Now open to all Readers.
June 15, 2015, Paris Air Show, c. Leeham Co. Airbus, like Boeing, is faced with an embarrassment of riches: too many orders for the A320 and A350 production rates that have been announced. There’s pressure from the top commercial officer to hike rates, but the president and chief operating officer says not so fast.
Tom Williams was elevated to the presidency only a few
months ago from his position as EVP-Programs, where he was in charge of production and the Airbus supply chain. Williams, a Scotsman and the first non-French or non-German to be president and COO of Airbus Commercial, ruefully observes he didn’t give up the production and supply chain duties with his new title.
Although Williams agrees with John Leahy, chief operating officer-customers, that demand indicates higher rates are needed for the A320 and A350, the demands on the supply chain for Airbus, as well as the other airframers, also demands caution.
A380, the A380neo and Reimbursable Launch Aid
Over the weekend, The Sunday Times of London reported that Airbus has requested reimbursable launch aid from the British government. Williams said this report was incorrect. He said Airbus has briefed the government, but has not asked for launch aid. Williams said Airbus is still studying the business case for the aircraft.
“I think the situation is that we are still working on an A380 business case. There’s been no decision and there’s been no negotiations as far as any launch investment is concerned,” Williams told Leeham News and Comment in an interview today. “Did we brief them? Yes. But there are no negotiations.”
Airbus Group has moved away from government influence during the past few years, and Group CEO Tom Enders has occasionally complained about the amount of royalties Airbus has paid to the governments in the A320 and A330 programs over the decades. Each of these raises the question of why Airbus would want the governments in its knickers with the potential for royalty payments for years to come.
The reason, Williams says, is Boeing’s use of a corporate record of $8.7bn in tax breaks from Washington State for the 777X.
“The situation is that we still come back to the problem when you look at the [Boeing] 787 and the Triple 7X,” Williams said. “Clearly Boeing pulled down $8bn in tax breaks on the Triple 7. It was difficult for them to come up with a business case because I suspect the development cost for the Triple 7X was $8bn. It looks like they are getting a pretty strong set of breaks. Clearly that’s one of the things we have to consider. I don’t see any difference between the two of them” except the Boeing breaks aren’t repayable. “We did take repayable launch aid for the original A380 and that was very important to the business case.”
The A380 and production rates
The backlog of the A380 is shrinking, with production gaps at the current rate of 2.5/mo and the backlog in each year. Absent orders or building white tails, the production rate will have to come down. The question is by how much and how soon.
Williams, of course, wants to see more orders, and in a separate press conference today, said there are discussions about the prospective A380neo with a half-dozen airlines. He also predicted A380 orders this year.
Williams said a decision will have to be made late this year or early next year whether production rates on the A380 will have to come down. There was no indication by how much.
Enders, the Group CEO, told European media recently that a decision on the neo will be made by the end of the year. The Dubai Air Show is in November, and with the Dubai-based Emirates Airline the largest customer for the A380 and the most vocal proponent for the neo, market expectations are that if the neo is launched, it will be at the Dubai Air Show.
Williams rules out building white tails. He also said Airbus isn’t worried about the rates in 2015/16/17.
Airbus and Boeing are each considering single-aisle production rates of 60/mo, and the other OEMs-Bombardier, COMAC, Irkut, Sukhoi.and Mitsubishi, let alone ATR and Embraer—are coming on line with their new products are have continuing demand for their current airplanes. Concerns about stressing the supply chain are growing and CFM, at the Air Show, expressed caution about ramping up too quickly. CFM supplies Airbus, Boeing and COMAC LEAP engines.
“As far as [A320] rates are concerned, clearly we are committed to it. There is no decision to go above 50,” Williams said. “If you look at the order book you have today, then it’s clear there is a justification to go to higher production rates. Certainly on the 320neo you could see a situation in 18, 19, 20 [to go up]. The commercial market is there.
“Then you come to the question, that’s fine but you have to commit. When could we do it? When could we be sure the supply chain can do it? This is not a monetary decision, it’s a supply chain decision.”
Williams said a number of the “key” suppliers, including the engine makers but also the cabin suppliers, will be driving forces. These suppliers have to consider the other airframe OEMs, and then they have to match the work down to the second and third tier suppliers.
Williams said Airbus and the supply chain would also have to look at capital expenditures. Interestingly, the final assembly line isn’t the issue for Airbus. The FALs have plenty of capacity, although he wouldn’t be drawn into revealing what the aggregate FAL capacity for the A320 is.
The issue is getting enough landing gear, cabins, etc.
The A350 production rate is announced to go to 10/mo by 2018. The wing production plant at Boughton, Wales, has the capacity to go to 13/mo, but Williams would not say whether Airbus is planning this rate.
Leahy, the head salesman, wants the higher rate, with the A350 only in its first year of deliveries, Williams wants to ramp up to 10 without committing this soon to a higher rate.