UPDATE SPIRIT – Is Airbus overstretching itself by targeting production rates for the A320neo-family that go beyond 70 per month? That question seems to be answered affirmatively by at least two of its key program suppliers, engines manufacturers Safran and Pratt & Whitney. A report on Reuters on July 30 even considers it a ‘strategy rift’ between airframer and engine makers. Fuselage supplier Spirit AeroSystems has no problem with higher rates.
Airbus surprised a few on May 27, when it announced that it had informed suppliers about its plans for an aggressive ramp-up of the A320neo and A321neo production. Just before the pandemic caused havoc within the industry in the spring of 2020, Airbus was preparing to go to rate 60-63 per month for the world’s best-selling narrow body. As a consequence of the pandemic, the European OEM cut rates by a third to 40 per month.
Last May’s announcement set out a roadmap for the next four years. Rates would go to 43 in Q3 this year, to 45 in Q4, and to 64 in Q2 2023, so back to pre-pandemic levels three years on. During a product update media event on June 15, Executive Vice President Programmes and Services, Philippe Mhun, said that this ramp-up has a “robust commitment” with suppliers. At the HY1 results conference on July 29, CEO Guillaume Faury confirmed that rate 43 is about to be reached this quarter and that ramping up is a top priority at Airbus.
There seems not to have been much debate with suppliers about going back to rate 60/64, but what is causing tensions is what Airbus is exploring next. It said in May that it would like to go to rate 70 in 2024 and maybe even rate 75 in 2025. That’s when deliveries of the A321XLR will get into full swing after the ultra-long-range version has entered service in 2023.
In June, Philippe Muhn had this to say: “For sure, rate 64 is a commitment. Rate 70 is a scenario that we asked them to investigate as a longer-term view. Rate 75 is an investigation, but we need to understand what are the drivers, the bottlenecks. This is what we wanted to trigger, to have the right topic on the table to be sure that we will be able to address the bottlenecks and then reconsider the production rates if needed. Consider rate 64 and 70 really as our journey and 75 as an investigation.”
P&W: “We are a little surprised”
The topic of Airbus’ rates was addressed last week during the results presentations of two of its key suppliers. On July 27, Raytheon CEO Greg Hayes was asked if Pratt & Whitney with the PW1100G-JM would be able to support the ramp-up to rate 70 and beyond. He said:
“We are a little surprised, I would tell you. We have been talking to Airbus. We know Guillaume and the company is laser-focused on trying to take some market share, so they are pretty aggressive by showing that 70-75 aircraft a month figure out in 2025. That remains a challenge for us to get to those levels. Right now, we are capacitized to I think rate 63. Obviously, we will everything we need to for our customers. Now whether or not that rate actually materializes I guess will be the question. Obviously, with the XLR coming to the market they want to take advantage of that in the marketplace, but we will see.”
Getting to rate 70-75 for the PW1100G-JM would be a challenge for Pratt & Whitney, says Greg Hayes. (Airbus)
Hayes continued: “As I think about it, air traffic is to grow 4-5 percent a year so you will continue to see plenty of demand out there for the narrowbody. The question will be will it be for A320s or 737s. We are positioned on both, but we are keeping an eye on all of this. We will work with the supply chain and make sure we are adequately capacitized to be able to serve our customers there. There is plenty of time between now and then if the ramp if actually matures as quickly as Airbus hopes.”
Safran: “Not sure about that the market has the appetite”
A day late on July 28, Safran Group CEO Olivier Andriès replied to an identical question. Safran and GE are partners in the CFM LEAP-1A that powers the A320neo-family and on the CFM56 on the A320ceo, while Safran also supplies interiors and systems. He said: “We are listening carefully to all of our customers: airline customer, leasing customers. And I have to say that I am not sure that the market has the appetite for such rates and if rates above 60 can be sustainable. This being said, we have agreed on the number of engines that we will deliver to Airbus in 2021 and 2022. We are discussing with them the numbers for 2023.”
It is clear: both engine makers are having cold feet about going up that high. Rate 70/75 would be the highest rate ever done by Airbus. They are wary for a number of reasons. Before the pandemic, it seemed justified to boost rates as the airline sector has seen some very strong years with bumper orders. The pandemic has all changed this and has resulted in a reset. Those airlines that survive will emerge smaller and leaner. And while many have taken the opportunity to replace older aircraft with new and more efficient ones, the market has to offer conclusive evidence that record-high rates are sustainable over the long term.
Reuters signals another reason: the engine makers want to protect their after-market share. While selling new engines provides revenues, keeping delivered aircraft flying as long as possible and provide income from maintenance, repair, and overhaul is a key element of their business model. Both P&W and CFM are seeing a recovery of shop visits for their V2500s and CFM56s that power 1.389 A319ceo’s, 4.331 A320ceo’s, and 1.732 A321ceo’s. That’s a huge asset they want to protect.
CFM and P&W have every interest to protect their after-market shares for older-generation engines. (Airbus)
Engine makers will also want to look at future sales perspectives of the A320-family. As of June, 3.853 A320neo’s had been sold and 1.272 in active service compared to 3.914 orders and 676 deliveries in June 2019. For the A321neo, orders stand at 3.543 with 563 deliveries versus 2.686 orders and 193 deliveries in June 2019. It shows that while Airbus has delivered more A320neos than A321neo’s and is sitting on a comfortable backlog of A321LRs and XLRs, sales of the A320neo have slowed down. Let’s not even mention the A319neo, which has only secured 73 orders and seen three deliveries.
The trend for the A320neo isn’t positive so far this year. Until July 1, the type recorded 28 gross orders and 80 cancelations, resulting in -52 net orders. By comparison: for the whole of 2019, there were 112 cancelations but 192 net orders.
The A321neo and its popular sub-versions have scored 108 gross orders, 39 cancelations, and 69 net orders in the first six months of 2021. In 2019, cancelations stood at 14 with 476 net orders.
There are a few interesting orders up for grabs in the coming months, including that of Air France-KLM and its subsidiaries Transavia and Transavia France, and Alitalia successor ITA. Plus probably at a later stage, Finnair looks for replacements for the aging medium-haul fleet. But there could also be some more cancelations from airlines that have to review their pre-Covid plans.
“Rate 75 is more uncharted territory”
Guillaume Faury confirmed that discussions about a ramp-up to rate 70 and beyond will take some more time, he said on July 29 during the analysts’ webcast: “We have given firm rates until 2023 to the supply chain, so we expect the supply chain to be up to our orders. When it comes beyond the rate 64, that is more an assessment of the capacity of the supply chain and exploring at what speed and what would be required to get to a rate of 75. This is more uncharted territory.”
“But rate 64, we were close to 64 just before being hit by the pandemic. The production system is in place for that and we expect the supply chain to be able to ramp up at a much faster pace for the re-ramp up than was the case for the initial ramp-up. The trajectory between now and rate 64 in 2023 is rather linear and progressive to give a chance to the supply chain to adapt. It goes by steps. That is basically what we see ahead of us: anticipating, doing the right things on revising the schemes, onboarding the people, checking on time the readiness of the physical production system, so the ramp-up can happen as it was the case just before the pandemic.”
Spirit AeroSystems: “We are ready”
Spirit AeroSystems, which produces the wing leading and trailing elements for the A320-family at its plant in Prestwick (Scotland), has no problem with higher rates. Asked on August 4 during the Q2 results webcast, CEO Tom Gentile said: “We are working very closely with our suppliers to meet the demand scenarios Airbus has shared with us. I give a lot of credit to the Airbus leadership team including Guillaume. They met with the suppliers, they have taken us through their assumptions and actions that they are taking to confirm what the rate increases are. If you look at their backlog and how long it is and how long airlines would have to wait for their units, the rate increases would be justified. On that basis, we are working with our sub-tier suppliers to those rates as well.”
“The good news is that we have been at these levels before. All the infrastructure is in place, all the capital is in place, all the tooling is in place. We had all the workers hired and trained. Some of them have been furloughed but they remain available. As the rates go up, we will be recalling them. We are confident that we can execute on those and if they change, we are confident that we will have sufficient lead time to take appropriate actions. We are ready and our sub-suppliers base is ready as well.”