14 August 2015, ©. Leeham Co: It is holiday time in Europe and a lot of the European industry is shut down for summer break. This includes the Airbus Final Assembly Line (FAL) in Toulouse. Industrial holiday shut down or not depends a lot on the country’s industrial history.
Traditionally industry has closed shop for the month of July in the north of Europe and August in the south. For production-heavy industries with a lot of personnel in assembly work this is still the case. Examples are manufacturing industries like the auto industry, electromechanical goods industries and also the European aircraft industry.
For raw material industries, it depends if the manufacturing process can be interrupted for the three to four weeks a summer holiday would span. For many process chains, this is not possible. I earned my school summer break money on such an industry, replacing the worker that took his three or four weeks off.
Other parts of the world do not have summer breaks where the industry closes the doors and things go quiet. An example is the US, where, for example, Boeing produces aircraft 12 months of the year. Available vacation days are less than in Europe, typically two to three weeks against the typical four or five weeks in Europe. US vacations are usually taken spread over the year and the company normally doesn’t shut down production during the summer period.
The differences in industrial holiday habits are to be considered when one talks about the production rates of Airbus versus Boeing. Airbus closes for two weeks during the summer and for 11 days around New Year. In total, this makes for a loss of one production month as it takes a day or two to get everything up to speed again. So when Airbus talks about rate 50 production of, for example, the A320, this means it will produce 50 aircraft per month but only during 11 months. In total Airbus then has a yearly production of 550 A320.
If Boeing announces a rate 50 production it means that it will produce 50 aircraft per month during 12 months of the year, or 600 aircraft. The net effect is that Airbus has to have a production rate which is 9% higher to produce the same amount of airplanes as Boeing during a year.
Why is the production rate so important in an aircraft industry? Because produced aircraft means revenue and profits. The aircraft OEM gets paid in full at delivery of the aircraft. The aircraft is the main source of income for Airbus and Boeing. Airbus showed in its first half year result for 2015 that 95% of its revenue was for “Platforms,” i.e., aircraft, and only 5% for services delivered around these platforms. Boeing, on the other hand, makes services a profit-center. Boeing Commercial Aviation Services, or CAS, contributes more than $1bn a year to Boeing Commercial Airplanes (BCA) profits when information last leaked out during the tenure of Jim Albaugh, then-CEO of BCA.
A production rate increase from 50 to 60 aircraft per month is therefore an increase of the company’s revenue for that production line with 20%. As profit is made per sold aircraft one can expect that the company’s profits also increases in sync with increased production rates.
Airbus production is on holiday until August 24. With the day or two it takes to get everything going again, the 14 days in the summer and 11 in the winter will form a month of lost production time.
In knowledge industries, things are taken more flexibly. The summer vacation period is the time when the office is half empty and one can have a more quiet work environment. This is the time to clean the desktop and perhaps go a bit earlier from work the one or other day.