Airbus Set To Transform Industrial Setup And Processes By 2025

When Michael Schoellhorn joined Airbus as part of the new team put together by incoming CEO Guillaume Faury in 2019, the company seemed to be in a really good place. Since Boeing’s MAX program was already struggling, Airbus had a leading share of the narrowbody market and was catching up on widebody deliveries, despite the ill-fated A380 program. A corruption scandal was clearly associated with a former management team. The only major issue seemed to be how fast Airbus would be able to deliver aircraft, with demand outpacing single-aisle production. In many ways, it was an embarrassment of riches.

• Airbus transforms production, processes and industrial setup
• Future production system to be in place within four years
• Launch decisions loom for derivatives and new designs

But the more Faury, Chief Operating Officer Schoellhorn and the other new members of the executive team dug into their jobs and analyzed the situation, the more they concluded that something fundamental needed to be done about Airbus’ legacy production process—within reasonable limits—and to revamp a convoluted production system established decades ago. “It was clear that we could not continue like this,” Schoellhorn recalls.

Two years later, Airbus is in the midst of a deep transformation. It is not the first time in its history for such adjustments: It has changed its industrial setup, refined the organizational structure, rethought its production logic, introduced new technologies and tools, prepared a new revolutionary product and, wherever it makes sense, expanded digitalization. Now, however, everything is happening at roughly the same time.

Airbus is gearing up for a very different future and has given itself a clear time frame: By 2025, the group wants to have in place the organizational and technological basis for the launch of the next generation of aircraft—to be powered by liquid hydrogen—and plans for it to enter commercial service 10 years later. Its “future production system”—to be applied to legacy aircraft lines as well—is scheduled to be ready by then. Additionally, 2025 is the target year for narrowbody output to increase to an unprecedented level of almost 90 aircraft per month, a figure that has left many in the industry—and inside Airbus—puzzled.

The opening challenge for Faury’s team was the single-aisle production meltdown. As Airbus ramped up to record highs, deliveries were consistently late. Sometimes the handover was delayed only a few weeks; more often than not, it was many months. Rather than shifting delivery dates once and sticking to the new timetable, Airbus routinely postponed delivery dates several times.

Customers urgently looking for lift were furious: “Not a single aircraft from Airbus is delivering on time,” Air Lease Corp. CEO John Plueger said in 2017. Why did this happen? The volume was more than the system could handle. Suppliers, including engine manufacturers, could not keep to the agreed-upon schedules. While some parts were missing, others were stockpiled, weighing heavily on Airbus’ financials in what should have been highly profitable—but turned out to be wasteful—times.

Schoellhorn, who had run company operations in other industries, turned to good old management theory and introduced value stream mapping (VSM), a tenet of lean management. “We quickly introduced an end-to-end view of production, away from the very pronounced functional structure,” he says. “With [increasing] production rates, there is a certain inflection point when it is more important to look at the flow and the value chain, rather than the individual steps along the way.”

By early 2020, things looked much better. Airbus, for the first time in years, began hitting its targets and delivering on time despite record volumes. There were fewer customer complaints.

Then, in March, the COVID-19 pandemic began spreading in earnest. Aviation fell off a cliff, and with it, all of Airbus’ plans. Almost every customer asked to at least delay deliveries, in many cases by years. Demand for aircraft dwindled daily. “There is negative net demand,” Avolon CEO Domhnal Slattery said at the time.

Those deliveries that still took place simply could no longer be avoided by airlines without severe penalties. As it turned out, VSM helped even as the situation turned south. “We could ramp down, very quickly, the whole production chain and get back in sync,” Schoellhorn says. “That was only possible because of what we had introduced before. We had the necessary transparency.”

Boeing had also looked at production technology through its Black Diamond project, focusing on flow and possible lessons from the automotive sector. Although Schoellhorn concedes that the U.S. competitor had a head start tackling legacy industrial processes, he now feels Airbus has largely caught up.

Dealing with legacy issues is one thing. “What Airbus is doing internally is much more about the second half of this decade or even the first half of the next,” says consultancy Agency Partners analyst Sash Tusa. The OEM is preparing the groundwork for future aircraft. First, the launch of a freighter version of the A350 is approaching, possibly by year-end. Next up is what will likely be the last iteration of the A321neo, known colloquially as the A322: a stretched, rewinged, reengined version of the A321neo that, Tusa says, Airbus could launch as soon as 2023, the year the A321XLR is to be introduced. And, of course, the company much launch the next-generation aircraft around 2026 to have it ready by 2035.

In the near term, the trajectory is different for widebodies and narrowbodies. Although widebody production has collapsed and will stay at much-reduced levels for the foreseeable future, Airbus is already planning to exceed precrisis volumes for its single-aisles in 2023. Whatever has been changed in widebody production layouts will, therefore, remain in place for much longer.

The A380 was the easiest to tackle; production ceased this year. In its place, a new narrowbody final assembly line (FAL) will be built by the end of 2022. The A330, too, is “at the edge of what you can still describe as serial production,” Schoellhoern says. The line is running at two aircraft per month, supported by Multi-Role Tanker Transport deliveries in the defense segment. There are no plans to terminate the program despite the losses it is taking. The A330neo is needed to keep Boeing disciplined on 787 pricing, and at some point, some level of replacement demand from the large installed base of A330ceos should emerge. Not all the operators will move to Boeing, the A350 or the A321XLR.

The most interesting piece of that segment is the A350 line. Produced at rate 10 in 2019 and ready to go to 13, it is now at rate 5. Part of the adjustment was relatively straightforward: Some stations were duplicated for the higher volumes. With one of the two shut down for some time, the maximum rate automatically declined to 6.5. But that meant that at some other points that exist only once, such as Station 40 (wing join-up), there was massive overcapacity. The solution is to take out work packages from that particular step and move it to others that are underutilized at that moment.

Complicating matters is that whatever change is made needs to be reversible. “We don’t want to be limited to rate 5 or 6 in the long run,” Schoellhorn says. “We see that widebodies will come back beyond 2025. Whether we will see the old rates again, nobody knows at the moment.” 

In the narrowbody sector, not only does Airbus expect the old rates to return but it also plans to exceed them. The A320neo line was at 60-plus aircraft per month just before the pandemic and is now at 40. Airbus has already confirmed that it will go to 43 in the third quarter and 45 in the fourth. In addition, the OEM has asked its suppliers for rate 64 in the early part of 2023—equivalent to a 62% increase in production within two years. That in itself is a vast challenge for both the OEM and a supply chain that has struggled with less steep curves in the past. But that is not the end of the line: Another two or so years later, Airbus is looking at rate 75, almost 20% more than its past peak.

The other narrowbody program in the portfolio, the A220, will undergo a tripling in output to 14 aircraft per month from 4-5.

Financially, the rationale is clear. The A320neo is currently the only profitable Airbus program, so the company has an incentive to make the most of it while Boeing is trying to recover the much weaker 737 MAX program. Airbus also needs production at volume to transform the consistently loss-making A220 into an economic success. Whether demand is high enough to justify the plan is another story. Only time will tell.

Industrially, the task is huge and involves changes where possible. Airbus’ system of narrowbody final assembly lines includes two outdated ones in Toulouse and Hamburg’s lines 1-3, which are more modern and have been replicated in Tianjin, China, and Mobile, Alabama. Hamburg’s more automated line 4 was, according to Schoellhoern, “a huge step forward technologically,” but it was also a major headache to set up. The A220 is assembled in Mirabel, Quebec, and Mobile.

In theory, digital design, manufacturing and services (DDMS) is the target—meaning gapless digital tools and databases are in place for the full life cycle of an aircraft. The reality is quite different, and will be for a long time. “I’m a big believer in digitalization,” one executive says. “I like additive manufacturing and robotics, too. But it pretty much always failed where it has been put in place in aerospace.” Why? “Because it is very hard to apply to an existing design that is 30 years old and was designed for paper drawings.” The good news: “Where it has worked, it has worked really well,” the executive says.

Airbus knows both sides of the coin, it seems. The legacy parts of the aircraft, a 1980s design in the case of the A320, are not retroactively digitalized. But everything that is new presents an opportunity.

The first big item is the rear center tank (RCT) of the A321XLR, an additional tank intended to provide more fuel volume for greater range that is integrated with the aircraft’s structure. There was also no discussion about outsourcing the RCT. “It is so complex and innovative to a degree that we decided we wanted to master [the RCT] ourselves,” Schoellhorn says. The parts of the A321XLR wing that are modified will also be created using DDMS. In Airbus Defense and Space, the Eurodrone will be completely done in DDMS. Airbus Helicopters is introducing the concept, too.

The real question, however, is “whether the supply chain is ready for DDMS,” the executive says. “My observation is that with the precarious state some of the suppliers are in right now, they have not even started thinking about it.” The importance of supply chain participation in the concept is shown by the success of the A350 development, which was relatively smooth. “The digital A350 design was hugely successful because the suppliers came onto the platform, too,” the executive says.

An untenable imbalance exists in the Airbus industrial system. Toulouse is heavily reliant on widebody lines that will not return in any major way for many years, and its two narrowbody FALs are outdated. The OEM is introducing a new line that represents its most up-to-date thinking about the degree of automation and that can be planned in an ideal spacial layout. “The new FAL will be based on lessons learned from all previous concepts,” Schoellhorn says. It is not supposed to provide additional capacity per se and will officially replace one of the two older lines, which will remain in place as a buffer during the spool-up of the new facility.

As in Hamburg, the new narrowbody line will be housed in a large hangar originally built for the A380 and no longer needed for the terminated program. But unlike in Hamburg, Toulouse has no space constraints and therefore offers the proper environment for a good flow of materials.

Schoellhorn has yet to reveal all the details, but the approaches to automation and setup will be different. Fuselages will be moved around less often. There will be fewer six-axle roboters, automation will be more mobile and Airbus will take advantage of technology developed by MTM Robotics, a company it acquired in 2019. Automation is to be advanced not only in final assembly but also in the logistics of bringing parts and components to their destinations.

Some of the lessons were hard-learned. Hamburg 4 was a big step forward in production technology, but Airbus had to know its limits, too. The facility was not ideal, and more importantly what applies to DDMS is also true for automation. Some parts of aircraft design are simply not a good fit for a high degree of automation due to tolerances and reachability. “Deficiencies in the original design make a high degree [of automation] very difficult,” Schoellhorn says.

Going forward, it is a different story. “We are looking at the next design and [will] think about what would be ideal,” he explains. “Then we [will] use every additional variant of the A320neo or the A350, when we develop it further in additional steps, to design the delta in DDMS. . . . . Digital design quickly leads you to digital production.” And the approach is not limited to final assembly: Aerostructures subsidiaries Stelia Aerospace in France and Premium Aerotec in Germany have their own automation projects in the works.

All iterations of current programs are to be used as further steps toward full implementation of the new industrial system, ahead of the planned move to hydrogen aircraft.

In the widebody sector, a freighter version of the A350 is the next opportunity. The COVID-19 pandemic made it clear, even to those who ignored the issue in good times, that Airbus has a gaping hole in its portfolio: freighters. Boeing was able to sell the cargo version of the 747-8 until recently; the 767 continues as a freighter 39 years after its entry into service; and, of course, the 777F is a major success story, providing Boeing strong margins. Boeing is even preparing the formal launch of a 777X freighter, possibly with Qatar Airways as the first customer.

By contrast, Airbus has a backlog of zero for the A330-200F. There is no cargo variant of the A350, though CEO Faury is adamant that should change. It is too late to take advantage of the current freighter boom, but leaving Boeing with a monopoly in the long-haul freighter market much longer is unacceptable for Airbus.

For narrowbodies, some opportunities are on the horizon ahead of the transition to the next generation of aircraft.

First, more versions of the A320neo family are either already decided or likely to be added. The A321XLR, the long-range version of the A321neo capable of flying 4,700 nm, will be introduced in 2023. The aircraft’s first components are already being produced. Fuselage sections, including the RCT, will be assembled on a separate line when they arrive at the Hamburg FAL to avoid slowing down the main FAL in the early part of the learning curve, at a time when Airbus plans to exceed precrisis production volumes. Disruption caused by a more complex new version, spreading across the other variants, is the last thing the company needs.

More substantial upgrades might come further down the road, including the A322 to counter whatever Boeing comes up with in the by-now famous middle-of-the-market segment. Changes to the design might also introduce a composite wing, prototypes of which Airbus has been working on for years anyway, and new, more efficient engines capable of running on 100% sustainable aviation fuels. 

The project could be the last major new iteration of the A320neo family before Airbus brings hydrogen-powered aircraft to market. And it is more likely to happen than not: “Airbus essentially already has the wing ready, [and] it can take the next-generation geared-turbofan engines—all it needs is a product,” says an industry source.

The A220 is the other special case. As a Bombardier product originally, it is completely different from all other Airbus models. That is true not only for product design but also for its industrial setup. Whereas Airbus has historically not outsourced components it considered core to the business, Bombardier gave away more or less the entire aircraft to suppliers, largely keeping only core development, design, marketing and sales plus final assembly in-house.

That approach, including unfavorable supplier contracts, has been one of the key issues causing the program’s high cost of production—and continues to be a problem for Airbus as its new owner. Taking more work in-house could be a logical step, also aligning the A220 more with the general production philosophy. But Schoellhorn says that is not the plan. “At the moment, the focus is on profitability, not changing the degree of vertical production depth,” he says. There are several reasons for that approach: First, management can handle only so much at any given time. Second, he says, “We don’t know yet what design changes will come. When they do, we could then change the production footprint.”

Although Schoellhorn does not specify the potential changes, it is no secret that Airbus has the designs ready for a further stretch of the fuselage to offer the A220-500, an aircraft that could contain more than 150 seats in a legacy airline layout and compete directly with the 737-8 (and the A320neo). Its introduction could be years away, in part because of the profitability issues as well as the threat of cannibalizing the only profitable Airbus program. It is still an important piece in the strategy toolbox, and many believe the launch is a question of when, not if. 

It is also a good way to remind suppliers of the need for discipline, even though changes to the aircraft’s industrial system may be less than some expect.

The supply chain is the last big piece of Airbus’ industrial relaunch. In a sense, Airbus has just made the decision to bring a large chunk of the supply chain back in-house, but Schoellhorn says that beyond a specific case more vertical integration is not the plan.

That case involves aerostructures subsidiaries Premium Aerotec (referred to as PAG inside Airbus) and Stelia Aerospace. The two were initially carved out of Airbus in 2008-09, at a time when management wanted to prepare the two for an eventual sale—much like how Boeing spun off Spirit AeroSystems years earlier. After years of unsuccessful sell-off efforts and a review of the situation early this year, Faury decided that what PAG and Stelia do should remain part of the core, killing the sales plans. Instead, both will become part of new larger units, based in Germany and France, that will also include sites that are currently part of Airbus itself.

Trying to sell PAG and Stelia was, in the first place, “an utterly failed industrial project,” says Agency Partners’ Tusa. He concedes that Airbus at the time felt compelled to do it, not only because of Boeing’s Spirit move but also because of the major outsourcing on the 787 program (which was later partially rolled back). 

“[Premium Aerotec and Stelia] have many strengths,” Schoellhorn says. “By having been autonomous they became more entrepreneurial. They specialized in aerostructures and built company structures and leadership routines accordingly. But the supplier-customer relationship was difficult. It was too transactional. Everything had to go through contract negotiations, pricing and transfer pricing talks. It was simply too complex.”

Now Airbus is trying to achieve the best of both worlds: the benefits of entrepreneurial autonomy and VSM inclusion.

With hydrogen comes a changed aircraft architecture. Fuselages will need to be wider and longer, and this will be a core aspect of mastering the new generation of aircraft. “The nature of the next generation of aircraft is that it is entirely integrated,” Tusa notes. “There are no more clearly divisible bits. The shapes are more complex, the interfaces more important, even if we don’t go for flying wings. The fuselage gains similar importance for aircraft performance to wings and control surfaces.” Therefore, regardless of PAG and Stelia’s legacy performance, the closer insourcing makes sense to him conceptually.

But what Airbus management has in mind will also apply to existing programs. It wants to differentiate more strictly between build-to-order and build-to-stock manufacturing. Build-to-order is essentially the customization of a particular aircraft for a specific airline, including final assembly. The build-to-stock concept will be applied to the standardized components that go into every aircraft.

PAG and Stelia will focus on the standardized build-to-stock system, while Airbus itself will take the parts from there and turn them into the final product. As a consequence and as one example, large portions of the Hamburg-Finkenwerder narrowbody plant will become part of the new German aerostructures company, and several sites in France will move into the new French affiliate.

Full reintegration into Airbus is not an option, though unions in France and Germany would prefer nothing less. First, Airbus wants to be able to compare its costs of producing aerostructures with those at Spirit or GKN Aerospace. “In-house production has priority, but it can’t be decoupled completely from market reality in terms of costs,” Schoellhorn says.

So far, Airbus has been unable to compare its costs in aerostructures assembly with those of its suppliers. With a merger back into the corporate structure, the split between the OEM and Tier 1 supplier business would have been lost, as would the entrepreneurial spirit Airbus hopes to retain at its in-house partners. Schoellhorn also contends that the cost of OEM complexity would weigh heavily on fully integrated supplier work, even if it was done elsewhere.

The detailed parts business still may be spun off from PAG. “Just to keep the jobs, we stuck to work packages for too long that you cannot defend in [high-cost] Germany,” Schoellhorn says. “Everyone else has placed the work in best-cost countries or with suppliers.”

It is not yet a given that the small-parts business, which employs about 3,000 people, will be sold. Unions have stepped up against doing that and management has promised that with the right structures in place, it will consider keeping it. But Airbus’ preference is for a strategic investor already present in the business, one with expertise and scale.

All the changes—digitalization, organizational resetting and automation are “fuel-agnostic,” Tusa says. In other words, they make sense for any of Airbus’ future aircraft concepts. The reason, Tusa says, is: “Fifteen years from now, the aircraft that roll out the factory doors will look very different.” He says that committing to introducing a hydrogen-powered aircraft by 2035 is “a gamble” because it is not yet clear whether it can work. However, he says, the good news is, “Airbus is setting itself the highest bar.” If it turns out that only more modest, incremental change is possible in the time frame, “they can only win,” he says.

The biggest risk might be not in the transformation but in the lack of follow-through. Some think that risk is real. The project has been largely driven by Schoellhorn, who is moving on to become CEO of Airbus Defense and Space in July. The management reshuffle was initiated because the current CEO of that division, Dirk Hoke, has wanted to leave for some time and needed to be replaced. According to the still well-established, if informal, power-sharing between French and Germans inside Airbus, Defense and Space is to be run by a German.

Schoellhorn’s successor as chief operating officer, Alberto Gutierrez, might help Airbus politically as it consolidates its presence in Spain but he has yet to prove that he pursues the transformation with the same commitment as his predecessor. That makes it all the more important for Faury to stay closely involved and for Schoellhorn to step up in the group executive committee. Sabine Klauke, who is taking on a new merged role of head of engineering and chief technology officer, will also be a central figure in implementing Airbus’ plans.

The other big risk is mostly beyond Airbus’ control. Can suppliers, in addition to mastering DDMS, handle VSM processes? Can all the crucial partners recover from the financial impact of the COVID-19 pandemic? And can they handle the unprecedented ramp-up that Airbus has mapped out for them? Schoellhorn says Airbus will make much deeper, forensic checks into the way the suppliers operate and plan processes and train people to be prepared. A close relationship will be more important than ever.