Assessing A320 production rate interest in >70/mo

Discussion
Sold out production

Airbus has more than 6,000 A320 family members in its backlog through 2029, according to the company and the Airfinance Journal Fleet Tracker.

The production line is largely sold out through 2023 at rate 60/mo, based on an 11 ½ month year, according to Fleet Tracker. There are limited open slots through then, with many more opening from 2024.

According to Fleet Tracker, Airbus will deliver more A320 family members in 2019 that it can produce at current rates. Some of these may well be airplanes that have or will be produced in 2018 but which are in temporary storage around the Hamburg and Toulouse airports awaiting engines or other work.

Hiking rates

Airbus openly talked about boosting production rates to 70/mo. Safran, the 50% partner in CFM International, maker of the CFM 56 and LEAP-1A engines that are one of two power plants on the A320ceo and neo, publicly pushed back. Parts issues with the LEAP and delayed deliveries as CFM ramps up to unprecedented production rates on the LEAP over an unprecedented short time give Safran pause on the prospect.

Pratt & Whitney hasn’t publicly pushed back, but its problems with the GTF engine on the A320 are well known. PW also supplies different versions of the GTF for the A220, Embraer E2 jet, Mitsubishi MRJ and soon the Irkut MC-21. It’s production in under stress producing spare engines to replace the A320 1500G engines that have given Airbus and airlines so much trouble since introduction in 2016.

Airbus will produce 60 A320s a month beginning next year.

Going into the 70s?

The supply chain has told LNC wants to increase production rates into the “70s” by 2020.

Few believe this is remotely possible.

Going from 60 to 70 is a major rate break. Typically rate increases come in increments of five. Going from 60 in 2019 to 70 in 2020 is daunting enough. Going “into” the 70s in 2020 strikes many as the proverbial bridge too far.

Demand or strategy?

The prospect of going to rate 70 can be seen as a response to demand, considering the production lines are sold out, or largely so, through 2023.

First thought is that Airbus may be losing orders to Boeing’s 737 because of the sold-out line. But Boeing officials say their production is sold out through 2023. (LNC will look at this in detail in a future post.)

Demand for the A320 and 737 beyond 2023 becomes a matter of debate.

For Airbus, most of its A320 operators already have ordered the neo to replace neos, limiting the replacement market. (Fewer 737 operators have ordered the MAX to replace the NGs.) This leaves Airbus’ greatest opportunities with the growing Low Cost and Ultra Low Cost carriers.

Airbus is also banking on additional market opportunities for the A321neo, especially as it looks to block or at least minimize the business case for the prospective Boeing NMA/797.

Development of the A321XLR (a 4,500nm range version) or the A321PLUS (12 more seats and a new wing for more range) are aimed directly at the smaller NMA-6, the 225-seat, 5,000nm range concept floated by Boeing.

Additional production could flood the market with the A321neo—if sales can be made.

Launching the NMA

Boeing says it will decide next year whether to launch the NMA. Officials still say they plan a 2025 entry-into-service, though most observers don’t believe this is possible, given a history of 7-8 years launch-to-EIS of all recent new airplane programs. Engine availability by 2025 also remains a question.

Steven Udvar-Hazy, executive chairman of Air Lease Corp., said at an Airfinance Journal conference in May that he doesn’t believe engines will be ready before a 2026-27 EIS.

And, he noted, that the longer Boeing delays, the more A321s Airbus will deliver. He forecast Airbus could deliver 2,500 A321s by the NMA EIS.

Increasing sales of the A321

A321s make up 42%-43% of deliveries in 2019 and 2020, the AFJ Fleet Tracker indicates. This percentage falls thereafter, but it’s common for airlines and lessors to initially order the A320 because of lower deposits and progress payments, switching to the larger A321 closer to production dates.

The A321neo base model has a stronger challenge from Boeing with the 737-10 than it had with the 9 MAX. Unless an airline needs more range than can be offered by the A321neo with extra fuel tanks the 10 MAX can’t add, and if there are no airport field performance issues for the poorer-performing -10, there is no reason for a 737 operator to flip to the A321neo; passenger capacity and operating economics are about the same.

(LNC’s analysis disputes Boeing’s claim that the 10 MAX is 5%-10% better than the A321neo on seat-mile costs or 5% better on trip costs, when an apples-to-apples comparison is made, eliminating OEM bias.)

Hazy, the Air Lease executive, believes Boeing will decide by mid-2019 whether to launch the NMA. This could coincide with the Paris Air Show.

Airbus’ response could also come at the air show, if it doesn’t launch a pre-emptive strike beforehand.

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