Podcast: Why Isn’t Airbus Doing Better?

Joe Anselmo:

Welcome to this week's edition of Aviation Week's Check 6 podcast.

By one large measure, Airbus should be on top of the world. The company's only real competitor in commercial airplanes, Boeing, has been beset by numerous problems, including a 53-day strike that just ended but will take weeks, if not months, to recover from. Airbus has managed to capture a commanding lead in the narrowbody market over Boeing, upending the long held 50/50 split, but the European aircraft builder isn't doing as well as one might think. Its ability to capitalize on Boeing's woes is limited by the immense challenge of ramping up aircraft production. That challenge has been exacerbated by supply chain woes that keep popping up. And the company's defense business faces its own set of challenges.

So why isn't Airbus doing better? I'm Joe Anselmo, Editorial Director of the Aviation Week Network, and Editor-in-Chief of Aviation Week & Space Technology magazine. Joining me to answer that question are Jens Flottau, the leader of Aviation Week's Commercial Aviation team. He has written about Airbus for decades and joins us from Frankfurt. Robert Wall is the London-based leader of our global team of Defense and Space writers, and special guest Sash Tusa leads financial firm Agency Partners in London. He's also a contributing Aviation Week columnist.

So Jens, let's start out with you. Why isn't Airbus doing better?

Jens Flottau:

If only I had the answer. It's a question that more and more people are asking. I just had a conversation a few days ago with Firoz Tarapore, the leader of DAE Aerospace, a leasing company, at ISTAT, and he said that it's already hard to understand how production is not ramping up in 2024, and it will be even harder to understand if those problems persist in 2025.

Obviously it comes down to supply chain. The supply chain has not been able to ramp back up. But this is the top-down view. If you look into a little more details, I think it's interesting to see that smaller suppliers seem to be slowly improving performance, getting out of the worst of the challenges. But the big ones, the Pratts, GE Aerospace, Spirit Aerosystems in particular, are now the ones that are creating the issues.

And just to put things into perspective, Airbus's delivery target this year is 770 aircraft. That compares to 735 last year. So it does look like there's at least some growth. But really, if you look back five years, in 2019 they delivered 863 aircraft and in 2018 it was 800. So they're still significantly off where they were before and obviously way off their targets. If you look back the first nine months of this year, the narrowbody output was 44 aircraft per month on average. The target is 75 just three years from now. How's that going to work? The A350 is at around five, it's supposed to go to 12. The A220 is at four, is supposed to go to 14, so more than tripling. Big challenges.

Joe Anselmo:

And to put that in context, Jens, I mean, 44 aircraft per month, still a long way to go to their goal, but Boeing's goal was to get to 38 a month and they've come nowhere near that. So Airbus isn't as doing as well as it wants to, but it's certainly not doing as poorly as Boeing, right?

Jens Flottau:

No, it's not, but it always, it hasn't have to ... Two of its narrowbodies crash and one dropping part of the fuselage in flight.

Joe Anselmo:

Sash Tusa, welcome to the podcast. You wanted to react to what Jens just said.

Sash Tusa:

Thank you, Joe for inviting me. Yeah, I just wanted to follow up on that comparison with Boeing, and I would say that the honest truth is that Airbus is just being held to a higher standard now. It's not a comparison with Boeing, it's how you're doing compared to how you have told us that you will do, and they're not delivering according to their own targets.

And I do worry that Airbus talks really to two different sets of stakeholders. It promises a huge amount to airline customers because it wants to take orders. It wants to say, "I can give you so many aircraft in 2028, 2029, 2030." And that encourages the company to frankly be optimistic about their ability to ramp. Whereas really they're not delivering, and were they only talking to investors, I think they would want to under-promise and then over-deliver. But what they're doing to airlines is over-promising and under-delivering.

And they're caught between how they deal with those two stakeholders. And I can't see an easy way out of that, but it's a problem of their own making. The competition is really not what we're talking about at the moment, it's the internal problems.

Joe Anselmo:

Robert?

Robert Wall:

I thought that was also really interesting, especially if we think about the recent Q3 numbers that Airbus put out. I mean, the fact that they're sticking to aircraft delivery guidance. I mean, we've seen this with Airbus before, they always fall far behind early in the year and then they'll have these incredible Decembers.

But what they're doing setting themselves up for this time, I mean, it just seems incredibly challenging. And the fact that, okay, were they kind of signaling a cut in guidance without doing it? You can have that discussion, but I'd really be curious, Sash and Jens, what you thought about that and what you think the chances are that they'll get anywhere close to the 770.

Jens Flottau:

There were at 497 at the end of October, so that's like roughly 270 to go in two months. I don't know, Robert, I mean, we've seen big numbers for Decembers and Novembers in the past, but this one seems to be really, really hard to achieve.

Sash Tusa:

Yeah, I agree with that. And I think that what was very interesting on the Q3 results management call was that management admitted that it's 770 aircraft plus or minus 20, which actually feels quite ... I mean, yeah, okay, it's not that big a margin, it just feels like it. There's a 40 aircraft error somewhere or margin around that 770, and that is very, very dependent on how many aircraft they get out of the door.

The painful truth is that Airbus pays a ton of overtime between Christmas and the new year to get those aircraft out. And December, if you're an Airbus employer, employee rather, you don't get a great deal of time to do your Christmas shopping, it's a phenomenally busy month. And this has never been a healthy way to run an aircraft company. Airbus management are acutely aware of it, but it's just where they are at the moment.

So I think it's a very demanding target, but management have in the past when they didn't think they're going to hit that target, rode back on it, as they did in June. In June it became very apparent that the rate ramp was not happening and they took that on the chin and I think deserve some credit for that. So I think the fact that they haven't done it would suggest to me that there may be a buildup of aircraft that they think they have a very high probability of delivering, possibly A321XLRs that were built, but were held pending certification and the first delivery to Iberia, which we saw last week. And now that certification of first delivery is done, they may be able to get a whole load of that out and that's what gives them confidence.

Joe Anselmo:

Sash, you wrote a really interesting column that we took live this week in Aviation Week, where you noted that Airbus and Boeing share many of the same suppliers and some of those suppliers have really been weakened by Boeing's problems. And when that happens, it blows back on Airbus.

Sash Tusa:

Look, in many respects, I think if we were to do the work, the number of suppliers that they don't have in common is way smaller than the number of suppliers they have in common, particularly at the upper echelons, the upper tiers of the market. But the supplier that we feel most concerned about in the short term is Spirit Aerosystems. Spirit is clearly in distress. Boeing has offered to buy Spirit Aerosystems, re-incorporate it back into the Boeing Corporation. It was spun out from Boeing about 20 years ago and generally sorted out.

But to do that, they have to divest the Airbus related work that Spirit has taken on in the last 20 years. Airbus has done a deal or announced a deal to acquire those businesses, but there's a huge difference between the press releases, "We're going to do a deal," and actually executing on them.

And in the meantime, Boeing's production problems, very, very heavily related to the IAM strike in the Seattle area, have been damaging Spirit. They have been limiting Spirit's ability to manage its own cash flows and limit its ability to manage its own ... the divestiture, the spin out of the Airbus businesses. And it's very, very painful in this industry when you realize that one competitor's loss is not the other competitor's gain, you can have a lose-lose situation. And with some of these mutually important subcontractors, that's the case.

Joe Anselmo:

Robert, we always try to talk about Airbus Commercial, but they also have a pretty big defense and space business. How's that doing?

Robert Wall:

Yeah. I mean, the parallels with Boeing are always funny, right, because you can ... And maybe not on the scale of Boeing's woes, but in defense certainly and space now, Airbus again has ... You find parallel programs. You take the Boeing, KC-46 saga, Airbus has got the A400M. And you look at some of the commercial crew issues for Boeing, and Airbus has got big issues right now with its telecommunications satellites, the GEO satellites, because that market has really tanked. And we've seen charge after charge over the last two years in the space division frankly.

Now on defense, my impression is they seem to be now finally, after, what, a decade plus, through the worst of the A400M and the numbers are starting to turn more positive from them in defense. But space, I mean, it's interesting they didn't take another charge in Q3, but I felt, and I'm curious what Sash's reading on this was, I felt they basically telegraphed, "We have one more pretty significant charge to come," and probably with Q4, because they kept talking about one big program on which they were still doing a review. And it certainly sounded like it wasn't a question of would there be a charge around this program, but how big will it have to be because I think they're pretty clear, this had better be the last one. But, Sash, what was your take?

Sash Tusa:

I agree with you, except that I've said this better be the last one for about the last couple of years, and I'm feeling quite personally bruised by my optimism in that respect. Space is dreadful. Being an incumbent, being big space, is really difficult in a market which has been taken to pieces and rebuilt very much in the mold of SpaceX. And the large geostationary satellite market is being, again, just dismembered by the market for small, low Earth orbit satellites with very large constellations.

And so if you are a big space company, you are used to producing these $150 million large satellites that sit up there for 10, 12, sometimes even 15 years and just broadcast TV or so forth. Big space almost doesn't know where to look or how to behave. And I think that's why we're seeing similar problems on both sides of the Atlantic. It takes a hell of a long time to come to terms with this and even longer to restructure this, because your asset base is dominated by these very large geostationary satellites.

I agree with you. I mean there's clearly one last program to go. From the comments on the call. It sounds like it is a program with multiple satellites involved because they've talked about having to assess the profitability of every single one. And look, it's more likely than not that there will be a charge there. Ultimately, being a big incumbent in old space and defense, is no longer the license to print money that it was, but you can make your own problems worse. And that's I think what investors find very, very frustrating.

Robert Wall:

Yeah. And I thought perhaps quite interesting would be, as what you alluded to, this idea is a multi-satellite effort. And if this is basically the US satellite factory, which was kind of their big bet on new space and looks like it has actually done okay, they've won some programs through that as a subcontractor, at least with the US government, which has always obviously been a challenge for Airbus, but it looked like they, by doing that, had actually opened up a good avenue for them into this new space domain. And if this now becomes, and I'm not saying it is, but if this were the charge, then that would be pretty unfortunate in that respect because it would really dent that issue that they've at least prepared themselves for the future.

So yeah, I'm really curious to see.

Joe Anselmo:

Jens, Boeing has had some big shakeups in leadership. Obviously Dave Calhoun stepped down as CEO, is replaced by Kelly Ortberg. Ted Colbert was ousted as head of the defense business. Airbus has just announced some changes in its leadership too, but it's not quite the same, is it?

Jens Flottau:

No one's been fired, but Airbus has announced who's going to succeed Christian Scherer as the CEO of the Commercial Aircraft business. Quite frankly, it's a bit of a mystery to me what's happening. I do hear some people inside Airbus and what they are saying is that Christian has indicated that he would like to retire or can imagine that he will retire fairly soon. He will be 64 in '26, so he could still continue if he wanted.

But I think that coincided with the term of Lars Wagner as MTU CEO ending at the end of '25. And he has an Airbus background. He's been with Airbus for 20 years before moving on to MTU in 2015. He's been there now nine years, next year it'll be 10 years. But he's got a very, very good reputation at Airbus as a production specialist, which is probably not insignificant.

I guess Christian seemed to be indicating that he wouldn't mind leaving in the not too distant future and Lars became available, and so Airbus grabbed the opportunity and went for a new guy at the top of its Commercial Aircraft business. An engineer, aerospace engineer with experience inside Airbus in production, and then moving into the engine business, which is also highly relevant for Airbus as they design and prepare their next-generation narrowbody. So a transition that seems to make a lot of sense at this time.

Joe Anselmo:

Sash, how is that being viewed in the finance community?

Sash Tusa:

The announcement came as a shock actually, no doubt about it. Neither Christian Scherer nor Lars Wagner had been in their current jobs for more than a couple of years. And so there were, and still are, a lot of eyebrows raised.

I think Jens actually hit the nail on the head, which is describing Lars Wagner as a production specialist. And that's what Airbus needs, for two reasons. One, the ramp, the production rate ramp is not working at the moment. The A320 is supposed to be getting to a rate 75, 75 aircraft a month in 2026, late '26, '27. And at the moment, even on a rolling average basis, it's been flat at 48 a month for the last year. There's clearly a production problem within the A320 system that needs massive focus.

I think there's an admission here tacitly that Airbus has got internal problems of its own. They've been upgrading their final assembly lines to make them all A321 capable. That's an incredibly sensible thing to do, but it's clearly caused some disruption. They've had internal problems with aerostructures, they've clearly got big external problems with subcontractors. Airbus doesn't need anymore somebody whose background and whose real skills are in sales, Airbus has got enough orders to keep going to the end of the decade and beyond. It really needs a production guy. It needs somebody who thinks about production problems from the inside out, not deliveries from the outside in.

And I think this is an admission that Airbus internally needs a complete change of mindset. And I'm sure that Guillaume Faury, the chief executive of Airbus Group, is going to continue to be very, very closely involved with Airbus Commercial. I would see him almost just being the CEO and Lars Wagner as being an incredibly valuable chief operating officer. It's a COO that Airbus needs now.

Jens Flottau:

Sash, if you weigh the external problems with suppliers against the internal ones, if you had to put a ratio on this, is it 70% external, 30% internal, structural legacy lines not performing? What's your guess?

Sash Tusa:

It's something about that, maybe 75/25. But I think the fact that there is even a 25, 30% internal problem is something that ... And that hasn't changed, that hasn't improved. Airbus is absolutely furious with the engine guys and they're not that pleased with Safran either on cabins and stuff. But I think the fact that they haven't sorted out the internal problems in the last two years I think has become a real running problem. And I expect that's causing a huge amount of heartache at the moment.

Jens Flottau:

I visited them I think a year and a half ago for a real deep dive into Hamburg production. And what I realized is how cautious they are in modernizing this because at the same time they were trying to ramp up and they were so aware of the concern that by changing too much while ramping up, they could screw it up.

Sash Tusa:

And that's smart, that really is. I mean, they had the problem with the ... remember the Airbus Cabin Flex, which is what, six years ago now, seven years ago. They're aware of how delicate those production lines are.

Jens Flottau:

But it means you're not changing. I mean, you keep the system, you ramp up, but you're not changing the structure, which is probably something they should do, right?

Sash Tusa:

Well, I think they're waiting for the next aircraft. I think they can't afford to wait for the next aircraft.

Jens Flottau:

They can't?

Sash Tusa:

No. I think they've got to start modernizing the production system ahead of the next model, whatever the next model is, so that they actually go some way to debugging a new production system rather than changing your production system and aircraft design at the same time. That would be an accident waiting to happen.

Robert Wall:

But in a way they're lucky because they can do it in one site. They can take one of the lines down in Hamburg, for example, work on that, iron it out, while the other stuff keeps going, right, the lines in Toulouse and then the US and China.

Sash Tusa:

Yeah, I agree actually. I think they should have been more innovative, more experimental with the Toulouse site, which they've done a huge upgrade of the Toulouse narrowbody lines. Toulouse was almost the afterthought because all the investments had gone, as you say, into Frankfurt, Mobile, and Tianjin. They should have done something radical with Toulouse and used that as the prototype for the new production system.

Jens Flottau:

But they were burned so much in Hamburg with the FAL 4 that for Toulouse the approach was different. They realized in Hamburg that they changed too much, it caused huge disruption on the Cabin Flex. And then they thought, "Okay, let's just not innovate so much in Toulouse, just do the ..." The logistics is more automated, but the line itself isn't.

Robert Wall:

Well, I mean, I think Sash's point is, I mean, this is the right ... I mean, if you're going to do riskless, you got to do it now because you're going to have all these unknown surprises on the next plane anyway, might as well iron some of this out.

And I think we should probably note, with Christian leaving, that is also ... It kind of marks a bit of a historic point with ... I mean, Christian is Airbus royalty to some extent. His roots go back through his father to the founding of Airbus. And in a way, his departure really is, as far as I know, and maybe Jens and Sash would need to correct me on this, but in a way he's the last tie to that historic moment at Airbus. So I think his departure is a bit of a moment.

Jens Flottau:

Yeah. And clearly he has personal ties to that early phase of Airbus. He was standing on the roof of Toulouse airport when his father, Günter, took off in the first A300, on the first flight of the A300, holding hands with his mom and hoping that everything would go right on that first flight. Obviously it did, but that's how far back he went. And as an intern at Airbus, Christian was on one of the first A300 delivery flights to the US. So yes, it's clearly Airbus royalty.

Sash Tusa:

Yeah. And look, hasn't it gone well? Hasn't it gone right, as you say.

Joe Anselmo:

Indeed it has since then. The company came up out of nowhere to be the world's leading aircraft company. Unfortunately, guys, that's all the time we have for today. I want to thank you all for your. And a special thanks to our podcast producer in London, Guy Ferneyhough. Don't miss the next episode by subscribing to Check 6 in your podcast app of choice. And one last request, if you're listening to us in Apple Podcasts and want to support this podcast, please leave us a star rating or a review. Bye for now, and thank you for your time.