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Higher Than Expected Conversion Cost Could Also Contribute to Decision
The cancellation of the A320 Passenger to Freighter (P2F) conversion program, at least in its current form, will have consequences for residual values of the type in the medium term even if "high" current values are cited as the reason for its demise.
A passenger to freighter conversion program can be vital for long term residual value strength. The existence of a credible program, before a glut of passenger examples emerges, is of considerable importance. Residual value strength has become an important element for the airframe manufacturers in a market that increasingly relies on financing from non-airline sources. One of the key components in reducing the risk of lower residual values is in ensuring that the level of availability of used aircraft of a particular model is kept relatively low. A surplus of used units will quickly lead to value erosion.
Manufacturers have previously sought to prevent such residual value weakness by introducing a freighter conversion program. A freighter program absorbs some of those units coming onto the market and even has the potential to make money for the manufacturer. Because of the extensive lead-time between a launch decision and service entry, timing becomes important to prevent loss of value. There exists a danger that the launch of the freighter conversion program becomes a reactive rather than proactive measure, whereby the program is developed only after a surplus becomes available. By this time, the surplus of units will have contributed...