Boeing, Airbus seriously studying speeding factories
By Alwyn Scott and Tim Hepher
WASHINGTON (Reuters) - Boeing Co and European rival Airbus said on Thursday they are both considering seriously whether to make their best-selling narrow-body jetliners at faster rates, news that may cheer investors in the short term but could raise longer-term market concerns.
Airbus is studying whether to increase production of its best-selling A320-family aircraft beyond the record level of 46 jets a month already targeted for 2016, and a decision could come by year-end, Airbus Americas President Barry Eccleston told the Reuters Aerospace and Defense Summit in Washington.
"If we're going to make that decision, we would want to make that decision as soon as possible, because the market's already there," Eccleston said.
Separately, Boeing has seriously considered increasing production of its 737 narrow-body airplanes to more than 47 a month, President and Chief Operating Officer Dennis Muilenburg said in a separate interview at the summit. Boeing's current 737 output is a record 42 a month and it already has plans to lift the rate to 47 a month in 2017.
"We now see continuing pressure to further increase that," Muilenburg said in a television interview at the Reuters summit. "We’ve taken a very serious look at options, both timing and volume, but clearly pressure is in an upward direction."
Industry experts expect Boeing's next target would be 52 a month, and Muilenburg's comments suggest the analysis may be largely complete, and that the results may be known shortly.
In August, Boeing's chief financial officer, Greg Smith, signalled the company was close to deciding whether to push 737 production to 52 a month. On Monday, the chief executive officer of Boeing Commercial Airplanes, Ray Conner, said the plane maker was feeling "incredible pressure to go higher in rate."
The upward push in production is being driven by scorching demand from airlines for new, fuel-efficient versions of the planes.
Airbus and Boeing have years of production backlog on their order books, so customers ordering planes now must wait years to get them. Raising output allows more near-term plane deliveries.
But for both companies, the ability to increase rates depends on whether suppliers can keep up and support higher production levels and pose a quandary for investors.
While delivering more planes rings the cash register at Airbus, Boeing and their suppliers, it also can raise costs and chip away at profit margins. Specialized models also can do that, such as a 200-seat version of the 737 MAX that Boeing launched with Ryanair on Monday.
"You're building a new plane for Ryanair. There's no way this doesn't dilute margins," said Richard Aboulafia, an aerospace analyst at the Teal Group in Fairfax, Virginia.
Churning out 50 or 60 jets a month could cut profit margins a percentage point on those planes, he said, because costs could rise at such high production levels. "You're not exactly reaching for the stratosphere in terms of profitability."
He noted: "If you push it to 60 and keep it there too long...you're going to have engineered a bust cycle."
Eccleston also said that Airbus is close to finding a buyer for six Rolls-Royce powered A380s superjumbos that had been earmarked for Skymark Airlines Inc of Japan.
Airbus recently cancelled the order because of the airline's inability to make the required advance payments. Eccleston declined to elaborate on who the buyer might be.
(Reporting by Alwyn Scott and Tim Hepher; Editing by Leslie Adler and Ken Wills)
