Game theory and Airbus’ formidable backlog problems

You might think it's a great problem to have, but it isn't, and it is a big problem. Yesterday's big Asian orders add to the problem. Why is this a problem? Airbus's backlog reflects the duopoly's instability, which is awful. Why is it a big problem? The duopoly will only recover if Boeing fixes its production quality problems, satisfies the FAA, and accomplishes within short order(fat chance) or if Airbus fails. We regularly refer to game theory when discussing the duopoly. It is crucial to understand that moves made by either OEM impact the other and force reactions. The current unstable duopoly is an aberration. The market will force Boeing to change; we hear more about this daily, as in this WSJ article yesterday. The entire commercial aviation silo desperately needs a stable duopoly. Let's review the numbers. Airbus reported the following production rates in its 15 February financial results. They are no longer providing interim figures. A220: Airbus continues to ramp up to reach a rate of 14 in 2026 A320:. Airbus is on a trajectory towards rate 75 in 2026 A330: Airbus continues towards rate 4 in 2024 A350: Airbus continues towards rate 10 in 2026 Backlogs as of the end of February 2024 A220: 592 A320: 7,132 A330: 176 (this includes 5 MRTTs) A350: 652 (this includes 50 Freighters) Here's what Airbus deliveries look like since 2015. The A320 family has seen impressive activity. It is well known that, over the period, the market has swung heavily in favor of the A321, the largest family member. [caption id="attachment_82257" align="aligncenter" width="580"] Airbus; AirInsight[/caption] Rates: Target vs Actual Let's look at Airbus production rates because we can see the magnitude of the problem. [caption id="attachment_82258" align="aligncenter" width="483"] AirInsight[/caption] The first two columns list the data Airbus announced, the planned rates, and when they are projected to start—columns three and four show deliveries since 2015. The size of the gap between the target rate and the actual is rather alarming. The final three columns list the backlog (an Airbus number), the backlog in months if the Airbus target rate is met, and the number of months of production at the current monthly rate. Another twist to the problems is that we are approaching the crucial 2030 period, during which new engine technologies are expected to emerge. New engine technologies have already been announced; the CFM RISE program is already being tested. P&W has delivered its first PIP and has more planned. These engines will be ready in 72 months. Look at the last column; these new engines will impact the first two family rows. At actual or current rates, Airbus will have an overhang in deliveries. Customers will do what they did when they moved from the CEO to NEO—swap outstanding deliveries to the new model. But this is not necessarily as simple as it looks. Even though the duopoly is currently out of balance, it remains a duopoly. Time helps both players. Boeing has the X-66A in development. Even with all their MAX issues, Boeing is not dawdling on its next single-aisle solution. The 757 lesson has been learned. The twin-aisle market has always been a Boeing stronghold. Boeing's 777X program will also overcome its challenges. The revised 777 is a formidable challenger to the A350 program. In a straightforward model, this is what Airbus faces. Every choice comes with tradeoffs. Rate increases cost a lot but help the OEM prepare itself for the next engine generation. This investment also helps keep customers. As we saw yesterday, customers won't hesitate to switch OEMs to lower their risk. [caption id="attachment_82259" align="aligncenter" width="388"] AirInsight[/caption] The tradeoffs include a myriad of other factors that are not shown. Airbus has no option to increase the rate of CAPEX. There is too much risk in not making this investment. The company wisely chose to switch the former A380 FAL to A321 production. It also added more FAL capacity in Mobile. That helps with FAL capacity. India is the land of opportunity and part of the solution However, Airbus should almost certainly consider an FAL in India. We believe this is necessary because the labor skillset pool in Europe and North America is fully exploited. The Tianjin FAL presents a different challenge—training people who then move to COMAC is not in Airbus's long-term interest. A new FAL in India taps into a deep talent pool and supports its growing regional customer base. A decision to develop an Indian FAL will draw in supply chain investments for the same reason. Fortunately for the supply chain, India has a "Make in India" policy. This means tapping into state funding. We expect Embraer to move on this first. That helps Airbus and Boeing as it acts as an icebreaker. It focuses India's resources on commercial aviation opportunities. In conclusion, Airbus faces considerable challenges in delivering on its vast backlog. Fortunately, the supply chain has swung in its favor as Boeing stumbled. For example, CFM hasn't had to reduce LEAP production as Airbus will take every engine it can. The rise in aircraft values that would or should have been retired supports the notion that the aircraft shortage may be more significant than the pilot shortage. MRO shops are busy. How Airbus moves from current rates to target rates will be closely watched. There are big decisions and tradeoffs to work through.

US Flight Planner - US DoT On-Time Data	Airbus vs Boeing - Official OEM Data
US Airline Schedule Performance - US DoT Data	Daily OEM Production & Deliveries -

Subscribe To Our Newsletter

Related News

Subscribe To Our Newsletter

Related News

SAS Big Airbus $10Bn Bet On A330-900

$6 Billion Frozen: Boeing’s 777-9 Shadow Fleet

R&D Airbus Benefits From European Loans