Dec. 2, 2019, © Leeham News: Airbus sees struggles for A320 production continuing throughout next year, into 2021 and spilling into 2022/23 as the Air Space cabin is introduced on the A321XLR.
Executives also see lower margins than the target 15% for the A350 and losses on the A220 continuing into the middle of the next decade.
Even so, profit targets are expected to be met and officials still want to ramp up production rates on the A320.
This mixed picture was presented by Airbus CFO Dominik Asam during series of investors meetings last month in Asia, arranged by Citi Research’s London office.
In a research note issued Nov. 22, Citi summarized the three days of meetings with investors in Australia, New Zealand and Tokyo.
Airbus has been running up to six months behind on A320 deliveries this year—one of the reasons cited by British Airways parent IAG when it signed a letter of intent to acquire up to 200 737 MAX airplanes, announced at June’s Farnborough Air Show.
The Airbus Cabin Flex (ACF) and customer customization introduced a complexity on the narrow-body production lines that is new and foreign to workers. Customization is common on wide-body products, but single-aisle airplanes tend to be more standardized.
The ACF on the A321LR/XLR, with missions up to nine hours, allows airlines to customize their cabins to international passenger experience.
“ACF is a new interior for the A321 that allows much more customization than before, offering narrow body customers a level of options typically only previously seen on wide body aircraft, such as lie-flat beds in business class. Although this sounds simple, the changes can allow the movement or elimination of emergency exits due to lower occupancy, as well as having very different wiring considerations. The Final Assembly work content is about 30% higher for the ACF than for standard interiors,” writes Citi Research.
“This extra level of complexity was more difficult to incorporate into the production line than originally envisaged,” the report says.
Ramping up ACF production is slower than Airbus predicted, Citi reported from its investors meetings. “Airbus produced 12 ACF in 2018, 50 in the first nine months of 2019 and are targeting over 50 in Q4 2019, with over 200 in 2020,” Citi wrote.
The fourth quarter goal seems aggressive, but Airbus has a history of pulling a rabbit out of its hat to meet fourth quarter and year-end delivery targets.
What’s important to note is the target for 200 ACF-configured cabins next year. This would be between 27% and 30% of the deliveries next year, providing an important advantage over the 737-10 MAX as Boeing tries to recover from the grounding crisis.
Airbus’ Asam told investors that the ACF recovery should be achieved in 2021. But, then Airbus introduces the Air Space cabin into production in 2021/22, adding a new round of complexity. The A321XLR entry into service is targeted for 2023, with yet one more round of complexity.
Despite these challenges, Airbus still wants to boost production rates. As always, the supply chain—notably the engine makers—are the driving force. The production rate is currently 60/mo (times 11 ½ months). Airbus wants to go to 63/mo in 2021. Production is sold out to 2024 at current rates, with slots also filled beyond.
The A350 is sold out through 2021. After this, Asam told Citi’s investors that pricing pressure from the Boeing 787 could drive the A350 profit margin below the targeted 15%. Boeing is under pressure with a weak 787 skyline (also from 2022) and it is offering discounts on the 787 as part of the compensation to MAX customers who might be enticed to swap some MAX orders for the 787.
“Although not a position considered likely, Airbus would be ultimately prepared to price down to variable cash cost of production,” Citi wrote.
The A220 is forecast to remain in a loss position until the mid-2020 decade—or until Montreal’s production line reaches 10/mo and the new Mobile (AL) hits 4/mo. Losses up to €350m in each of the next two years will be covered by Bombardier.
Ishka, the UK-based consulting and conference company, last week published an update of the Boeing 737 NG pickle fork cracking issue that’s grounded about 50 airplanes worldwide.
Ishka’s concluding remarks were below.
With around half of the aircraft covered by the FAA’s AD already inspected and an incidence rate of around 5%, the ‘pickle fork’ issue is a costly annoyance for NG operators, but it is still far from the pervasiveness initially feared. For comparison, the 40 to 50 787s simultaneously grounded over Rolls-Royce Trent 1000 issues at various points throughout 2019 represented around 11% to 15% of all Trent 1000-powered 787s in service.
Nevertheless, Ishka finds two concerning factors in the ‘pickle forks’ saga: some aircraft below 22,600 cycles have developed fatigue cracks (at least two at Lion Air) and the AD has lasting effects – aircraft will need to be checked periodically at intervals not exceeding 3,500 cycles. This means more 737 NGs could be found to be affected beyond the mid-2020 deadline for ongoing inspections. On 12th November, South Korean newspaper The Hankyoreh reported that the Ministry of Land, Infrastructure, and Transport had discovered cracks in a further four aircraft: two from Jeju Air and two from Eastar Jet – Ishka was unable to identify these four aircraft and they were not included in this analysis.
Ishka’s analysis points to higher rates among certain production blocks (based on production line numbers), but despite the apparent higher concentration, it is too early to conclude that sub-fleets related to affected aircraft could also be impacted. For instance, following initial reports on cracks on ex-Jet Airways aircraft due for cargo conversion for Amazon, inspections mandated by India’s aviation authority, the DGCA, showed no further ex-Jet Airways NGs affected among those still operating in India.