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Airbus tells suppliers: plan now for post-crisis output hike

PARIS (Reuters) - Airbus AIR.PA has asked suppliers to be ready to support a conditional 18% increase in production of its best-selling single-aisle A320 jet family once demand recovers from the coronavirus crisis, the European planemaker said on Thursday.

FILE PHOTO: The logo of Airbus is pictured at the entrance of the Airbus facility in Bouguenais, near Nantes, France, July 2, 2020. REUTERS/Stephane Mahe

It is among the first visible moves by aerospace firms to prepare for a possible bounce back from the pandemic and comes days after a major buyer, Wizz Air WIZZ.L, predicted a quick rebound for the strongest budget carriers.

However, the plan for an increase depends on a comprehensive recovery of the planemaker’s biggest customers that have ordered hundreds of jets, including airlines in Southeast Asia which are currently struggling to take deliveries, industry sources said.

Airbus said it had asked suppliers to “protect” a production rate of 47 A320-family jets a month, up from 40, meaning it wants suppliers to be ready to support that rate when needed.

It indicated the earliest such a switch could take place would be July 2021, adding no decision had been taken.

“For the A320 family, we plan to maintain ‘rate 40’ until summer next year and we have asked the supply chain to protect ‘rate 47’ to be prepared for when the market recovers,” a spokesman said, confirming a Financial Times report.

“This decision aims to provide some visibility to our supply chain and ensure that our industrial ecosystem will be adequately prepared to gradually increase production eventually, when the right conditions are met,” the spokesman said.

LOW-COST TRIO

The industry is still agonizing over a possible recovery with most analysts saying it is still too early to gauge the speed and shape of the flight path out of its worst downturn.

British Airways owner IAG ICAG.L warned on Thursday a travel slump from the pandemic had deepened.

A top Airbus executive told a newspaper earlier this month that the situation in early autumn was worse than Airbus, which is shedding 15,000 jobs, had expected in the summer.

Still, Airbus maintained output in the face of warnings of a steeper downturn and also increased jet deliveries in September.

It has said it expects traffic to return to pre-crisis levels between 2023 and 2025, but with a split between in-demand single-aisle A320 jets and plunging demand for bigger models.

Holding the keys to any production increase are the breadth of available financing and the appetite of a trio of heavyweight budget carriers, industry sources said: India's IndiGo, Malaysia's AirAsia AIRA.KL and Lion Air of Indonesia.

IndiGo INGL.NS has taken 29 jets this year as it expands its grip domestically, but deliveries to AirAsia and Lion Air are at a virtual standstill with no immediate sign of a pickup.

Linked to that is Airbus’ ability to whittle down a backlog of undelivered jets before raising output.

“We believe (an increase) would happen only if aircraft inventory were cleared in the next nine months. That is where things don’t yet stack up, in our view,” Jefferies analyst Sandy Morris said in a note.

Before the crisis, Airbus was making 60 A320-family jets a month to meet rampant travel demand, with plans to reach 63 in 2021 and add a further 1-2 jets per month in both 2022 and 2023.

Worldwide lockdowns forced it to tear up those ambitions.

By restoring an upward bias in its production plans earlier than expected, Airbus may increase pressure on Boeing Co BA.N to find new homes for up to half the 400 737 MAX aircraft it has produced while the jet has been grounded during an 18-month safety ban.

Dozens of the jets have been cancelled and only once the MAX is cleared to fly and the jets have been re-sold and delivered can Boeing return to high-speed new production, market sources said. It is in talks with airlines including Southwest Airlines Co LUV.N.

Reporting by Tim Hepher in Paris; Editing by David Evans and Matthew Lewis

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