Introduction 

The global pandemic caused by Covid-19 is a severe and unprecedented challenge for the aviation industry. As widespread travel restrictions have been implemented, global demand for passenger air travel has plummeted. With vast numbers of passenger flights cancelled, airlines, in order to survive, must look to ways in which they can diversify their income stream. One strategy that we have seen airlines adopt – and which has the added benefit of assisting the global effort to combat Covid-19 by bolstering the supply chain – is the temporary conversion of passenger aircraft to cargo aircraft. 

Global trends 

Air cargo is facing a serious capacity crunch. Although demand has fallen (by 15.2%), capacity has dropped faster (by 22.7%). This is due to a 43.7% reduction of belly hold capacity from cancelled passenger flights – which is usually responsible for carrying around half of all air cargo.* 

Airlines have sought to offset this capacity reduction, at least partially, by making modifications to passenger aircraft to allow them to transport cargo. The health crisis caused by Covid-19 has created, in addition to the need to reallocate existing cargo demand, an urgent need for efficient global distribution of personal protective equipment, medicines and equipment such as testing kits and ventilators. Passenger airlines are ideally placed to assist – and utilising aircraft in this way also saves airlines the costly parking fees often applicable to grounded aircraft. 

Cargo conversion solutions

Cargo conversions of passenger aircraft can take different forms. Typically they involve material changes of a structural nature. For example, freight cargo loading systems may be installed, passenger windows plugged, or the cabin stripped out and a stronger floor laid to cater for pallets. Conversions of this type can take from six to 12 months to be completed. For material modifications, additional certificates are usually required from EASA, the FAA and/or local aviation authorities. As a general rule these kind of conversions are permanent conversions and the aircraft will not be subsequently returned to passenger service. 

However, given the immediate challenges faced by airlines in the context of Covid-19, there have been different and innovative approaches applied by airlines to effect more temporary conversions of passenger aircraft to cargo aircraft. These range from simple and temporary changes whereby cargo is being placed in seat bags strapped to passenger seats, to more robust changes to aircraft whereby seats have been removed, loading zones created and netting introduced. 

In line with such developments, Airbus has recently published a service bulletin detailing a new cargo conversion solution for its A330 and A350 wide-body airliners that, while providing for a temporary conversion, also contemplates the eventual return of the aircraft to passenger operations. The kits use standard equipment which is widely available, and the conversions can be completed by airlines or a local maintenance service provider. The main cost is the manpower involved in removing the seats and installing the pallets, and once the seats are out, the pallets can be completely installed in only two hours. Further, Airbus has announced it will manage the process for obtaining EASA certification. These conversions therefore look to be quick and cost-effective for airlines, involving minimum regulatory interference. 

This may pave the way for a similar solution for A380s, although this might prove to be a conversion of a more permanent nature. On 5 May it was announced that maintenance provider Lufthansa Technik is working on the world’s first conversion of an A380 for freight use. 

Legal issues 

Operational undertakings 

Lessees contemplating temporary conversions will want to ensure that the change of use is permitted by their lease agreements, as of course will their lessors. Typically in lease agreements lessees give a number of operational undertakings, and these will need to be considered in the round in the context of converting a passenger aircraft to a dedicated freighter. For example, has the aircraft been made suitable for the purpose of transporting cargo? Are the crew suitably qualified to load and transport cargo? Is the lessee duly authorised to transport cargo? Does the lessee need to obtain any additional licences or permits for this purpose? 

Consideration should also be given to the type of cargo, as certain types may be disallowed under lease agreements. For example, as flagged by the International Air Transport Association (“IATA”), medical supplies may contain mercury (in thermometers). Lease agreements may prohibit the carriage of these substances as cargo, as well as cargo which could be expected to damage the aircraft, which is another point for lessees to consider.

Modifications and obligations on redelivery 

Where lessees decide to use passenger aircraft for the transportation of cargo, this will entail a number of modifications to the aircraft. Some lease agreements require the lessor’s prior written consent to any modifications, whereas others are less burdensome. It may be that the lessee may make modifications of less than a certain value if the lessee simply notifies the lessor of the same. Indeed, if the modifications are temporary or relate only to cabin or configuration changes, lease agreements often afford more flexibility to permit these without the lessor’s consent. In any event, the relevant lease provisions will need to be studied and, if the lessor’s consent is required, the lessee should engage the lessor in these conversations at an early stage, to avoid delays. 

Lease agreements usually include an obligation on the lessee on redelivery to restore the aircraft to its initial configuration, and so any modifications will need to be reversed – but they commonly also include the option to redeliver the aircraft as otherwise acceptable to or agreed with the lessor. It is in the lessee’s interest to start discussions with the lessor at an early stage so that the lessor’s requirements can be factored into the redelivery timeline and potentially unnecessary rectification costs can be avoided. 

Insurances 

In the context of converting a passenger aircraft to a dedicated freighter, the insurance considerations for lessees include the types of cargo they will be transporting, and how any parts removed from the aircraft will be stored. Lease agreements typically prohibit the carriage of cargo which would not be adequately covered by the insurances, and so lessees should review their insurance policy in the first instance. In terms of storage of parts removed from the aircraft, lease agreements commonly require parts not installed on the aircraft to be properly and safely stored and insured, so lessees will need to provide for this if, for example, seats are removed. 

Financing 

If there is financing in place, the financing documents should be reviewed before starting the process of converting a passenger aircraft to a dedicated freighter. For example, loan agreements commonly prescribe that the lender’s consent is required before the lessor can amend or grant any waiver or consent under, or agree any mitigation arrangements in respect of, the relevant lease agreement. Here, the lessor would be well-advised to engage the lender in conversations at an early stage, to bring them on board and secure their consent to the lessee’s proposals regarding conversion. 

Regulatory issues

IATA outlines the default position in relation to the carriage of cargo on passenger aircraft: humanitarian supplies/medicines, and general cargo and/or mail, may be carried in the overhead lockers, under passenger seats, and in the cargo compartment. However, carrying this kind of cargo on passenger seats requires approval by the relevant aviation authority, and using pallets or containers on the cabin floor with the seats removed requires approval by both the relevant aviation authority and the aircraft manufacturer. 

Where airlines wish to use or remove seats in connection with the carriage of cargo, IATA directs that, in addition to the approvals detailed above, airlines should undertake a comprehensive safety risk assessment, followed by a full evaluation of cargo restraints connected directly to the seat tracks to ensure structural loads are within design limits and the appropriate restraint system is applied. 

Importantly in the context of COVID-19, additional restrictions apply to the carriage of dangerous goods – this includes items such as mercury thermometers and alcohol-based sanitisers, which may be contained in medical supplies. Dangerous goods may only be carried by airlines which hold approval by the relevant aviation authority to carry such goods as cargo. 

It is worth noting that lease agreements may explicitly require lessees to comply with any and all carriage regulations or restrictions from time to time issued by IATA, so airlines should pay close attention to these requirements to ensure they are not in default under their lease agreements. 

Conclusion 

Airlines wishing to pursue temporary conversions of passenger aircraft to cargo aircraft should review their lease agreements to identify whether they need additional authorisations and/or approvals, what type of cargo they can transport, and whether modifications require the consent of the lessor and/or any financiers. The lease agreements should be read in conjunction with IATA’s regulatory guidance, which directs airlines to begin with a comprehensive safety risk assessment. The conversion of passenger aircraft to cargo aircraft may not only provide passenger airlines with an opportunity to exploit alternative revenue streams and avoid costly parking fees, but it will also assist in alleviating the current drop in air cargo capacity and assist the global effort to combat Covid-19.

*All figures based on March 2020, by comparison with March 2019, as reported by IATA at https://www.iata.org/en/pressroom/pr/2020-04-28-01/. 

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