May 29, 2015 / 12:33 AM / 2 years ago

Airbus debates new A320 output hike, suffers test glitch

People are silhouetted past a logo of the Airbus Group during the Airbus annual news conference in Colomiers, near Toulouse January 13, 2015. REUTERS/Regis Duvignau

TOULOUSE (Reuters) - Airbus (AIR.PA) is leaning toward a new hike in production of its A320 jet, raising the stakes in a battle with Boeing to translate record orders into tangible deliveries, but has yet to decide on the risks of handling unprecedented volumes.

Europe’s largest aerospace firm indicated the chances were rising that it would increase production targets again just months after setting an output goal of 50 medium-haul aircraft a month by early 2017, compared with 42 a month now.

The debate is the latest evidence of a prolonged upcycle in the aerospace industry as demand soars from new players in emerging markets and established airlines renew older fleets.

But a decision on whether to increase output again depends mainly on whether suppliers can keep pace with the challenges of producing a 150-seat jetliner every few hours, just as other civil aerospace firms are ramping up volumes worldwide.

At a media briefing on Thursday, company officials conveyed different levels of urgency about the decision, which would only follow a thorough analysis of several tiers of suppliers.

Sales chief John Leahy said likely demand already exceeded the planemaker’s existing production goal of 50 planes a month and the market could absorb over 60, possibly as many as 63. He expected Airbus to take a decision this year.

But chief operating officer Tom Williams said there were still “hot spots” in the supply chain and that he would not be “boxed in” to setting a deadline for the decision.

He said that supply chain risks were by definition increasing as the industry tackles ever greater volumes.

ENGINE GLITCH

Medium-haul planes are significant sources of cash for both Airbus and Boeing (BA.N). Aviation market sources see scope for several hundred more orders at next month’s Paris Airshow.

If agreed, the next Airbus output hike could take place from 2018, putting pressure on Boeing to follow suit.

Demand has been boosted by the transition to new fuel-saving models of both the A320 and rival 737.

Airbus said a glitch with a small part in new Pratt & Whitney (UTX.N) engines had disrupted A320neo flight testing.

The setback is unlikely to delay first delivery, due at end-2015, but requires some parts to be replaced, it said.

Airbus sounded marginally more optimistic than before on the larger A330, another cash cow for the company.

It had spooked investors last year with plans to cut A330 production to 6 a month from a planned level of 9 as it waits for development of a new revamped version.

In January, it did not rule out taking this down further but Williams and others said they now felt comfortable with the target of six due to a number of sales in the pipeline.

Airbus meanwhile said it had still not decided whether to improve its even larger but slow-selling A380 with new engines as requested by Dubai’s Emirates, which has expressed interest in up to 200 of the planes if Airbus decides to build them.

But it began to address one of the problems overshadowing such a decision: what to do about a surge of second-hand A380s that might come onto the market when those revamped A380neo models replace earlier A380s already in the Emirates fleet.

Bregier and strategy chief Kiran Rao said there could be a future for second-hand superjumbos among long-haul, low-cost carriers due to what would by then be much lower costs.

Such a plane could help them open new markets, they said.

Critics say wide-body jets have proved risky for low-cost carriers that demand flexible operations and quick turnarounds, and that the 544-seat A380 could prove even more challenging.

Airbus says its flexibility has been under-estimated.

Editing by Victoria Bryan

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