Airbus drops interim ramp-up goal, citing supply volatility

Ample orders: An aircraft being assembled at the Airbus manufacturing plant for passenger jets in Tianjin, China. The European firm has reiterated its delivery target of 720 planes this year. — Bloomberg

LONDON: Airbus SE removed a target to raise aircraft production past pre-Covid levels and shifted its focus to a longer-term goal, as persistent volatility with supplies and a shortage of workers complicate near-term planning.

The world’s largest planemaker said it’s on track to meet a goal to build 75 of its best-selling A320 jets a month by 2026, but dropped an intermediate target to hit a monthly pace of 65 by end of next year.

Airbus will make “tactical adjustments to production planning” as required, it said.

The shift in emphasis gives Airbus more flexibility on output as supply chain issues continue to bite.

It comes a day after Pratt & Whitney, one of two engine suppliers on the A320, said that it will need to remove 1,200 geared turbofan units from Airbus planes for inspection in the coming year after finding a possible fault.

That disruption added to strains on the supplier network that have been building since the coronavirus pandemic. Chief executive officer (CEO) Guillaume Faury said the operational environment remained complex.

“We continue to see challenges and difficulties and bottlenecks, and these are the ones pacing our production,” Faury said on a conference call.

“So I don’t think that things are significantly improving, especially on the day where we comment on the Pratt & Whitney situation and the challenges coming from the GTF engines to our customers.”

Airbus provided the outlook as it reported earnings for the first half that beat estimates. Adjusted earnings before interest and taxes rose to 2.6bil euros (US$2.9bil or RM13.3bil), compared with the 2.5bil euros (RM12.7bil) estimated by analysts.

Revenue rose 12% to 27.7bil euros (RM141.2bil).

The European planemaker reiterated its delivery target of 720 planes this year, alongside its forecast for adjusted earnings before interest and tax of 6bil euros (RM30.5bil) for 2023. It expects free cash flow before some items to drop to 3bil euros (RM15.2bil) from 4.7bil euros (RM24bil).

Airbus is working to avoid a repeat of last year’s performance, when it was forced to twice slash its annual delivery target with suppliers contending with the residual impact of the global health crisis still short of workers and unable meet demand for components ranging from seats to semiconductors to raw materials.

While Faury said he doesn’t expect the GTF issues to cause disruptions this year, “when it comes to 2024, 2025, there’s a lot of work to be done on the indirect potential consequences that a lot of work at Pratt could mean”.

Airbus was making about 63 A320s per month before the Covid-19 pandemic wreaked havoc on aircraft demand and manufacturers’ ability to maintain normal factory operations.

Airbus has been rebuilding narrowbody output, to about 50 units a month on the A320, and just last month, Faury said Airbus needed to deliver on its goals so suppliers “can trust that what we do is consistent with what we say”.

Earlier on Wednesday, Boeing Co reported earnings that beat estimates, sending its stock up as much as 7.3%. Airbus ended the day little changed ahead of its results.

Like Airbus, Boeing has benefited from large-scale orders for aircraft this year, including a haul at the Paris Air Show last month that bolstered free cash flow.

Boeing CEO Dave Calhoun also called the operating environment for the US planemaker “complex”.

A320 customers using GTF engines said they’re working with Pratt, a unit of RTX Corp, to assess the new glitch and the impact it will have on flying schedules.

Hawaiian Airlines has been hard-hit by engine shortages and lengthy maintenance that left it with as many as five of its 18 A321 aircraft grounded at one time last year. The goal had been to reduce that figure to two or less over the next few months, and just one out of service at a time in the fourth quarter.

That plan is now “subject to change,” Hawaiian CEO Peter Ingram said on a quarterly conference call Tuesday. Pratt has identified engines by serial number that will have to go through the inspections. “Some of them will be by the end of this year, some going out over the next nine to 12 months,” he said.

Wizz Air Holdings Plc said 12 of its engines were in the first batch marked for accelerated removals by September.

The issue will cut into capacity growth in the first half of its current fiscal year, but Wizz doesn’t expect a negative impact on profitability, the Hungarian low-cost airline said in an email. — Bloomberg

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