BY MAUREEN JENKINS and BOB SALING

Ripe, succulent tomatoes picked in Holland and Australia find their way into restaurant kitchens and supermarkets in Hong Kong.

And a pair of au courant corduroy cargo jeans—made from threads in South Korea, cut and stitched together with cloth in China, closed with a zipper made in Japan, and assembled in Thailand—winds up on a store rack in Los Angeles. Talk about a pair of pants with real legs.

That's the circle of life in today's modern world.

It's tough to imagine our lives today without the products available to us—and faster than ever before—thanks to the air cargo industry. From the mobile phones and mail that keep us connected, to the fresh fruits that keep us nourished, the global society is increasingly dependent on goods that travel by air.

Since businesses the world over now rely on "just-in-time" production to keep their inventories low and costs down, the speed and efficiency of air cargo transport contribute strongly to their bottom lines. And Boeing production and converted freighters are a major link in this worldwide chain, providing more than 90 percent of the total world capacity.

Today, air cargo is a $46 billion business, with 40 percent of world trade flying aboard commercial airplanes, said Dora Kay, who heads international marketing efforts for the Airport Authority Hong Kong and who is currently serving as the president of The International Air Cargo Association, based in Miami. And while freighters ship just 1 percent of the world's cargo by tonnage, they deliver 40 percent of cargo by value.

"This is the world we live in," Kay said. "We cannot do without international trade because without international trade, the prices and product range [offered in the marketplace] would be unacceptable. That's why air cargo exists. Young people want to buy the latest models of cell phones or laptops and fashion, and they can't wait. If they see on TV that someone has a new cell phone in the States, they want it."

And that demand for what's next right now—whether from trend-hopping teenagers, gourmet grocers or computer manufacturers—is helping drive a healthy air cargo annual growth rate of 6.4 percent.

The 747 Freighter, the flagship of the world's cargo fleet, provides 45 percent of total capacity alone. The Boeing World Air Cargo Forecast predicts that world air cargo volumes will triple over the next 20 years. That report, as well as the Current Market Outlook from Boeing Commercial Airplanes, also forecasts that the jet freighter fleet will double in number in order to handle this growth, with average freighter size also expected to increase. Currently, freighters make up 11 percent of the total world airplane fleet.

"That means there's lots of opportunity," said Jim Edgar, Boeing Commercial Airplanes regional cargo marketing director. "I think the reason for that is a lot of manufacturers are just learning how to leverage" the advantages air cargo presents.

From the earliest days of air cargo traffic, Boeing's been in it for the long haul.

Shaping the cargo market

From the first Boeing airplane, the B&W, and the Douglas DT/C-1 to today's 747-400 Freighter, Boeing and its heritage companies have been at the forefront of air cargo.

"The Douglas DC-3, which made air travel popular and airline profits possible, is universally recognized as the greatest airplane of its time," Edgar said. "As a rugged airframe, it really took air transportation and air cargo to a new level."

But once the jet came of age, Edgar said, "Both Boeing and Douglas found success in adapting the jet engine to air transport. Boeing led the way, but Douglas acted quickly and readily courted carriers who were becoming more focused on freight to generate revenue."

The Boeing Model 367-80, often called the "Dash 80," was a long-range jet prototype that became the first member of the "700" family of commercial and military jets (see related story). Used exclusively as a flying test bed, the Dash 80 contained few windows and no seats, but came equipped with two large cargo doors. And while the Dash 80 never was put into service, its offspring, which included the Boeing 707 Freighter, certainly were.

As market demands shifted, so did the offerings to airline customers. The growth of Asia as a major manufacturing base for low-cost, high-quality goods was a major catalyst, as end users of these products were located all over the world. The Asian manufacturing trend began gathering steam in the 1960s—and it's no coincidence that the first 747 Freighter took off only two years after the 747 first entered service in 1970.

Today, said Kay of Airport Authority Hong Kong, "a lot of U.S. and European manufacturers are shifting their production to Asia-Pacific, and you see various aspects of the supply chain happening here." Countries such as Thailand and Vietnam "are facilitating foreign investment in putting up manufacturing," as overseas companies seek out more cost-effective production bases. That, she said, has led to the region's growing wealth over the past seven to 10 years.

The result: "A lot of the low-cost producers became consumers," Edgar said, referring to countries such as South Korea and Taiwan, further increasing the growing Asian import market.

And Kay said that more recently, China's accession to the World Trade Organization in 2001 is "opening up opportunities" for both export and import goods. More disposable dollars translate into more spending power for the world's most populous country.

Intra-Asia cargo traffic also is up, with China the major player. That's fueled forecasts such as the Boeing Current Market Outlook, which predicts the country will be the largest commercial airplane market outside the United States over the next 20 years. Freighter traffic will certainly be part of the mix, although nearly half of the world's air freight travels in the holds, or bellies, of passenger airplanes. In addition, the Boeing forecast projects that China's annual cargo traffic growth will average more than 10 percent during the same 20-year period.

This year's SARS epidemic seriously affected passenger traffic, but Kay said that air cargo volumes held steady, as the region remains a manufacturing center for apparel, computers and electronic devices—and the elements used to make these finished goods. That's why AirCargo World magazine has compared some countries' industrial function to "workers on an assembly line." A large portion of intra-Asia air-freight movement, the publication said, is "intermediate traffic," or goods that will ultimately be exported to Europe and North America after final assembly.

"With the cancellation of up to 50 percent of the passenger flights, we were at the time worried we wouldn't have enough room for cargo," Kay said. But airlines got permission for extra all-cargo flights within the region, while "all the long hauls to Europe and the United States continued to be filled. It also shows that production continued."

Just as consumer tastes have continued to diversify in an increasingly affluent Asia, as well as elsewhere, Boeing has met demand with freighter airplanes that fit the diverse needs of shippers and airline customers all over the world.

"Where air freight really works well is where there are seasonal variations between north and south," said Rick Erickson, an independent air cargo analyst and consultant based in Calgary, Alberta. Among such examples, Erickson said, are freighters that in the winter bring fresh produce and flowers from Central and South American countries to frigid Canada. Also, when peak holiday buying seasons roll around, Erickson said "air freight can be a marvelous tool in getting your product to market before [the market] gets saturated."

Versatility key to success

The 747 became a game changer in the early 1970s—and that's what it continues to be in today's rapidly shifting world. More than 30 years after its first cargo flight, 747F models provide nearly half of the world freighter capacity.

The nose door of the 747 production freighter can accommodate long, outsize loads, which generally command a premium rate for shipment. The side door can accommodate tall, outsize items and "high-cube" pallets. ("Cube" refers to cargo volume in cubic feet or cubic meters.) Joe Sutter, the Commercial Airplanes senior sales counselor and engineer who's known as the "Father of the 747," said the nose and side cargo door combination provides operators with a valuable tool: the ability to earn between $4 million and $6 million per year in incremental revenue per airplane.

With the ability to carry 113 metric tons to 9,200 kilometers (5,704 miles) nonstop, the 747-400F is the only Western-built freighter that has both side and nose doors.

"The 747 in and of itself has been one of the primary reasons the air cargo industry evolved to what it is today," said Erickson. "I have seen markets where the presence of the 747 Freighter is responsible" for a country's ability to export its goods to other lands successfully.

Erickson cited the Indian Ocean island of Mauritius—located east of Madagascar—and its strong textile market as an example, saying these cargo flights enabled the country "to build a very substantial economy, because the 747 Freighter capacity has allowed the local economy to develop" by exporting textiles, perishable goods, and light electronics.

"I would put all that on the back of the 747," he said.

Lufthansa German Airlines, which currently operates eight 747-200 Freighters, became the first airline to launch 747F service in 1972. And with it, "the intercontinental air freight business got the tool that became the backbone of international trade," said Jean-Peter Jansen, chairman of the Lufthansa Cargo Executive Board. "This made the amazing globalization of the world economy possible."

Korean Air Lines' M. S. Cho, managing vice president, Planning & Coordination, agreed. In 1974, the airline became the first transpacific operator of the Boeing 747-200 dedicated freighter. Taking advantage of its location between North America and burgeoning Asian economies to build a freight operation, Korean Air now derives 32 percent of its operating revenues from cargo transport.

"This is a situation where speed and reliability in a time-definite market were becoming increasingly critical in moving to just-in-time or zero inventory environments," said Ram Menen, cargo director for Emirates. The Dubai, United Arab Emirates-based carrier is enjoying a 31 percent increase over 2001 in freight tonne-kilometers shipped.

And customer interest in larger-capacity freighters continues to grow. In many cases, smaller and older freighters are being phased out in favor of medium widebodies that can transport between 40 and 65 tons of cargo, as well as the larger airplanes that ship even bigger amounts. Right now, more than 250 747 freighters are in service with nearly 40 operators.

Last year, Boeing delivered the first 747-400ER Freighter, the latest enhancement to the product line, which features the top range, payload and speed of any freighter currently in service.

"The Boeing 747-400 Freighter greatly improved our operational efficiency, guaranteeing better profitability," noted Korean Air's Cho, whose airline now flies a fleet of 11 747-400Fs, including a 747-400ER Freighter. "Thanks to the 747-400F, we have grown to be a world-leading cargo carrier."

Responding to changing needs

Although reliability, maintenance costs and other attributes of new airplanes attract a number of well-known operators, the cost of the pre-owned airplane, combined with the conversion cost, offers an attractive, lower-cost alternative for many of the world's air freight carriers. Today, between 80 percent and 90 percent of narrowbody freighters are conversions, as are more than half of all widebody cargo airplanes.

"Cargo brings additional life to airplane programs," said Pierre Vellay, Air France vice president, New Aircraft and Corporate Fleet Planning. His airline currently flies 13 747 Freighters, including seven production aircraft. "Many models, after starting life as passenger airplanes, then serving more dense tourist routes, have the capacity to be transformed into cargo aircraft for essentially a third life, bringing more value to the overall development program. Today's successful passenger airplanes will be tomorrow's successful freighters."

The BCA Current Market Outlook predicts that nearly 75 percent of freighter fleet additions during the next 20 years will come from modified passenger and "combi" airplanes (which transport both passengers and freight on the main deck). More than half of these conversions will be widebodies.

As the original equipment manufacturer of the bulk of the world's freighters, Boeing plays a dominant role in conversions through Commercial Aviation Services. Working to match customer air cargo needs, CAS manages the conversions of everything from a 20-ton 737 to a 100-ton 747. Last year, CAS oversaw the conversion of 36 airplanes, while Commercial Airplanes built 18 new freighters.

"The value that Boeing brings to this market place is in engineering and certification," said George Peppes, Boeing Product Marketing Manager for Freighter Conversions. "Since we built the original passenger airplane, we know how to design high-value, low-risk conversions for the operator."

Even though Boeing-built airplanes provide 90 percent of the current world air cargo capacity, Airbus also plays a role in the industry. This spring, the Toulouse, France-based airplane maker announced that it had begun converting its 100th passenger-to-freighter aircraft. It performed the first conversion in 1994.

Airlines such as Emirates have announced orders for freighter models of the Airbus A380, the gargantuan passenger aircraft scheduled to enter service later this decade. But Boeing's Edgar doesn't see a threat to 747 dominance, either by the coming A380 or the currently produced A300-600 freighter model, which has been popular with express cargo carriers. That's because airlines have ordered 109 new 747-400 Freighters alone, Edgar said. And by the time the A380 enters freighter service in 2008, he says, more than 300 747 Freighters of all types will be flying.

"The 747 is without equal as a freighter—both now and in the foreseeable future," he said. "Its attributes and efficiencies are not threatened by the A380F."

But Canadian freight analyst Erickson said he believes there's room in the market for both, despite the fact that airports will have to be retrofitted in order to accommodate the A380 size and dimensions. The 747 debut prompted similar changes, he recalls.

"When the 747F came out," Erickson said, "many people said it was too big, but the market adapted to it. The market liked the economy of the lower costs.

"The way the world market has evolved, there's only 30 percent of the market that needs the range the A380 provides. The airports will have to retrofit themselves at a huge expense, and only about 100 airports will be able to handle them." Still, he said, the A380 "will find its niche" traveling to major trade centers like Hong Kong, Tokyo, Seattle and Chicago.

Always cognizant of what the market demands—but only willing to move forward if the business case is strong—Boeing is investigating its proposed 747-400 Special Freighter conversion program.

"Right now, as a lot of airlines are taking 777s into their fleet, they're taking 747-400s out of their fleet," said Mike Stewart, Boeing vice president of Freighter Conversions for CAS. "This offers an alternative for what they can do with those planes. The baseline configuration of our preliminary design has been completed by our Product Development team, and we are entering into a more detailed engineering plan."

Even after making proposals to potential customers, CAS must meet criteria established by Commercial Airplanes leadership. Only then would the Special Freighter program formally launch. If it meets those requirements, the first 747-400SF could enter service in late 2005 or early 2006.

Another fleet replacement option studied is the possibility of using several of the breakthrough 7E7 technologies and specifically, new engines and materials—to increase the capacity and of the 747 while dramatically lowering operating costs and meeting the most stringent noise regulations.

That's where a "747 Advanced Freighter" would come in, providing 10 percent lower ton-mile costs than today's 747-400 Freighter. Over the next two years, Commercial Airplanes will take a closer look at this promising alternative.

But whether debating the merits of a new conversion offering or a new production freighter, Edgar said what's key is "constant contact and interface with our customers—what they need, how they're using the airplanes, and what's important to them.

"It's face-to-face engagement with the individual," he said. "That's what's going to make the difference between continuous leadership and lagging behind."

maureen.l.jenkins@boeing.com

bob.saling@boeing.com