September 18, 2014 / 10:04 PM / in 3 years

Air Lease urges Boeing, Airbus caution on raising jetliner output

A Boeing 737 jetliner is pictured during a tour of the Boeing 737 assembly plant in Renton, Washington February 4, 2014.David Ryder

NEW YORK (Reuters) - The president of Air Lease Corp (AL.N), a major jetliner leasing company, on Thursday urged Boeing Co (BA.N) and Airbus Group SA (AIR.PA) to be cautious about further increases in the production rates of jetliners, saying their plans to do so put suppliers at risk of breakdown.

Suppliers already are operating at "absolute capacity" and their ability to keep pace with rate increases being discussed by Boeing and Airbus is a "major concern of ours," Air Lease Corp President John Plueger said at a meeting of the Wings Club, an aviation group, in New York.

His comments come as Boeing and Airbus have said they are close to deciding on raising production of their most popular single-aisle planes beyond levels already announced for the next few years.

Boeing said it is considering lifting the rate of its 737 jetliner to 52 a month in 2018. It makes 42 a month currently. Similarly, Airbus is studying making its rival A320 plane at a rate of 50 a month, compared with 42 at present.

Plueger is in the business of supplying aircraft to airlines, so greater supply can reduce profit. But he forecast robust aircraft demand, saying fears of an "order bubble" are not borne out by data showing long-term sustainable growth in demand for jets, despite record order backlogs at Airbus and Boeing of seven to eight years.

But he said aerospace supply-chain strains are showing, something he sees as a board member of Spirit AeroSystems Holdings Inc (SPR.N), one of Boeing's major suppliers and also a supplier to Airbus.

All aerospace suppliers, including Spirit, "are absolutely at maximum rates right now," he said. Increasing production rates further "is going to be a tremendous stress and pressure on that supply chain."

"Most suppliers are going to have to spend a good amount of capital" to match higher output levels that Boeing and Airbus are considering. The boards of those companies "have got to be convinced that these ramp rates are here to stay for a long period of time."

Accordingly, aircraft makers need to listen carefully to suppliers and "not go forward with over-ambitious production rates."

Airbus Americas President Barry Eccleston said in an interview that in the last 20 years, Airbus production rates have never dropped significantly, and that suppliers have always kept up with its rate increases. "Everybody in our supply chain should be investing, because the demand is there," he said.

Boeing said it constantly checks the market to "make sure our rates are in line with supply and demand."

"We are confident in our plans to increase rate and in our supply chain’s ability to ramp up with us," spokesman Doug Alder said.

Editing by Matthew Lewis and Grant McCool

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