September 22, 2014 / 10:29 PM / 3 years ago

Airbus, Boeing spar over jet production strategy

ISTANBUL (Reuters) - Airbus and Boeing clashed over jet production on Monday, with the European planemaker questioning the viability of its rival’s proposals to hike output and Boeing insisting it will only build the number of jets that its buyers and suppliers can handle.

The logo of Airbus Group is seen during the first public flight of an E-Fan aircraft during the e-Aircraft Day at the Bordeaux Merignac airport, southwestern France, April 25, 2014. REUTERS/Regis Duvignau

A debate over the sustainability of record production and burgeoning orders for jetliners dominated an aviation gathering in Istanbul, where a minority of participants expressed fears of a glut while most remained confident about air transport growth.

Despite the economic downturn, aircraft demand has been rising as cash-starved airlines upgrade to new fuel-saving models and emerging markets give rise to a boom in air travel.

Assembly lines for narrow body jets such as the Airbus A320 and Boeing 737 are running faster than ever and both the world’s leading planemakers are studying plans for further increases after switching to new fuel-saving models in mid-decade.

But a senior Airbus AIR.PA executive warned against a “Field of Dreams” strategy of raising output in the hope of spurring more sales and vowed not to chase marginal deals.

“Smooth production is critically important to the manufacturers of aircraft ... but also to those who finance the aircraft,” Leahy told the Istat Europe air finance conference.

“Running production up and chasing after orders and then doubling back down is not necessarily the right way to go,” he said, pointing to a chart demonstrating greater historical production volatility at Boeing, which has been around longer.

Airbus says it is considering increasing production of its A320 family from 42 a month now to 46 a month in 2016. It is looking at a future increase to 50 A320 planes a month.

Boeing plans to increase to 47 a month in 2017 from 42 now and last week gave its strongest signal so far that it could increase production to some 52 aircraft a month by around 2018.

Airbus says it tries to avoid excessive output swings and that it has kept output more stable during the major crises of the last decade. Boeing says it responds to market forces, though it is also less constrained by Europe’s labour laws.

“Are we studying a (monthly) rate (of) 50? Of course we are. Are we implementing it? Not yet. Do we have the orders for it? Of course we do. The question is when do you commit, because we want to keep that (production) line smooth,” Leahy said.

A senior Boeing BA.N official denied that there was anything speculative or risky about its production plans.

“Today we are building 42 (737-family) airplanes a month and plan to go to 47 in 2017. We see very strong demand after that, in fact we see upward pressure in rates,” said Randy Tinseth, vice president of marketing at Boeing Commercial Airplanes.

“We don’t make those decisions unless the demand is real, unless we know we can deliver the airplanes and unless we believe we can operate at that higher rate for a substantial period of time in order for us to recognise the benefits of the higher rate as well as our supply chain,” he told Reuters.

Airbus lags Boeing in orders this year but is ahead in total orders for the latest generation of narrow body models. Boeing says the race is tied over a comparable period.

Leahy said Airbus’s revamped A320neo would make its keenly awaited first flight in France on Thursday, following what industry sources have described as last-minute engine concerns.

By increasing production, both planemakers can free up slots for earlier delivery to customers but industry experts say they can also boost margins as they divide costs between more units.

“It’s a volume game,” a senior industry executive said.

Monday’s exchanges reflect rivalry over market share between the planemakers as they seek to convert thousands of orders for new versions of their best-selling jets, some of which they admit may not materialize, into deliveries that drive revenues.

Airbus has appeared less willing in the past than Boeing to ride the ups and downs of a cyclical industry and says it has learned how to smooth cycles through order management. But analysts say that could also penalize it when demand is highest.

“The risk is that this would permit Boeing to harvest more volume (and hence profit and cash) at the top of the cycle, perhaps to an extent that more than compensates for the cost of the steeper declines it would suffer in a downturn,” said Nick Cunningham at UK-based research firm Agency Partners.

Over the long term, both jetmakers agree demand will rise, and Airbus is expected to issue confident forecasts this week.

Reporting by Tim Hepher; Editing by Jason Neely and Ken Wills

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