strong work culture rooted in quality. The best way to attract and keep good technicians is to set up a training academy or work with technical schools, he said.
“You have to invest in training. … Conversion is the highest level of complexity that an operator can have,” because technicians must have the flexibility to deal with imperfections in a 15- or 20-year-old plane, such as corrosion, that a machinist doesn’t encounter when building a plane from scratch, said Boto.
EFW needs to do a better job of providing management support to partner facilities and monitoring their progress, he acknowledged.
“We have to change the way we support the sites. [Before,] we were delivering them the job cards, the technical documentation and the conversion kits. Now we have to be much more on-site. We have to send work parties to fully train them and work alongside them in critical phases of the conversion. We learned that. So we are rediscovering, a little bit – the whole business, actually,” said Boto.
Sending conversion work to Europe and Asia makes sense, because many current customers are in Asia and it allows ST Engineering to concentrate on its MRO business, the EFW chief explained. Also, production of the A321 has slowed as passenger airlines hold on to aircraft longer because Boeing, Airbus and engine makers are dealing with their own delays related to supply chain and quality issues, which means there is less feedstock of used aircraft to repurpose for cargo conversions.
Frayed relationship
EFW communicated openly with Altavair and other customers as soon as delays were obvious so they had time to find other aircraft to fill a need on a temporary basis, according to Boto. Fitting reallocated planes into a new repair facility requires extensive negotiations to persuade customers to either move up or move back reservation slots and ensure suppliers can deliver parts ahead of schedule, he said.
Altavair negotiated with Airbus to buy four new A330-300 jets that were built for Hainan Airlines in China and never delivered, and bought the other six used aircraft from Abu Dhabi-based Etihad Airways.
The lessor selected EFW in 2022 to overhaul the Airbus A330s, because it was viewed as a subsidiary of the original equipment manufacturer and ST Engineering had a long track record as a reputable retrofit outfit. Rival Israel Aircraft Industries was new to A330 conversions and farming out some jobs to third-party installers. Relying on Airbus’ conversion program had the advantage of full access to Airbus’ original design data, fully integrated manuals and maintenance support that independent conversion shops don’t have. EFW was best positioned to meet Amazon’s requirement to have all 10 planes in service by the 2024 peak season, said Rimmer.
From the outset, ST Engineering fell behind in supplying pieces of EFW conversion kits to the Mobile production line
“As a shareholder in EFW, you should be looking and saying, what’s the impact of these actions on my clients? And that didn’t happen. They just stepped back and claimed that they couldn’t influence things,” Altavair’s CEO said.
EFW’s problems appear to be limited to U.S. facilities. Rimmer said one of its aircraft was inducted at a Chinese installation site that had never done an A330 conversion before and was finished ahead of schedule.
“It demonstrates that if you’re committed you can get it done. Conversions at sites in China have been markedly different and significantly better managed. The results are very evident. It’s very clear ST Aero made choices to allocate workforce at its U.S. site to higher-yielding business,” said Rimmer. “Yes, they’ve got some skill shortages now, but if you walk across to the other side of the MRO hangars, there’s no shortages. All the experienced and more skilled labor is working on the MRO business, and the skill sets on the conversion side are significantly less experienced.”
Altavair is pursuing contractual remedies to compensate for the late delivery of aircraft, he said.
Asked if EFW is making any accommodations to resolve Altavair’s concerns, Boto said, “I prefer not to discuss this subject. When you have a customer and you tell him you’re going to have delays it’s not an easy thing.”
Click here for more FreightWaves/American Shipper articles by Eric Kulisch.
Write to Eric Kulisch at ekulisch@freightwaves.com.
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