With the demand slump for very large civil aircraft continuing, Airbus is slowly nearing crucial decisions on its planned A380 production rates. If order intake does not improve soon, the manufacturer may be forced to follow Boeing's move on the 747-8 program and reduce output in the medium term.

Harald Wilhelm, chief financial officer of both Airbus and parent EADS, admitted last week that Airbus still has open a “single-digit number” of production slots for the A380 in 2015. Therefore, it is a “high management priority” to fill the remaining slots as quickly as possible. Any determination of the consequences of continuing demand weakness would have to come later this year, given the very long lead times in the supply chain.

Airbus has been suffering from slow A380 demand for some time and the issue is of huge concern internally. Wilhelm is one of the first executives to openly admit it. The manufacturer has already reduced output to 25 from 30 this year, reflecting the incorporation of the newly designed wing rib feet and spars that will become standard for new deliveries from 2014. This has built up inventory well beyond normal levels in the first quarter and contributed to the company's €3.2 billion ($4.2 billion) negative cash flow for the quarter.

The production cut has been considered a short-term issue not driven by demand. Should Airbus have to lower the production rate in 2015, the program would almost certainly miss its break-even point for the foreseeable future. The aircraft maker has gone to great lengths to ensure that the A380 will not lose money at the build rate of 30 per year—although the calculation does not take into account the multibillion-euro research and development for the aircraft. Instead, the break-even estimate focuses on recurring costs of production versus the revenues from A380 sales. While Airbus has markedly reduced recurring production costs, Wilhelm remains “cautious about the further potential for breakeven below 30” units per year.

The A380 sales problems could signal a more general trend away from large widebodies. Boeing has announced a slower build rate for its largest twin-aisle, the 747-8, slated to take effect next year. Since Airbus has firm orders for 262 A380s—101 of which have been delivered—the backlog will fill more than five years of production at the 30-per-year rate.

While A380 production is slowing, the A350 program is bustling. Airbus rolled out the first prototype, MSN001, from the paint hangar last week. It was due to be transferred to flight-testing by May 17, according to industry sources, although the manufacturer itself did not confirm that.

Typically, final ground tests before first flight take a minimum of about 20 days, so, if no technical issues emerge, the A350 could take to the air for tests a week before the June 17 opening of the Paris air show. Wilhelm says that “for quite a number of months, we have seen no further drift” in the schedule. But neither has more margin been built in.

Demand for the A350 has been growing, even for the -1000, the largest variant, which will not be available until 2017 and has not pleased some airlines. “The level of demand we have seen recently would make a very clear business case for an accelerated ramp-up of production,” Wilhelm argues. However, it would also entail taking on additional risk. Chief Operating Officer for Customers John Leahy has been lobbying internally for a steeper ramp-up, given demand levels for the -900 and -1000. But the A350 “remains a tough ride in terms of ramp-up of the other flight-test aircraft and production,” says Wilhelm, so any near-term decision to increase the output is unlikely.

Airbus could add another customer to the A350 backlog soon with Kuwait Airways, which appears close to ordering 10 A350-900s. But Wilhelm cautions that further orders at the Paris air show “might not be as exceptional as last time.” Two years ago, Airbus collected 667 firm orders for the then-new A320NEO family and surpassed 700 for all models combined.

Despite Airbus concerns about transitioning to the NEO, demand for A320-family aircraft with the current engines is “very healthy,” says Wilhelm, and there are fewer than 200 production slots left for them. According to Wilhelm, pricing pressure is coming from competitors' less expensive offerings rather than from customers. Airbus has been trying to keep A320-family production stable at 42 aircraft per month, and it will only look at increasing output around 2018, when the transition to the NEO has been completed.

EADS reported a 315% increase in order intake in the first quarter, mainly based on stronger Airbus sales. Earnings before interest and taxes rose by 46% to €741 million and net income almost doubled to €241 million. The group's negative cash flow was mainly due to inventory buildup in the A380 and A350 programs and the large capital expenditure as the A350 approaches the start of regular production. EADS expects the cash flow to be balanced again by the end of the year, although there will be no quick recovery.