Supply chain wary as Airbus and Boeing push output envelope

Fri Jun 19, 2015 2:23pm EDT
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By Victoria Bryan, Tim Hepher and Sarah Young

PARIS (Reuters) - A rare note of dissent permeated the Paris Airshow this week as suppliers worried they might lose out if they invest to meet higher commercial jet production targets that ultimately prove unsustainable.

Airbus and Boeing plan to raise production rates of best-selling single-aisle planes by 25 percent to 50-52 a month in 2017-18 and executives at the Paris Airshow discussed the possibility of ramping up output toward 60, or even above.

That prompted some rare public pushback from suppliers including major engine suppliers GE (GE.N: Quote) and partner Safran (SAF.PA: Quote), who said they needed to secure the start of a steep rise in output before committing to even higher targets.

Their CFM joint venture makes the new LEAP engine to power Boeing's revamped 737 MAX and some of the Airbus A320neo planes.

There is also concern over how long any higher production rates may last, although Airbus (AIR.PA: Quote) CEO Fabrice Bregier dismissed talk of a bubble.

"I think (planemakers) will run into some resistance, based on how much money the supply chain will have to put up and whether the 60 rate will last for any amount of time," Agency Partners analyst Nick Cunningham said.

Suppliers fall into two main categories: those already producing at high volumes on existing technology but required to take a gamble by investing in extra capacity; and those involved in new technology, mainly in and around the engine, who face uncertainty about their future capacity and costs.

"The important moment will be the entry into service of the A320neo. If that goes smoothly then I think many people will be more comfortable about discussing further rate increases," the head of a major components supplier said, who asked not to be identified because of relationships with manufacturers.   Continued...

An Airbus A350 flies over a Boeing flag while landing after a flying display during the 51st Paris Air Show at Le Bourget airport near Paris, June 18, 2015. REUTERS/Pascal Rossignol