Airbus Pursues Rate Increases As Supplier Concerns Persist
Airbus is slowly firming up its plans to raise A320neo-family production to 75 aircraft per month. The move was planned for more than a year and was not unexpected, and customer demand may justify it. But the step-up is still being met with skepticism about the supply chain’s ability to cope with it.
- Slow Boeing production ramp-up opens market opportunities for its European rival
- To raise rates, Airbus might need to prefinance suppliers
- Certification issues are delaying A321XLR service entry
“Following an analysis of global customer demand as well as an assessment of the industrial ecosystem’s readiness, [Airbus] is now working with its suppliers and partners to enable monthly production rates of 75 in 2025,” Airbus said May 4. The announcement notably stopped short of definitely saying that production levels will move up that high. The caution is a reflection of supply chain realities set against a lack of competitive pressure from Boeing. Whatever level Airbus ultimately achieves, it will be far higher than the output its rival will be able to deliver.
The European OEM had already committed to reaching 65 aircraft per month in the summer of 2023. Now it aims to increase that by another 10 aircraft per month within about two years, roughly 14% more. The work for the additional 10 aircraft will be spread across all of its sites, but its Mobile, Alabama, facility will be expanded to include a second A320neo-family final assembly line. All sites will be made capable of building A321neos, and that aircraft’s production share is expected to continue to rise.
According to the plans, Airbus will be building 89 narrowbody aircraft per month starting in 2025, if the A220 is included. Airbus has previously said that it plans to boost A220 output to 14 per month, from six, within the next three years. If the plans are implemented, Airbus would be producing almost three times as many single-aisle aircraft as Boeing, unless its U.S. rival is also able to increase production. Boeing President and CEO David Calhoun said April 27 that the company has no plans for the time being to go beyond rate 31, given constraints it has discovered in its own supply chain. Airbus may already be building twice as many narrowbodies as Boeing by the end of 2023.
Such a large gap in production volumes over time would lead to further significant shifts in the OEMs’ single-aisle market share. And recent industry trends show single-aisles taking an even larger part of the overall market, given the weakness of the widebody segment and the retrenching of some regional jets.
“We see continuing strong growth in commercial aircraft demand driven by the A320 family,” says Airbus CEO Guillaume Faury. Airbus has shared its plans with engine manufacturers and is “confident in the supply chain being able to manage” the ramp-up, he says.
Many others in the industry are not as optimistic. “Everyone is concerned about the supply chain,” says Agency Partners analyst Sash Tusa. “The weakest part of the chain is what pulls you down.” He points out that Airbus’ carefully chosen wording gives it “a lot of wiggle room” and a way to back off if the ramp-up plans cannot be achieved to the full extent.
Consultant Nico Buchholz of Flightlevel500, formerly head of procurement at Bombardier and of fleet planning for Lufthansa, goes further. “The supply chain is not capable of handling [rate 75],” he says. “Many are still in dire economic straits.” Tier 1 suppliers will be able to handle the production increase, he contends, but he sees major weaknesses and risks among Tier 2 and 3 companies. Airbus may have to provide major prefinancing for some to kick-start growth, he predicts. “That’s OK if it is only one or two companies. But it’s a different story if many more request help,” he notes.
Buchholz says that even rate 65 will be challenging, and rate 75 will only be possible over a longer stretch of time. That may not necessarily be bad for Airbus, since the usual escalation clauses ensure that prices can be raised for delivery delays requested by customers at the peak of the COVID-19 pandemic.
Michael Santo of aerospace consultancy H&Z notes that suppliers in general have gained more faith in Airbus’ forecasts in recent months. An H&Z survey taken last year found that 41% of Airbus suppliers were second-guessing the OEM’s forecasts and preferred to make their own assumptions. In that same survey, 45% of respondents described the planned Airbus rate increases as “unrealistic.”
The mood has since shifted, in part because Airbus has been willing in some cases to commit earlier to purchase orders. Suppliers benefiting from those deals have been able to reassure their own suppliers further down the chain.
Despite all the factors affecting its partners, Airbus is still pushing for cost reductions of around 10% per unit in return for the higher guaranteed volumes. Santo says the pricing negotiations are “very aggressive” but stop short of putting some of the weaker players at serious financial risk. Further pricing concessions are particularly difficult for suppliers in the industry that depend on steady widebody production, which has taken a much more serious hit than narrowbodies. Balancing steeper discounts on narrowbody contracts with more profitable widebody assignments no longer works.
The demand side of the equation appears to be the easier part. Airbus’ combined A220/A320neo single-aisle backlog is 6,388 units (see chart). In addition to the return of general demand, other factors support the view that the production of more new aircraft is desirable. Airlines are under such intense political pressure to demonstrate a strong commitment to reducing their carbon footprint that orders for new-generation aircraft are seen as smart, even if it means prematurely retiring older aircraft. The high price of jet fuel is increasing the competitive advantage of more fuel-efficient aircraft. That is particularly important where pricing is weakened by low-cost carrier competition.
Boeing will not be able to do much to help meet demand for new aircraft, as it is staying at rate 31 for the 737 MAX, at least in the short term. So some customers have nowhere to go but Airbus for additional lift. For some time, Airbus appeared hesitant to push too hard for bigger market share because it was not in its interest to force Boeing to launch a new program. That strategy is likely being reconsidered, though, as few in the industry expect Boeing to be able to move ahead with a new aircraft in the short term. “There is a difference between driving the opposition into a corner and taking advantage of very bad decisions and filling space that has been vacated,” Tusa says.
Airbus has other concerns besides supplier capacity for the A320neo family. The company had to delay entry into service of the A321XLR by about one fiscal quarter, to early 2024 from the end of 2023. Faury did not confirm the exact reasons for the delay, other than to say that the certification process “takes a bit more time than we had assumed.” Airbus is “refining the design in the certification process,” he adds.
The issues are related to the rear-center fuel tank (RCT) that will be added to the A321XLR as a fixed feature that is also part of the aircraft’s structure. Airbus plans to install insulation between the tank and the passenger cabin to avoid a “cold-feet effect” but has told the European Union Aviation Safety Agency (EASA) in the ongoing certification process that there is no space for fire protection that is fully compliant with current standards between the tank and the passenger cabin.
In addition, EASA’s special condition consultation paper states: “In order to protect the cabin occupants from an external pool fire, the lower half of the fuselage in the longitudinal location of the rear centre tank shall be resistant to fire penetration.” The special condition consultation process is open for comments until May 23. The RCT is a structural part of both the center and aft fuselage sections, which are joined around it.
“The certification of the A321XLR is an ongoing project,” EASA says. “The complete set of conditions in relation with the installation of the rear centre tanks is still under definition.”
Faury says there will be “no material impact” on the aircraft’s specifications or range, even if there are design changes. Airbus advertizes the aircraft at a range of 4,700 nm. Industry sources say a local strengthening of the lower fuselage is being discussed, an element that neither Airbus nor EASA is confirming.
According to the Aviation Week Network Commercial Fleet Discovery database, Airbus has 526 firm orders for the aircraft.