Airbus Freezes Output Rise But Says Demand Strong

[Rejuvenated]

October 16, 2008

European planemaker Airbus has suspended plans to increase its passenger jet production due to the global financial crisis, a spokesman said on Wednesday, confirming a newspaper report.

http://news.airwise.com/story/view/1224151127.html

[N_Architect]

just an update...

From today's WSJ.com:

http://online.wsj.com/article/SB123896780501890723.html

Airbus Aims to Pull Back Without Stalling

TOULOUSE, France -- Airbus production boss Tom Williams has spent the past five years raising the European plane maker's output. Now, as airlines defer deliveries and cancel orders, he faces a difficult balancing act: downshifting factories without killing prospects for a recovery.

Airbus said Friday that it booked orders for just 16 planes in March, compared with 54 orders in March 2008 and 37 orders the previous year. The company has said it may capture only between 300 and 400 new orders this year, down from 777 orders minus cancellations last year.

Building jetliners is so complex that slamming on the brakes can be almost as tough as hitting the gas. Factories that Mr. Williams had recently optimized for fast production by adding equipment and staff must pull back without letting the fixed expense per plane rise painfully.

Airbus's dozens of suppliers, which provide components ranging from tiny rivets to massive landing gear, can't get stuck with warehouses full of unsold parts or idle factories, or they will be too weak when demand returns.

And laying off skilled workers could cause a brain drain that slows an eventual recovery. "It takes a long time for us to train our folks who design and assemble planes, so we've got to be careful," said Mr. Williams, Airbus's executive vice president for programs, in an interview at the company's headquarters here.

Since 2003 Airbus has increased production of its planes by 60%, to a record 483 deliveries last year. But in October the unit of European Aeronautic Defence & Space Co. shelved plans for further increases, and in February said it would reduce deliveries of its popular single-aisle models to 34 a month from 36 and consider further cuts.

Airbus, and U.S. rival Boeing Co., which said it would lay off 4,500 workers but keep output steady this year, are reacting much more cautiously than other major industrial companies to the global economic slowdown. United Technologies Corp., which makes aerospace equipment, air conditioners and elevators, in March said it will cut 5% of its work force, or 11,600 jobs. Caterpillar Inc., which makes construction equipment, has announced some 24,000 layoffs as it slashes output and mothballs production lines.

Airlines and industry officials predict Airbus and Boeing will have to cut output more drastically to avoid producing planes that customers can't take. Douglas Harned, aviation analyst at Sanford C. Bernstein & Co. in New York, predicted in a report published last month that Airbus and Boeing will have to cut deliveries next year by 20% from current plans. Aircraft lessors recently called on both plane makers to cut production to avoid glutting the market and undermining the value of planes on their balance sheets.

Airbus and Boeing officials say building jetliners is different from other industries because the planes, which carry catalog prices ranging from $50 million to $300 million, take roughly a year to build. As a result, the cycle moves more gradually.

Boeing's experience shows that sudden shifts in production can be crippling. A decade ago, the plane maker tried to boost output in a short period and quickly faced shortages of parts and qualified staff. Dozens of unfinished jetliners sat outside factories under tents as workers scrambled to finish them. Resolving production problems pushed Boeing deep into losses even as it delivered a record number of planes. Since then, both Boeing and Airbus have tried to avoid big swings in production volumes.

European labor restrictions mean Airbus can't cut staff as easily as Boeing does. That's why over the past few years the European plane maker has hired an increasing number of part-time workers and outside contractors, who predominantly work in less-skilled areas. Mr. Williams says that by using them less, he can cut output by roughly 20% without firing full-time staff.

Mr. Williams's first retrenchment over recent months has been to reduce overtime shifts, which Airbus had been using to meet strong demand, said the 56-year-old Mr. Williams, who has 37 years experience making motors, jet engines and aircraft.

Managing suppliers poses a bigger challenge. More than 80% of the value of each Airbus plane comes from outside companies, according to EADS CEO Louis Gallois. Some of these suppliers are much smaller and financially weaker than the plane maker, and so aren't as well equipped to handle a downturn, executives say.

Trimming production to 34 jets "isn't such a big shift for Airbus," said Henri Courpron, a former procurement boss at Airbus who now runs the aerospace practice at aviation consulting firm Seabury Group. "But if in that process you kill one supplier, you may lose the ability to build those 34 at all."

In 2005 -- copying a model originally developed by Toyota Motor Corp. and adopted by Boeing -- Airbus started working more closely with its suppliers. Instead of simply ordering up parts, Airbus gave its contractors more leeway to design components and choose materials, while also treating them more as partners by sharing information and seeking greater feedback.

Now, Mr. Williams said Airbus procurement staff are "walking the shop floor" at suppliers' factories to spot signs of weakness, such as thin staff or insufficient inventories.

Suppliers say they like Airbus's new openness, but still face a delicate balance between meeting its needs and preparing themselves for a sharper downturn. Claude Bolette, director general of Belairbus, a consortium of Airbus suppliers in Belgium, says that in addition to consulting Airbus, he talks with other contractors to judge the market. "Of course we'd like to have more robust information, but it's very difficult for Airbus themselves to have an accurate forecast," Mr. Bolette said.

In France, the government has said it can now help small aerospace companies that hit trouble by tapping a special fund of up to [euro ]100 million ($136 million) that was established last year. Dubbed Aerofund and financed partly by EADS, the kitty was initially envisioned to help suppliers grapple with the strong euro and the challenges of investing for expansion. Mr. Gallois at EADS recently urged other European governments to follow the model.

Even as Airbus and its suppliers throttle back, Mr. Williams is planning for an eventual upturn. From the day Airbus decides to boost or cut output, its supply chain needs around a year to react through steps such as hiring staff, buying machine tools and sourcing raw materials. To shorten that period, Mr. Williams' team has violated a key tenet of lean manufacturing -- keeping parts inventories to a minimum -- and squirreled away extra supplies of components that take particularly long to prepare, such as the metal forgings inside landing gear.

"With a limited investment, we'll buy strategic components with very long lead times and carry them ourselves," Mr. Williams said. "It gives us more flexibility."