In 2019, Airbus had to figure out how to expand production capacity to turn its huge order backlog into revenues and profits. But it also clearly needed to make changes to its production setup and modernize its infrastructure, particularly at its Toulouse site. The COVID-19 pandemic forced the airframer to pause and recalibrate, but higher rates and a more modern infrastructure are once again on the agenda.
- New A320/321neo final assembly line expected to be ready at the end of 2022
- Monthly rate of 53 aircraft signaled to suppliers
Airbus is resuming preparatory work on a new narrowbody final assembly line in Toulouse that is scheduled to be operational by the end of 2022. The move is part of a broader initiative to regain momentum for single-aisle production, which is planned to rise more steeply in 2022 and could move to 53 aircraft per month toward the end of next year. That rate—though still short of pre-pandemic rates above 60 and previous plans to strive for even greater output—indicates that Airbus is bullish about the narrowbody market. At the same time, the company is changing management of its Canadian operations to gain more traction in reducing A220 production costs now that sales have improved.
Although the new Toulouse line will not provide additional overall production capacity for the manufacturer, it will replace one of the two legacy lines that will be phased out. Toulouse has been particularly hard-hit by the current crisis. All the company’s widebodies are being assembled at the Airbus headquarters, but for now not much of the rest of its former production is left. The A380 program will be terminated this year, output of the A350 has been more than halved to only five aircraft per month, and fewer than two A330neos per month, on average, leave the assembly hangar. Given the extended weakness expected in the widebody market, Toulouse has huge overcapacity—not to mention an aging infrastructure and outmoded processes in some areas.
The site does not have a big share in the business that is still performing relatively well. Of the narrowbodies, only A320neos are built there, while Mobile, Alabama, and Hamburg, in particular, are benefiting from the much stronger position of the A321neo. Of the original 8,047 A320-family orders, 1,791 were for the A321, or 22%. Yet the picture has drastically changed for the Neo family. Airbus has secured a total of 7,398 orders for Neos, including 3,473 for the A321neo, or 47%.
Airbus urgently needs more work, especially for Toulouse—not only to use a larger part of its industrial capacity but also to demonstrate goodwill toward the French government. Paris has committed massive research and technology support for the OEM’s 2035 hydrogen aircraft plans and is financing short-time work schemes (“chomage partiel”) to bridge the worst of the crisis with as few permanent layoffs as possible.
The company released few technical details of the new final assembly line, though unlike the two existing lines, it will be capable of building both A320neos and A321neos.
Airbus opened a fourth final assembly line in Hamburg in 2018, also mainly to cater to the much higher demand for A321neos. That line differs substantially from the three previous lines in that it is far more automated. Driverless carts move fuselage sections around in a more flexible production flow. The company says that although the new Toulouse assembly facility will also be highly automated, it has yet to determine the exact design and select its suppliers. Airbus says it will use best practices.
Hamburg went through some significant teething issues that contributed to substantial A321neo delivery delays in 2018 and 2019, but those problems are behind it. The issues were partly linked to the layout of the assembly hall, which had been used for A380 work and was not specifically designed to house narrowbody production. Lessons from the Hamburg experience could prove to be valuable for Toulouse: There too, the new line will be accommodated in a facility previously used for the A380.
The decision to modernize the final assembly process comes as Airbus prepares to return to higher production rates. The manufacturer cut back from above 60 aircraft per month to 40 in the early phase of the coronavirus pandemic. It is aiming for 43 in the third quarter and 45 in the fourth quarter. CEO Guillaume Faury said recently that while risks remain, he sees a much steeper ramp-up in 2022.
Industry sources say Airbus has told suppliers to prepare for a rate of 53 narrowbodies per month by the end of 2022. The airframer has not confirmed that number and says no formal decision has been made. It is common for the OEM to give suppliers hints of potential production trends well in advance without committing to a firm number.
The company has noted diverging recovery trends: The situation has improved substantially in some countries but deteriorated in others. In India, IndiGo, one of the biggest takers for A320neos, has announced plans for a capital increase to bolster finances in what it expects will be a tough time ahead. IndiGo has outstanding firm orders for 211 A320neos and 358 A321neos.
Bernstein Research aerospace analyst Douglas Harned predicts a production rate of 60 will not return until the end of 2025. He contends that although a rebound in domestic demand is a plus for narrowbodies, the aircraft are also heavily exposed to international traffic in the Asia-Pacific region. The reopening of those markets will be slow because of the low vaccination levels in some very populous countries. Unfortunately for Airbus (and Boeing), Asia-Pacific represents 46% of backlogs, according to Harned’s estimate.
Harned forecasts 459 A320neo-family deliveries this year, rising to 544 in 2022 and 573 in 2023. Taking into account factory holidays, that 2023 output would be equivalent to just below 50 aircraft per month. He predicts a rate of 56 in 2025.
While modernizing final assembly processes in the ramp-up is the focus for the A320neo family, driving down supplier costs is key to the financial turnaround of the A220. To accelerate that process, Airbus has named Benoit Schultz as CEO of Airbus Canada, effective Sept. 1. He will replace Philippe Balducchi, who is leaving the company.
Schultz, currently Airbus Group senior vice president for procurement, is responsible for handling the supply chain. When Airbus took over the former C Series program from Bombardier and renamed it the A220, Faury said production costs needed to be reduced 20% and that measures to reach that target must be identified within the first three years of Airbus controlling the program.
Industry sources say progress in renegotiating supplier contracts has been slower than expected, making breakeven and profits harder to reach. The pandemic-related slowdown in production has only exacerbated the situation. Airbus says, however, that it has made significant progress. Company sources say the change from Balducchi to Schultz has nothing to do with a renewed drive to cut supplier expenses.
Having originated with Bombardier, the make/buy split of the A220 is very different from other Airbus programs. While Airbus builds all legacy program large components in-house, almost everything is outsourced on the A220. And because suppliers viewed investment in the program as high-risk when Bombardier owned it, they insisted that the risk should be rewarded with favorable contracts. Bombardier had no choice but to agree to such terms.
Key A220 suppliers include Raytheon Technologies, for avionics and engines, and Spirit AeroSystems, which produces the aircraft’s wings in Belfast, Northern Ireland. Leonardo builds the empennage, and fuselage sections are built by Shenyang Aircraft Corp. in China. Airbus has 649 firm orders for the A220-100 and A220-300, and 165 aircraft have been delivered. The OEM increased the A220 production rate to five aircraft from four per month at the end of the first quarter.
Airbus signaled broader changes in its relationship with suppliers by announcing the reintegration of Stelia Aerospace and Premium Aerotec. And as Faury says, “there will be a lot of make,” referring to make-or-buy decisions.
Company sources say that in the short-to-medium term, no fundamental changes are to be expected in the A220 setup, due in part to existing long-term contracts. A competition for some components, such as the winglet, flaps and ailerons, is ongoing, the sources say.
Airbus and Spirit AeroSystems have discussed potential cost savings in the production of the composite resin transfer infusion wing built at Spirit’s Belfast site, sources with knowledge of the situation say. But the two sides have been unable to reach an agreement on how development and certification costs should be covered.
One insider says the potential A220-500, a stretched version of the -300 already on the drawing boards, could provide Airbus with an elegant solution to take more work in-house in the long term. That aircraft would require a new wing that Airbus could develop internally.
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