EADS and Boeing are poised to start booking record revenue from their commercial aircraft businesses, but their underlying aggressive production plans are not without risk.

After curtailing output in 2009 because of the global economic slowdown, both Airbus and Boeing have been moving rapidly to ramp up and set production targets that exceed pre-crisis plans. Output of both single-aisle and widebody airplanes is increasing rapidly and the two largest aircraft makers are on track to deliver more than 1,200 aircraft in 2013 and 1,400 in 2014.

Airbus is the latest to up the ante, having taken a decision to boost narrowbody output to 42 aircraft per month by the end of 2012—it was already on the way to reaching a rate of 40 A320 family aircraft early that year, with the goal of building 38 aircraft in August from the current output level of 36 units per month at its three final assembly sites in Hamburg, Toulouse and Tianjin, China.

A big issue for both is concern that the supply chain will not be able to keep up. Airbus considered boosting output to 44 aircraft per month, but EADS CFO Hans-Peter Ring warned even before the rate increase was announced that such a level “is quite a big stretch from today's point of view.”

At Boeing, consideration is being given to surpassing plans to build 8.3 Boeing 777s a month in 2013, if the supply chain remains healthy. The company has just returned to its previous high-water mark in 777 production rates, seven a month, achieving the “magic seven” level with a freighter for FedEx that is to be delivered in June. Boeing's Everett, Wash., 777 factory previously reached seven-per-month highs in July 1997-February 1998, August-October 1999 and November 2006-May 2010.

As of May 10, Boeing had booked 56 orders for the long-range twin in 2011. The new orders include four dedicated freighters from FedEx, which is buying 27 of the cargo aircraft that derive from the ultra-long-haul 777-200LR passenger aircraft. As of April, FedEx had taken 10 deliveries.

“This rate increase reflects the strong demand for the 777,” says 777 Vice President and General Manager Larry Loftis. Last week, Lufthansa completed a $1.35 billion list-price deal for five 777 freighters. The production rate increase was accompanied by a flow reduction to 49 from 52 days from start to finish. Days of flow were removed in wing spar, and service-ready wing and final body join areas.

In the past, such rate increases spurred concerns over a glut in capacity. But Teal Group Vice President Richard Aboulafia says, “with the current market environment, this might work. We've got a combination of plentiful government funding from many different countries, a reasonably strong economic recovery, and oil prices that are high enough to justify lots of new planes but not high enough to destroy airline profits.” However, he warns that “if anything goes wrong with this recipe, it adds up to serious overcapacity and the mother of all bust cycles.”

Airbus is showing strong positive financial development this year. Ring notes that in the first quarter, the aircraft maker benefited from a favorable mix of the types of aircraft delivered, with higher-margin long-range widebody hand-overs up year on year. Aircraft pricing also is improving and should further strengthen through the year. Airbus's strong showing was not enough to offset a sharp decline in EADS's Cassidian defense business and unfavorable currency movements that netted a €12 million ($17 million) first-quarter loss.

Remaining pockets of concern in Airbus's commercial aircraft portfolio are evidenced by this year's high cancellation levels, which already surpass those for all of 2010. EADS officials play down the effect, pointing out that the cancellations result from just a couple of big deals. But an industry analyst says it is also a sign that reality is setting in over bookkeeping sleight of hand at Airbus during the crisis. To avoid higher cancellation numbers, Airbus allowed many airlines to shift their production slots to later dates, but it is becoming clear that the carriers still do not have the financial wherewithal to keep their delivery positions.