Airbus has sharply reduced production of its most popular single aisle passenger jet and will not return to previous levels this year and beyond as airline customers seek to defer deliveries in one of the worst aviation downturns in recent memory.
As well as cutting production of the A320 single aisle family to well below the 60 a month achieved before the crisis, the European aircraft maker is also expected in the coming weeks to reduce the rate of its twin aisle aircraft, the A350 and A330 wide-bodies, according to people with knowledge of the situation.
Investors watch production rates closely as a guide to future financial performance.
Just over a week ago, Airbus withdrew 2020 guidance and suspended its dividend. Analysts said they did not expect Airbus to return to a rate of 60 for several years. “Manufacturers are always very careful about changes in production rates in either direction,” said Sash Tusa of Agency Partners. “They will not change unless they can sustain the rate for two to three years.”
The move comes as US rival Boeing this week announced plans for job cuts and signalled that it now expected a significant shift in future aircraft demand, with any recovery likely to take years.
The decision by the world’s two biggest aircraft makers to retreat after a decade of ever-increasing output is expected to spark a chain reaction of production cuts and job losses throughout the aerospace supply chain.
The industry has been hard hit by the global grounding of aircraft in the fight against the spreading coronavirus. Roughly half the world’s fleet of 26,000 aircraft has been put into storage, according to aerospace consultancy Cirium.
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Airbus has not yet taken a final decision on the scale of longer-term production, but the group is in daily discussions with customers about the shape of future demand, one person close to the subject said. Production is also being strained by issues in the supply chain, where measures to prevent the spread of the virus have hit output.
The company could update the market at its virtual annual meeting on April 16. If the situation continues to be volatile, it may hold off until the first-quarter results on April 29.
In February Airbus had laid out its plans to increase single aisle production from the current 60 to 63 by the end of next year and 67 a month by 2023. It also set wide-body production rates at nine to 10 a month for the A350 aircraft and a total of 40 A330s were expected to be delivered this year. Those targets have now been abandoned.
Suppliers told the Financial Times they expected Airbus to update them on the new rates around mid-April. “We are waiting for Airbus,” said one. Another said substantial rate cuts were “inevitable”.
Guillaume Faury, Airbus chief executive, has emphasised the need to work “in sync” with suppliers to ensure operations could continue even at a lower rate, in an effort to preserve capability and skills for the eventual rebound, according to people close to the subject.
The company is in daily conversations with suppliers such as Rolls-Royce, whose engines power Airbus’s A350 midsized jet and the A330 wide-body family, and Safran, the French aero-engine maker whose LEAP-1 turbine sits on the A321 neo.
Both are already preparing for stoppages in their own supply chains, which would threaten their ability to continue producing at the record rates reached before the crisis.
Philippe Petitcolin, outgoing chief executive of Safran, told analysts recently that in certain areas the group had just two weeks’ stock and engine production could be brought to a halt if key suppliers were unable to deliver.
Rolls-Royce, meanwhile, has been hit by the shutdown of a key supplier in Italy, which makes castings for specialised turbine blades.
Rolls-Royce has closed its UK civil aerospace facilities for at least a week to implement safety measures aimed at minimising the spread of the coronavirus. The factories are due to come back on stream on Monday. However, productivity is expected to be significantly lower than before the closure, said two people with knowledge of the subject. “It is not going to go back to the way it was,” one employee said.
Once Airbus announces its new rates, Rolls-Royce is expected to update the market on its expectations for this year, and on the £1bn free cash flow target it set in 2017.
The group, which sells engines at an average loss of £1.2m each, generates cash and profit on the number of hours its engines fly on wing — a system known as power by the hour. With so many aircraft grounded, Rolls-Royce’s cash target is now in doubt.
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Airbus slashes production of most popular passenger jet - Getaka.co.in
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