The below transcript has been generated by an AI system and may contain inaccuracies, errors, or omissions. While efforts have been made to ensure the accuracy of the content, the AI-generated transcript should not be considered fully reliable or definitive record.
David Grinevald
Hello, everyone. Thank you for attending today's webinar about the capacity squeeze nobody budgets for in air cargo from 2026 to 2030. My name is David Grinevald, and I am an air freight director here at Flexport. We do have a lot of content to cover today, but before we begin, I'd like to go over a few housekeeping items. On your screen, you will see a sidebar to the right of the main stage where you can submit questions. At the end of the presentation, we will host a q and a and answer a few audience questions, so be sure to get your question in early. In the same sidebar, you will also see a tab labeled docs. This is where you can download a copy of today's slide and find other helpful resources. Okay. Now on to a brief legal note. Please keep in mind that all information provided in this session is based on the situation at this current time and may not be customized to your specific business requirements. We always recommend reaching out to a Flexport expert to discuss your particular situation. Alright. And joining me today, we do have a special guest, Richard Brookman, who is the chief commercial officer and head of sustainability for Atlas Air. Welcome, Richard.
Richard Broekman
Thank you, David. Nice to be here.
David Grinevald
Well, it's a pleasure to have you on the show today. And like I told our audience, we do have a lot to cover, but we wanna start by giving everybody a little bit of background so people understand understand why we chose out of the many topics that are, currently affecting the the air freight industry. Why did we choose this topic? There is a a massive movement right now, which is that the factories manufacturing aircraft are behind, engines are stalled, and the conversion queue is dry. And we're gonna unpack all of this. We're gonna explain what we mean by those three statements. But just so people understand what is the backdrop of our conversation, we currently are seeing over 17,000 unfilled aircraft orders. This is a backlog in industrial production that will take over twelve years to clear. The global aircraft production was 24% below its 2019 levels at the end of twenty twenty five. Those are pretty dramatic numbers. And and over the course of the hour, we're gonna explain how this is affecting, the the airline industry and most specifically, of course, air cargo. We're gonna be we're we're gonna try and not use too many acronyms. One of the Flexport value is to simplify things. But there is a first acronym that we're gonna talk about, which is p two f. Why are we using it? Because p two f is passenger to freighters. The p two f pipeline is dry, and we're gonna explain today how converting former passenger planes into freighter is the main source of new cargo only capacity into the market. What is going on right now is that because airlines cannot retire the wide body aircraft that feed the conversion shops until new aircraft arrive, well, the replacement units are just too slow to come to the market. And then we will also talk about how supply chain issues are limiting the annual aircraft production at least until 2030, which represents about 6,000 aircraft that would have been delivered and will not be. So this is the backdrop. This is the context of why we chose to talk about this. And, of course, we're gonna try and keep it extremely relevant to our audience. Many of you guys listening today are shippers and air shippers. And what we want you to get out of today's conversation with is a good understanding of how this phenomenon is going to apply to you as shippers. So today's agenda, we're gonna be looking at what does aircraft production delay mean for cargo. Then we're gonna try and understand why do these delays keep compounding. We're gonna be looking specifically at this freighter conversion pipeline gap. And then, of course, we'll look at the impact on your trade lanes, your rates, and the availability of space in in air cargo. And last but not least, we will try to give you a shipper's playbook. So trying to understand as a shipper, what can you do, to try and circumvent this situation. Alright. So what does aircraft production delay mean for air cargo? What we're seeing is that there is a belly capacity compression, meaning that we have fewer new wide bodies entering passenger fleets, which means that there is fewer belly hold position on long haul routes. Shippers using such companies as Emirates, Qatar, and Singapore feel this directly, and we're gonna explain why. The freighter replacement lag, it's exactly what we've discussed. The old freighter that should retire aren't being replaced. And the two latest models that the two main aircraft manufacturers, which are namely Boeing and Airbus, Boeing being the American manufacturer and Airbus being the European manufacturers, There are two models, respectively, the triple seven for Boeing and the a three fifty for Airbus are both being delayed for different reason, which we're gonna get into with Richard later on. And then operational disruptions, of course, this always happens. If you have an aging fleet, it happens all the more. Engine inspections and MRO, which means maintenance, repair, and overall. So think of it as the mechanics that are taking care of those planes, while they also have a backlog. They have an aging fleet. Those aircraft need to be inspected and repaired more frequently, which for you guys in the audience as shippers, you experience this as schedule unreliability, not only as rates spike. Alright. So the story of this slide is really in the red arrow. What you're seeing, the top curve is what the aircraft manufacturers were planning to manufacture, and the bottom curve is what the number of aircraft that are actually rolling out of the production chains. We're only, by the way, on the graph, you're seeing the narrow body, the wide body, the regional jets. Of course, if you're an international shipper shipping on the Transpacific Eastbound, Transatlantic, Far East westbound, you're mostly interested in the wide bodies. So Airbus was targeting 11 a three fifties per month being produced by '20 set 2027. They're only currently producing five. Boeing was targeting five, and that, by the way, includes the freighters and the passenger, planes. They're only producing two, and the issue is that the triple seven is not being approved by the FAA. That is a production shortfall of about 6,000 aircraft on the entire fleet. And, of course, if you think about this, it means that the fleet grows through 2036 will lag pre pandemic projection by six years. Richard, let me turn it over to you. When you see those numbers and just the the general lag that the two main manufacturers and by the way, for our audience, it's important to to remind them that Boeing and Airbus are responsible for about 80% of the aircraft that are being put into circulation. What does it mean for you as an airline, as a client of those manufacturer, and and how do you prepare for it?
Richard Broekman
Look. I think the biggest challenge for us is indeed access to additional capacity. Right? We currently have about 13 almost 15% of the global wide body, freighter fleet, that we operate on top of our customers. And we would love to be able to grow because as as you already said, there's definitely a disconnect between demand on the one side and supply on the other side. So the last aircraft that we were onboarding were last year, and this year, we are actually it's the first year in many, many years that we are not adding aircraft to our fleet, and that's be really just a a function of no availability out there. And that's gonna that is something that's gonna take some time to to clear. So you already mentioned some of the the challenges. Right? It's bits. Boeing and Airbus have have similar challenges. It's all it's all the supply chain. They're very complicated supply chains. All both of them. Right? This is not, this is not all in their own control. They have they rely on on the vendors that could that build part of the plane, part of the fuselage. They, of course, rely on the engine manufacturers to be able to to, deliver the engines they need to power the the aircraft that they wanna produce. So it's a very complicated area that you have to control. They have been struggling. During COVID, of course, I think why the supply chain issues were very widespread, not only, the the the manufacturer for aircraft, it was everyone had issues, but it's taking a long time to to to improve. We do see some improvements. I think that especially the Boeing production rates for the triple seven have improved this year, and, hopefully, that that that trend continues. But, unfortunately, newer aircraft, you mentioned the a three fifteen and triple sevens, they will take at least till the end of twenty twenty seven, and I wouldn't be surprised if we see a little bit more slippage there as well. Challenges. are all
David Grinevald
Yeah. And I think you mentioned something very interesting, and we can do just a little bit of aviation history here for for thirty seconds. You mentioned suppliers, and correct me if I'm wrong, but there's been a a massive switch, in in the late eighties and nineties. I mean, plane manufacturers used to internalize most of the parts, and they used to produce most of the parts themselves. And then in the nineties and the February, when, you know, the USSR fell and and China enter, the World Trade Organization, there has been a a phenomenon of of externalizing, the production of specific parts either to Asian, suppliers or Eastern European suppliers. And, of course, it has complexified the supply chain. Correct?
Richard Broekman
No. That's absolutely brilliant. And, of course, the OEMs, the the aircraft manufacturers are not alone. It's just the entire, manufacturing industry has changed with globalization where those components and item parts of of final production products are made where they're made most efficiently, most cost effectively. So, yes, that's the same for aviation and for airline production or aircraft production.
David Grinevald
Absolutely. Yep. Okay. What this also means is that the average commercial aircraft is getting. older. Right now, the average commercial aircraft is 13 years old. If we look at the evolution of the average global fleet, it increased from eleven point five years in 2019 to just under thirteen years in 2025. What's also happening is that the average flight hours per aircraft has increased 2% year over year in 2025, because the planes are being worked harder than ever. Of course, if you don't get new planes, then you gotta put more hours on the few planes that you do have. We already said that the production in 2025 was 24% below 2019. What it means is that every plane that should have retired is still flying a route. And the regions that have the older fleets, like North America, Western Europe, or Africa, the MRO, and, again, the MRO, think of it as as the plane mechanics, the MRO spend growth will outpace the fleet growth by 2036. We're gonna get into more details about about what it means to be flying an an aging fleet. But can you give us maybe at least the the initial reaction on that even though we we will get into more details on MRO later on, Richard?
Richard Broekman
No. Absolutely. Look. I and this this picture is actually not painting the full picture correctly either because, this is the worldwide fleet, which includes all the passenger aircraft. And on average, passenger aircraft tend to be quite a bit younger. Freighter aircraft are typically older. So on the freighter side, you mentioned it already. Freighter, freighters rely heavily on b to f, so passenger to freighter conversions. And that's typically the those passenger airlines that that reach a certain age where they're, tend that they need to be retired, and they had to they wanna be upgraded to the the latest platform, and they get converted. So overall, freighters are by design, older than the passenger fleet. Of course, you have the the the purpose built freighters. Those are younger, and especially if you look at the fleet out there, aircraft like the triple seven, seven four seven dash eight, they're quite still quite young and indeed probably in the range that you had mentioned here, have between between one and, well, 15 years old. The seven four seven four hundred, which is still really the backbone of of freighter operators operations, it's getting much older. On average, probably about twenty four, twenty five years. And then you've got MD elevens, that that still are in operation for by FedEx and UPS, for example, and and and maybe one other. They're even older. Right? Now aircraft can easily fly, till they're 30, 35, even 40 years old, but they do tend to get to ask more time and more attention and more, tender loving carers, I would say, to, just to get to to maintain them properly to keep them flying safely.
David Grinevald
Absolutely. And and we will get into more details about what it means what it means for airlines and by the ripple effects for for forwarders and shippers to be flying, on an aging feat. The first big question we wanna ask you, and and, again, we're so lucky to have you, on the webinar today, is when the belly compresses on a specific trade lane, you presumably see the spillover demand hit your freighters before anyone else does. What does that signal actually look like on your end?
Richard Broekman
Look. I think, to be honest, belly it's shortage with shortage of belly capacity just compounds the overall shortage of capacity. Right? So I think if you look at the global, airfreight space, typically about 50% of airfreight, currently a bit less than 50%, moves on the belly of passenger aircraft. The other five 50% moves on on freighter aircraft. That that ratio was vastly different during COVID, of course, when all the passenger aircraft were parked. But before COVID, it was even it was probably slightly more on favor of belly, maybe just about fifty five percent and forty five percent on freighter. Shores on belly just just compounds the shores of overall capacity. Right? If you can't get belly capacity, then you will look at look at freighters. Freighters are are generally full, so it just adds pressure on a limited supply that we're already seeing. And then there's a lot of goods that, of course, cannot even go on belly. Anything dangerous goods, batteries are are hard to move on the belly as well, so they have to go to freighters. So a specific drawdown of belly capacity, will just increase rates, overall in the system. Right? Because there's the same demand that has to, has to be moved on less capacity. So that's what we see immediately.
David Grinevald
Correct. Correct. And I think it's very interesting that you reminded everybody that some type of cargo has to fly on freighters, but what we're seeing also, as a as a forwarder is that we are now having to, to move cargo that could have flown on on passenger belly space into freighter because that's really the only way to find the available space right now.
Richard Broekman
Yeah. No. I can I I'm not surprised? And we, of course, see that all the time. But I do think at the same time, there's a lot of demand a lot of cargo out there that cannot go on on on the belly to begin with. And I think that that share is actually growing. If you look at all the developments in the markets, you see all the data center build out demand, big racks that can't fit. Right? Large machinery can't fit. A dangerous goods cannot fit on belly capacity. So there's a lot of goods that will rely on freight off regardless.
David Grinevald
Absolutely. And and not to do any self promotion for Flexport's webinar, but if people are interested in, the AI hardware, and and, data center logistics. We did do a couple of months ago a similar webinar to the one we're doing today, that was led by Alexis Boutet, our VP global head of airfreight, specifically on on, the logistics in the age of AI, and people can go back to that one. Alright. So now we're gonna try and understand why do these delays keep compounding. I mean, where are they coming from? Number one, the approval process. The triple seven, has been almost ready, since 2020. Post the, the major incidents, that we've had with the seven three seven MAX, the FAA fundamentally changed how it certifies Boeing program. As I'm sure many of you remember, there has been at least two tragic accidents, with the Boeing, seven three seven MAX. And and in the wake of that, the FAA, got back a lot more power to approve the Boeing programs, which as a consequence gave a seven year slip on the original triple seven, release to the market. Historically, a certification cycle would take anywhere between one to two years, to get to the first flight. The triple seven x is now in its fifth year of certification process, and the seven three seven MAX seven and MAX 10 are also in certification limbo. Just for everybody to understand what it means for Boeing, this is respectively 1424% of their order books. Many airlines are impacted. Some of the most impacted ones would be Emirates, which has 270 triple seven on order, and Qatar. We say it in our FMU live, and we've been saying it for the past couple of weeks when we were covering the development in The Middle East. Emirates and Qatar are two of the largest long haul deli provider on major trade lanes, and they're both waiting. So, you know, you, Richard, when you look at your your competitive environment and and those other airlines, how does that impact your own strategy, and and how do you think about it?
Richard Broekman
Okay. I think for us for us, all these things, of course, add to the to the disconnect between supply and demand. And it and we this we see that extending to 02/2030, but actually probably quite a bit longer than that because there's such a backlog and at the same time quite some demand growth as well. But I think what's really important to understand here is that it's not only about the belly capacity here. Right? The 270 aircraft that the Emirates is is waiting for, yes, it will add belly capacity in their network. And, of course, it's maybe not very important for the Transpacific, but it's very important for TransAsia, Asia, Middle East, Middle East, Europe, etcetera. But they also planned to convert their their older triple sevens, their triple seven three hundred passenger aircraft, into freighters once they start delivery taking delivery of their new platform. But since they can't get delivery of new aircraft yet, they had to, they had to postpone those plans quite significantly, and they still cannot. So what it means with the the passenger production delays actually automatically result in a freighter production delay, especially on the p two f, programs. So that has a has a direct impact on on the demand for freighters, supply of freighters, and, of course, on how we how we look at the market going forward.
David Grinevald
Okay. We were talking about Boeing. Now let's talk a little bit about about Airbus. So Boeing has as mostly a a certification issue. I mean, this is the one that we've been hearing most about. For Airbus, it's it's a little bit little bit of a different story. It's we feel like it's being dominated more by the supply chain issue, and the supplier's issue. Specifically, one supplier that's been the specialized press a lot. The name is Spirit AeroSystem, which was a supplier for both Airbus and Boeing, but it it became financially dependent on Boeing. And and after the July incidents and and the delays affecting Boeing, it pretty much fell in financial distress, which led to production failure, obviously. As of May 2026, air Airbus warned its customers that it was gonna get further delays on the a three fifty because of the spare the Spirit, AeroSystem plans. Both the a three fifty and the triple seven are now delayed past 2027. And like we said at the beginning of the webinar, you know, I mean, Airbus and Boeing together are responsible for 80% of the new build platforms that are delivered to the market. So when you see, you know, the Boeing triple seven slipping to 2028, and the a three fifty, more or less, at the same time, it means that operators who need main deck replacement capacity have no near term new build solution. I mean, again, with those two players owning 80% of the market, Richard, is is this being seen as an opportunity for a smaller manufacturer? I mean, I'm thinking about Embraer, for example. Are are we seeing them take advantage of that? Or or at the end of the day, are they are they plagued by the same issues at least on the supply chain side of things?
Richard Broekman
No. Look. In the end in the end, they're different products. Right? If you look at at what's important to move global trade around, it really relies on the large wide body aircraft like the a three fifty and the triple seven eight, but also the seven four seven four hundreds, the dash eights, the triple sevens. Right? There's really no economical way to replace large wide body fry freighters with with something smaller. Even a medium wide body like a seven six seven or an a three thirty, which is which can carry both about 50 to 60 tons of freight, the cost become on a per kilo basis, they're they're just not as competitive. They they can't be. And the smaller you get, the the the more that issue becomes ahead it exacerbates the issue. So, to be honest, we're gonna have to wait for these aircraft, and for the for the passenger conversion air aircraft to really relieve provide some relief. New entrants will take just took a bit of bowling a lot a lot of time to certify a new airplane. A new entrant will have even more challenges. Right? Without the experience, without the setup or any global supply chain, they would struggle tremendously to to enter into this space. So, unfortunately, the wait is on.
David Grinevald
Yes. And we certainly hope that that both of them, continue to to speed up their their production capacity. One of the things that I was most excited to talk to you about today, Richard, are two strategic moves that Atlas has made, in the past eighteen months, and that directly illustrate what we've been discussing. Number one, Atlas has acquired a 49% stake in Air Atlanta, with 14 wide body aircraft. And the second one is that you have placed a $7,000,000,000 order for 20 Airbus a three fifty f in March of this year, which is a significant departure, and correct me if I'm wrong, from the fact that you were an exclusive Boeing customer until then. Can we unpack both of those decisions with you for our listeners?
Richard Broekman
Yes. Absolutely. I mean, we start with the second one because that's a that's, of course, a very exciting one. Look. For us, placing an order makes a lot makes a lot of sense. In the in the current environment and and the foreseeable future, we know there's gonna be a tremendous shortage of of of wide body freighter capacity. We also know that demand is very strong. We we see it driven by just general freight, which has been steady and stable. We have seen ecommerce, especially cross border ecommerce out of China, have shown tremendous growth over the last couple of years. And now we see the next move that adds a lot of demand in this into the space is really the buildup of hyper of hyperscalers and data centers around the world, to power the new AI, industry. So in that backdrop, placing orders makes a lot of sense. And we had where we're in luxury position that for the first time ever, we had two really good options from two different manufacturers, to choose from. So we obviously reviewed both, and and both aircraft platforms will absolutely be fantastic. They will both be a big step up in fuel efficiency on a per kilo basis. There will be a great aircraft, either one of them, no matter which one you choose. Overall, we went with the Airbus, because of, of looking at how it fit with our current customers, and they just had a slight advantage, over there. We also believe there will be slightly before, Boeing and, being coming entering in the space and becoming available. But that doesn't mean that in the future, we won't also consider Boeing aircraft. We currently operate triple sevens and seven four sevens. Those are different different crew. So in the future, operating Airbus and triple sevens, is not out of the question. But it will start with the the with the Airbus, and we're very excited about that. Now Air Atlanta is a kind of falls in place in the in that same storyline. In the end, we believe capacity is something that's, is is is tight and is scarce and in in in high demand. And if you look at Atlas Air, we cover a huge part of the world really well. We can fly almost everywhere. But looking at our round maps, you'll see us cover very well South America, North America, the Transpacific, a little bit Europe, Europe, Asia as well. Thinner would be definitely cover that. The overlay, Air Atlanta's network, they're very strong into Africa. They're very strong on the on the Europe, Asia trade lanes. And so it's a really good match. So a partnership between the two of us really makes a lot of sense to provide our customers and and, yeah, your customers, even more options, to serve the markets well.
David Grinevald
Absolutely. And, again, congratulations on on both of these moves. And and I think now might actually be a good time, to remind our listeners of of the long history between Flexport and Atlas. Flexport and Atlas have been collaborating since 2017. I don't know if we'll do something for the the ten year anniversary of our partnership next year. I think we should start thinking about it. But, you know, we we started with you guys doing just one charter. And and then when COVID started, we we very much deepened our collaboration. We went up to 10 flights a week. During COVID, we were doing 20 to 30 charters per month. And ever since we've been, deepening our collaboration. And right now, the charters that that Flexport flies and many of our listeners, might have already flown their cargo on those charters, from China to The United States are, Atlas owned. We are in a partnership that will last at the very least until 2028. And not only do we fly those regular charters, on the Transpacific eastbound, but like you said, Richard, Atlas has an outstanding global coverage, and we also do many ad hoc charters. So I will remind everybody in the audience, if you ever need to charter a plane, with Flexport and Atlas, don't ever hesitate to reach out to your Flex representative. And working with Richard's team, we will most definitely find solutions for you. Okay. We've mentioned several times, the freighter pipeline gap and the replacement bulge. So let's look a little bit at at what this looks like. Because it's much harder to get new planes, those older planes do not retire. If those older planes do not retire, they cannot be converted. If they cannot be converted, there are no new freighters. It's as simple as this. The p two f passenger to freighter conversion is the main source of new dedicated freighter capacity. I I think this is something that's not necessarily self evident, and and so we wanted to remind every everybody in the audience about this. The cycle is very easy. Like you said, the airlines retired the old wide bodies. Conversion shops buy them. They retrofit them, and the new freighter capacity enter the market. So because airlines are not able to retire the older planes, the replacement right now are just about six years late. The conversion feedstock is historically scarce, and the backlog now dropped to about 320 units in 2025. We're even seeing and and I would love to to get your take on that, Richard. We're even seeing aircraft that are actively returning to passenger service instead of converting. I think this is a very new phenomenon that we had not seen, in previous years. And Oliver Wyman, which is a a consulting company that does a lot of work in the aerospace aerospace industry, he's saying that the current slowing of retirement continues to limit aircraft available for cargo conversion or part out. In your in your case, Richard, how is that affecting your your fleet? I think you said that this year was the first year that you were not going to be adding aircraft to your fleet. Are you out in the market just trying to to, you know, source anyone that would be willing to give you an older white white, body to to
Richard Broekman
So I think we looking at the whole space, overall, if you look at all the different freighters out there,
David Grinevald
convert?
Richard Broekman
small smaller freighters, medium wide bodies, and the wide bodies, yes, there's that. The p to f is really important. On the smaller rail freighters, it's almost exclusively passenger to freighter conversions. In the medium segments, it's there is some production out there. They had a purpose built freighter production out there as well. But then looking at the wide body freighters, actually, there is a the the the share of purpose built freighters is actually a bit higher than the conversion, but conversions are still really, really important. So, yes, to your answer to your question, are we looking for aircraft? We would love to get more aircraft. So if you know of any any, give give me a call, and I'm sure we can, we can we can we can talk about and discuss that a bit further. Unfortunately, we know that with us, most other airlines and operators that are operating wide body freighters, they would be interested as well, and there's very few, aircraft that become available. The conversion side, the we have we're we're waiting for our purpose built freighters. We, at the moment, are not planning any, triple seven passenger conversions, but we can. And if if we find the right customers for those, we we will do that too, provided we can feed get feedstock for it.
David Grinevald
Well, the the ad has been passed. If anybody wants to reach out to you and, and we surely hope that, you know, within your own contact book, you you will find, more, aircraft. This slide, I think, just just speaks to what you said. You know, the the conversion will account for just 3.4% of the global cargo fleet in the next decade. It it's pretty dramatic to see the drop in the number of of passenger to freighter conversion. I mean, you're looking, you know, in in twenty twenty twenty six to 2029, let's say 80 to ninety ninety five conversions per year. After 2030, it drops to 67. Twenty thirty one, four 54. 2032, 27. And in 2020 sorry. 2034, only four aircraft. I mean, it's nothing. Only four aircraft will be converted from passenger to freighter. So when we say that the pipeline is dry, it's not just a figure of speech. It's it's literally what the experts are are forecasting. And in the meantime, the new freighter deliveries, like we said, the a three fifty and the triple seven for which there is no credible alternative won't meaningfully arrive until twenty twenty eight, twenty twenty nine. So, of course, you know, the the, the air pocket from 2026 to 2030, which is the period that we wanted to cover in this webinar, is is directly impacted. And and this is something that we're gonna talk about later on in in this conversation because, you know, Richard and I both want the the audience to understand what can you guys do to make sure that you're not too impacted, by this. A figure that that I really wanted to show today is is to say that the freighter fleets in 2036 will still be dominated by aircraft built in the February. And, of course, this has a series of consequences for, companies like Atlas for airlines, because what it means is that they're flying an older fleet. And, of course, it has a different series of consequences. When you when your fleet is dominated by twenty year old platform, it's a fleet with a volatile maintenance events, which shippers will absorb as scheduled disruption. So, Richard, when you see a major lane that loses, you know, let's say, 10 or 15% uplift for a number of weeks because of maintenance events, what are you hearing from your forwarder customers? Who calls you first, and and what are they asking you for?
Richard Broekman
Oh, all the forwarders are cool, and they're all panicked. Right? And the so are. the shippers potentially? Look. This this really reflects a little bit also what happened, early March when the when the war in the Middle East broke out and when indeed 10 actually, more than 10% of of cargo capacity was suddenly parked, because of the disruptions and, and an instability there. And, yes, we do get calls from from everyone, from forwarders, but also from direct shippers sometimes, to see if we can help with capacity. Unfortunately, as as with us and and others as well, capacity is is typically committed already well before that and then for the longer term. So we always try to help. We always keep some capacity on the charter fleet available, to help, with with major disruptions, and also even to help with our own, occasional disruptions when we suffer an AOG or maintenance event we planned didn't plan for. So there's always some, but it's not enough to care to cover 10% of uplift. Right? It's, nowhere nowhere near that. So it just exacerbates the problems that we're already seeing in the in the way in the market.
David Grinevald
Yes. And and thank you for bringing up the fact that, yes, capacity is is usually already committed, you know, over 90%. Later on when we give shippers advice on, you know, what to do to make sure they're not impacted is, you know, try not to commit 100% of your volume to the spot market because in case of any disruption, whether it's geopolitical, like you said, or or, you know, structural with the, capacity crunch on the air side, it's it's very complicated to move from spot to allocated space, on a moment's notice. Okay. The supply chain crisis is costing airlines, by IATA estimates, over 11,000,000,000 in 2025. And and where are those $11,000,000,000 coming from? Number one, excess fuel cost. I think, Richard, you you mentioned it when we talked about your recent order with Airbus, and and the newer platforms you get from Boeing. You said, we're excited because we're gonna have much more fuel efficient planes. Well, the the flip side of that is that, you know, the older fleet is a lot less fuel efficient. So $4,200,000,000 of excess fuel cost because we're you know, most airlines are flying older planes. The other issue, and we've we've alluded to it a couple of times already, $3,100,000,000 in additional maintenance because we have this aging fleet that requires more shop times, more spare parts, and more leased engine. The engine leasing cost, airlines are paying premium rates for spare engines because new deliveries are late. That's $2,600,000,000. Usually, this part and and you'll correct me if I'm wrong, Richard, but this part usually affects more narrow body plane and and not so much wide body. But, of course, you know, there are ripple effects in the entire industry. And then, of course, inventory holding. You know? Airlines are stockpiling spare parts to buffer against supply chain uncertainty. And if you're a shipper, it doesn't matter if you're not running an airline or an aerospace company, but everyone knows that when you have to stockpile inventory, it comes with extra cost. So if you add all of these extra costs together, we're looking at, again, over $11,000,000,000 of extra cost on the airline side. Of course, you know, the forwarder, margins and the shipper premiums are layered on top of that. And so that is another reason aside from the geopolitical development that we've known in recent month and recent years, why we're seeing, price increase, in the air rates. How do you explain that to customer? How can you know, aside from, of course, logging on to Flexbox webinar and and learning about it, but how as an industry, how do we educate people, shippers, and companies about that?
Richard Broekman
Look. I think that this is a good a good platform to begin with, but I think look. Cost cost increases are are are something that I think everybody struggled with. These are just these are related to the to the the delays in air in in newer aircraft. But you see the same thing on the on the just on a more immediate scale. When when there's a crisis in The Middle East, fuel prices go up tremendously, and and that means cost goes up tremendously as well. Right? And so on our side, our our model is a little different. We most of our capacity, not 90% of our capacity is dedicated to forwarders or, sometimes shippers, or, other logistic pro providers. And fuel is always a pass through. So the fuel cost, we we don't notice it, but it results immediately in a higher cost to our customers and by, by extension to the shippers that use the services of our customers as well. Marg's own on flying aircraft, it's typically not very big. So, yeah, there's no choice but but to pass that on.
David Grinevald
Yes. And and sorry. Go on.
Richard Broekman
Oh, yeah. Go ahead.
David Grinevald
No. I was just gonna say, I mean, I see it, you know, being in in the freight forwarding business for a number of years. I I feel like the the fuel increases, I'm not gonna say are easier to pass through, but they are most definitely easier to grasp if only because they're usually making headlines in the mainstream media. When there is a crisis in The Middle East, that's all you can all you can hear when you turn on the radio or or the morning news or or open your morning newspaper. So everybody knows it's it's a topic that is top of mind for everybody at the time. Plus the fact that, you know, many times it's a it's a fuel surcharge that you see as a different line item. So it makes the conversation I wanna say, a little easier. And and most shippers, even though they're never happy to have to pay for it, but they understand. I think that these extra costs are are buried much deeper in our industry, and so it it takes more of an effort to to to tell people about them.
Richard Broekman
Yeah. No. Like, I think one thing that maybe is is important to understand as well. On the freighter side, the percentage that that that of cost that is represented by fuel is really high. It's at least 4040%. Right? The passenger side is a bit smaller than that. So if 40% of your cost suddenly doubles overnight, there's no that that has that has to go, be reflected in the into the market rates as well. Right? So it's it's a really big portion of the overall cost of using air freight.
David Grinevald
Absolutely. And, we're we're all anxiously looking at the price of jet fuel gradually, just slowly, gradually coming down, but, you know, we we do wanna focus on the good news as well. Okay. MRO spend. Once again, if you just joined us or or if, you know, you guys didn't hear that, MRO, maintenance, repair, and overhaul is just a complicated way of the airline industry of saying, you know, plane mechanics, let's think about it like that. From 2019 to 2036, the spend will almost double. The amount of money that airlines are gonna have to invest or spend to maintain their plane is going to double. 75% of MRO survey respondents reporting long longer engine turnaround time in the past year. The parts availability are a huge story. That's why we were talking about supply chain issues. There are just no parts. Labor is is, you know, another reason why. It's a much, much smaller part of the story, but I think it's interesting to think about this as well. If we take a step back, you know, it's it's long and hard to train, avionics mechanics, and and this is also an issue. But the main the main story here is the parts availability. The the MRO EBITDA multiples now is up to 15 x. The market is pricing in sustained scarcity. Those so it's I guess, it's a good time to be in the MRO business, but but not so much when you're a shipper and and you need to you need the planes to fly, and make sure that they didn't spend too much time in in maintenance. It's very hard to get slots for for repairs. And, and and how do you see that, Richard? How do you work with your MRO? Of course, there is a scheduled maintenance that you can work on ahead of time. What what does it mean for Atlas, and how how are you guys organized for that?
Richard Broekman
Yep. Look. I think maintenance is, of course, a challenge. I have an engine 18 fleet. I already mentioned it. Aircraft need more time. You've got more parts that that that break and need to be replaced. With our scale, we are able to manage it really well. So we don't we we're it's rare that we have an aircraft that can't fly because we can't get the parts. It's really rare. Maybe it's dead day, you know, and it takes a bit longer than normally normal to source one. But still, it's a big issue, that affects the entire industry. I wouldn't discount the the labor side as well. Overall, yeah, labor mechanic labor is is is is shorter than we would like it to be. And that's really ever since COVID, when COVID happened and passenger airlines were apart for a while. At some point, yeah, people left the industry and and some didn't come back, some did, some didn't. So it has been a bit of a struggle ever since, and we have to manage that as as an industry. I can't wait for the longer of the new aircraft to be delivered at the a little less touch time.
David Grinevald
Yes. Absolutely. And and, you know, if we can, hope to, trigger some, some vocations of, younger younger generation who want to get into the fascinating, aerospace industry, we need we need more qualified mechanics to keep those those planes in the air. Alright. We're gonna speed up a little bit because we only have, fifteen minutes left. This is an interesting question we have for you. In your experience, how much visibilities do forwarders pretty much they they know what's going on, but shippers typically have into AOG what it means for their cargo. When we prepared for this for this, webinar, you told me this is rather a question I would like to ask you. You would like to ask me rather. So, you know, I I gave it some thought. I think people who use Flexport and we have definitely a few in the audience, they know that one of the main differentiator that we have as a freight forwarder is that we digitized our clients' SOP. So we are always fully aware of our customers' constraints. There must arrive dates, their necessary, transit time. So, you know, we've been collaborating with Atlas for long enough, and you guys are doing a tremendous job, I have to say, in informing us, you know, as soon as you know that there is a an an AOG aircraft on ground situation, we're usually the first one to know after you guys. You also let us know. So where would you be fixing the plane? Is this something that prevents the plane from taking off, or can it do maybe one leg and and be repaired somewhere else? And then, you know, based on on which freight was going to fly on the affected aircraft, we're able to say, okay. You know, it's going to create a delay that is acceptable for the customer, let's say, you know, six to twelve hours, something like that. In this case, you know, we can still, leave the freight with you and still tender the freight to you. If it's longer than that or if we know, thanks to the digitized SOP, that it's going to create a delay that is unacceptable for the customer, then in this case, we'll just we won't tender the freight. You know, we'll keep it at our warehouses at the airport. We'll we'll relabel it. We'll retender it to a different airline, to make sure that the clients have a a satisfactory, solution. You know, that's what we do on our end. Thanks to our technology, the deep knowledge that we have of our customers. We're also very lucky that our our management in the air team comes from the airline industry, so we have a deep knowledge of that. And, again, you know, the the very, smooth collaboration that we have with partners like you guys, at Atlas, Richard.
Richard Broekman
Yeah. Now look. AODs are a fact of life. They're very unfortunate. They're very frustrating because they always happen at the wrong time, because you don't plan for them. So on our side, we try to keep our customers, as much as possible, updated what's going on. And I think this is something we can always improve on. One of the things I know FlexGrid is using, we have created a system that helps our customers monitor their aircraft. It has you can link directly into it to feature own systems, that helps to help getting the the earliest pass possible notification if things don't go as as planned. And, unfortunately, with an aging aircraft fleet and some waiting time for the next next deliveries, and also, as you mentioned before, higher utilization across the industry, this is just happening more often than we than we saw five or six years ago. And that is that is something we work on. So we can always do better, and, we'd love to also hear from from you what is what else is needed, and we can see how how to, how to help with those needs.
David Grinevald
Great. Alright. Now, thank you guys for for staying with us through the course of this, very dense conversation because this is not an easy topic. And, you know, we wanted, all of you guys in the audience to to come out of here with some very concrete steps that you can take, in in the near future. You know? Number one, start trying to to decipher, you know, your cargo. What is a must fly cargo that is time critical for which there is no model substitute and for which your custard your your SLA is at stake? This is going to need a name carrier, ideally an allocation contract. We're gonna come back to that with committed space and then what we call contingency routing. Because, you know, even if you have the name carrier, you have allocated space, what happen if there is a an AOG situation? Second type of cargo can wait, you know, can wait in air freight. It's not can wait in ocean. It can wait forty eight to seventy two hours. You know, maybe you can do spot or spot adjacent with a preferred forwarder relationship. Maybe have a little bit of buffer stock at destination so you can absorb short disruption. The third type of cargo is the cargo that can downgrade, can be converted air to ocean. You know, forwarders usually do. Flexport most definitely does offer what we call fast ocean options, especially on the TPEB, and this is the kinda cargo you wanna you're gonna wanna see there. Richard alluded to it. We have this kind of conversation on a daily basis with our customers, the spot versus allocation. That's the real trade off. You know what I mean? If you have cargo that is critical, you don't want to be on the spot market all the time. Yes. Of course, if you are on the spot market, you will be able to pay, a little bit less when the market is is lax. But what happens is that the spot volumes are the first one to get rolled or bumped, as we say, in the in the air freight industry the minute something happens. If you want to have any kind of security, you need to be on an allocation contract where you will get guaranteed space. Your bump risk are much lower, and you can get priority loading over spot when the capacity is tight. Premium is an insurance. It's not waste. It doesn't mean that it will work every single time no no matter what happens, but it will most definitely give you more certainty. And and, Richard, I think I'm just echoing what you said when I asked you, you know, what happens when, when daily capacity or or lane capacity is is tighter.
Richard Broekman
Yeah. When when classic carrier goes, it's tight. Market rate go up, especially in the spot rates. Right? And you see spot rates making wild moves quite quite quickly. Everybody knows about peak. Peak prices can go up quickly. And the longer you wait, the more you're most likely will be be paying because capacity may no longer exist or is really hard to introduce at that point in time.
