As Profits Recover, Airbus Argues For Fast Narrowbody Ramp-Up
Airbus is insisting that its planned production rate increases are strongly supported by customer demand and needs more buy-in from a supply chain reluctant to come in fully behind the expansion.
“I am disappointed that some partners are challenging the ramp-up,” Airbus CEO Guillaume Faury said during an analyst presentation of its first-half 2021 financial results on July 29. “We have a backlog of more than 6,000 [A320neo family aircraft],” Faury said. “At a rate of 40 [aircraft per month], that means 15 years of production. At rate 60, it means 10 years. Customers do not want to wait that long. We have to go about 60.”
Faury also pointed out that customers are keeping up with their planned pre-delivery payments (PDPs), which to him is an indication that they are highly interested in taking delivery of aircraft as planned.
Airbus is in the process of increasing single-aisle production from 40 aircraft per month at the beginning of 2021 to 45 in the fourth quarter and 64 in the second quarter of 2023. It is also asking suppliers to prepare for a rate of 70 in the first quarter of 2024 and investigate how they could accommodate a rate of 75 in 2025.
“We expect the supply chain to ramp-up at a much faster pace than in the initial ramp-up,” Faury said. He believes that should be doable because much of the investment into tooling and facilities was already made prior to the slowdown caused by the pandemic.
The expansion is partly driven by the success of the A321neo, which currently has a backlog of almost 3,000 aircraft—around 50% of pending deliveries. Airbus wants to be capable of raising the production share of the A321neo “significantly above 50%” given the strong market demand. Expecting a share of around 60% would be “not too wrong,” Faury hinted.
In addition to the current A321neo variants, Airbus will begin delivering the A321XLR from 2023. It is building a new A321neo final assembly line in Toulouse to expand its production capacity.
Airbus’ focus on raising single-aisle production fast is supported by a particularly strong first half of 2021 which saw a substantial increase in commercial deliveries and, as a consequence, a massive swing back into profitability. Airbus delivered 297 commercial aircraft, compared to 196 in the first half of 2020. Revenues in the commercial aircraft unit increased by 42% to reach €17.8 billion ($21 billion). The division also recorded a €2.4 billion operating profit, having posted a €1.8 billion operating loss a year earlier.
Airbus also upped its guidance for the full year. The company now expects to deliver 600 commercial aircraft, up 34 aircraft on its previous predictions. The adjusted operating profit is to come in at €4 billion, twice as much as the €2 billion forecast so far. Airbus also expects €2 billion in free cash flow before mergers and acquisitions and customer financing—its earlier projections were for a breakeven number.
The strong financial performance in the first half will not be replicated in the second half. Airbus CFO Dominik Asam described the recent results as a “picture perfect moment.” The pace of deliveries increased, albeit at relatively stable rates that are more efficient to operate on. Airbus has also deferred costs where possible, but these will have to be covered in later quarters.
Also, Airbus has often been able to keep PDPs even when customers have deferred deliveries. On the flip-side, a substantial amount of deliveries is now nearing, for which a larger share of these payments has already been made, meaning outstanding revenues are lower than they would normally be.
The continuing single-aisle ramp-up will be a financial burden in the second half. Airbus will also begin spending some money on the development of the A350 freighter variant now due to enter service in 2025.