Podcast: Will Aircraft Production Come Roaring Back?

Both Airbus and Boeing are looking at big boosts in production of their narrowbody jets. But with some regions of the world still closed to outsiders, the widebody market is a different story. Listen in as Aviation Week editors break down the situation. 

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Here is a rush transcript of the Check 6 Podcast:

Joe Anselmo:              Welcome to this week's Check 6 Podcast. I'm Joe Anselmo, Editorial Director for the Aviation Week Network.

The clouds of COVID are starting to lift. In the U.S., airports are bustling. The EU says it will open this summer to American tourists who can prove they're vaccinated. And Airbus and Boeing are both looking at ramping up aircraft production. Airbus has told its supplier to prepare for a firm A320 rate of 64 jets per month by the middle of 2023 -- and is looking at this going as high as 75 a month by the middle of the decade. Meanwhile, Reuters reports that Boeing is looking at boosting production of its 737MAXs to 42 per month by the fall of 2022, which would put it on track to reach 50 a month by middle of the decade.

                                   But the climate is much bleaker in the widebody market. With COVID-19 continuing to ravage India and a slow pace of vaccinations in the Asia Pacific, many countries remain locked to outsiders, depressing utilization of widebody aircraft. So even if production of single aisles comes roaring back, the widebody market has a much steeper hill to climb. Joining me to make sense of all this are Aviation Week editors Jens Flottau, from Frankfurt, and Guy Norris, from Colorado Springs.

Jens, this new Airbus forecast is a surprise isn't it? In how optimistic it is.

Jens Flottau:               Yes, I mean in principle, they have indicated that they will go up and that the rise will be fairly steep in '22, but this really exceeded expectations of most. You have to remember that the peak pre-crisis production level was 62, 63, and now they're talking 64, two years from now and 75. And if you take 75 and 2025, and if you take into account the A220, where they're planned to triple production within the next four years, you're at 89, which is really unprecedented. So yes, it's a surprise.

                                    On the other hand, we have to keep in mind, IATA forecasts, which are very optimistic too. They're observing this V-shape recovery of the general economy and hope that aviation will follow suit. IATA thinks that passenger numbers will be at 88% of pre-Coronavirus times next year and 105% in 2023. And that's interesting for two reasons. One is obviously the recovery itself. The second reason is that there's a shift towards short-haul because the compounded annual growth rate that they're expecting until 2030 is 3.9% for passengers, but only 3% for RPK's, which means that there's more people flying, but on shorter routes.

Joe Anselmo:              Gotcha. Guy, Boeing is not denying this Reuters story about ramping up mass production, mis it?

Guy Norris:                 Yes. They haven't confirmed that this is a part of their plan. They haven't denied it either. That's for sure. So we can, if you look at actually where the MAX is in terms of production rate and its recovery plan, if you imagine going to 42 a month by the fall of next year, which is what the Reuters report was basically saying, that actually does put you on a line, if you project the line outwards, to ‘23 onwards, of about 50-plus a month. So, that would fit. What we don't know of course is whether the actual reality of the market demand will enable Boeing to drive that high. Part of that unknown is whether, for example, China will re- certify the MAX. As well as we've got other standouts, India, Singapore, they yet have to fall in line with the FAA and EASA on re-certifying the aircraft.

                                   Obviously, if those countries do approve the MAX in the next few months, which is what Boeing hopes, then it will be enough time to begin signaling the supply chain to stand up in time to support that rate rise. And of course the other thing is whether the aircraft in storage, because they've had delays because of this recent electrical system disruption. There's been a few hurdles that have stood in the way of actually that ramp up rate increasing as quickly or as smoothly as they have wanted to. So, if you imagine that A, they get the storage aircraft out of storage back underway the orders, and they've got about 250 new orders we should note, which is good news for them, and of course the recertification globally comes through, then I see, at this point, no reason why that isn't a good number to aim for, for next year.

Joe Anselmo:             Well, Guy, there's also good news on the MAX front regarding the 737 10, the largest variant of the MAX. It's very close making its first flight, isn't it?

Guy Norris:                 It is. Yeah. We picked up news that it was beginning to do taxi tests around may the 20th at Renton. And just to remind folks, this is obviously the longest and probably last stretch of the 737, remarkable evolution that it's seen. It's large enough that it can be, although it's only 66 inches longer than the -9, I'm just trying to... Jens, that's a couple of meters, right? We're just getting a thumbs up from Jens. It's enough to sandwich 230 people in a single-class configuration. So it's the nearest thing that Boeing will have to the A321 in terms of capacity. It doesn't have the range of the 321neo or, well certainly not the XLR. Boeing knows that, of course, so do the carriers. But they're pretty convinced that it's capacity, that the airlines really want, and that the extremes of those ranges will be catered for by people who are going to buy the XLR regardless.

                                   So, it's an important asset to the extension of the MAX family. According to the Aviation Week database we've seen that there's over 400 orders for it right now. And, I think it's going to be an important part of the assembly. By the way, just a bit of a tech geek note here, the only reason Boeing had been able to stretch this final version of the 737, the MAX 10, is by this ingenious undercarriage main landing gear extension system, which moves the pivot point, the rotation point, a few inches further back AFT and raises the entire aircraft by nine inches. And yet, the whole thing can sandwich back into a concertina itself and fit in the same wheel well as the existing MAX family. So a remarkable bit of engineering, which hopefully they'll prove out in flight tests and coming up.

Joe Anselmo:             Jens, I guess it's time for me to throw some cold water on all this good news. You and Guy coauthored, a cover story in the May 31st edition of Aviation Week Magazine on the widebody market. This segment of the market was already in trouble before COVID hit, wasn't it?

Jens Flottau:              Yeah. We did some number crunching for this future that you mentioned. And basically, on the Boeing side, from 2015 onwards, deliveries exceeded gross orders. And on the other side, from 2017 onwards, they delivered more aircraft than they got new orders. And that doesn't even take into account cancellations, of which there were quite a few. Don't forget A380, for example. On the Boeing side, there's been quite a few cancellations as well. So yes, this has been a trend for a number of years, a weakness. And obviously you've got to ask the question why that trend emerged. And one of the answers that I concluded, or we concluded, was overproduction. There was this boom after the 2008- 09 financial crisis in international long-haul travel. Lots of orders and lots of business models emerging or growing fast and then look at Emirates, Etihad.

There was this effort to reestablish long-haul, low costs in Asia, in Europe, bolstered order books. But a lot of that shrunk back to what's real, what's justified by reality and by real trends. And I think both have not adjusted production as fast as they should've in hindsight, leaving them with a problem for the future. There's large, young, widebody fleets in the market that are very under-utilized because of COVID now that are not yet up for replacements. A particular case in point is the A330. The A330-200 fleet is on average 12 years old, the 330-300 is nine years old. That's always see an age where no airline will replace an aircraft, particularly in the current financial circumstances. So, completely different from what the narrowbody market looks like. I think we're in for a long, long period of suppressed demand for widebodies.

Joe Anselmo:             Okay. Well, speaking of demand, Aviation Week's fleet analysts keep a close eye on in-service aircraft. And as of today, there's more Boeing widebodies in service than Airbus widebodies. More Airbus widebodies are parked? Why is that?

Jens Flottau:               It's cargo. It's the 767s, it's the 747s, and obviously the 777 freighters. And that points to a huge weakness of Airbus, which is the lack of a good cargo aircraft. They have one cargo model, which is the A330 freighter. And they're looking at another, a freighter version of the A350. And to me this just illustrates perfectly that Airbus should have launched a freighter a long time ago to compete with Boeing. And they didn't, and now they're paying dearly for it.

Joe Anselmo:             Guy on the Boeing side, you've written a lot about the 777X. You were out in Washington state last December, inside the program. Given the impact of COVID, is the 777X a family now too big for the market?

Guy Norris:                 Well, I think you should be asking Jens that question really, Joe. Because we think we know what he'd say. But yeah. I mean, I think it would be right now, that's for sure. I think if we were talking about the airplane being on its original schedule, which would have seen it in service pretty well later this year, it would be too big. And there's no doubt about it because you've seen the carnage going on in the widebody market as we've discussed. But I think to Boeing's point, they look at this aircraft as being actually now coming into service in the ‘23 period. It probably might be a good time for it to be replacing a lot of the larger capacity aircraft that have been grounded as a result of the COVID crisis. So that would play into the bigger picture.

                                   It's not exactly the original plan that they had, as we all know. But it actually does make a lot of sense. So I think from that timing perspective that's quite good. The other point is that Boeing says that for the 777X, obviously pre-virus level traffic, they expect will be back by the end of '23, early into '24. But secondly, they think that the 777X is likely to be deployed as a sort of replacement aircraft for medium and large widebodies. So it doesn't require that kind of super boost to growth requirements that people maybe think that it would need.

                                   And just one last point, you mentioned about how there's more Boeings active than Airbus at the moment. I talked to Boeing about this they think that one of the reasons is that... I mean, they're obviously acknowledging that Airbus produces some top quality products now and the A350 is giving them a run for the money in the large sector, like nothing they've produced before, really, I think. But what they say is Boeing’s traditionally had this design philosophy where the maximum structural payload of the aircraft can be carried in the belly of the aircraft itself. That goes all the way back to the Dash 80, the very first jet transport that they built. And they built that remember as a proof of concept demonstrator that could then be made into a tank of transport or an airliner.

                                   So we're talking what, 60, 70 years of evolution? And it goes back that far. They've continued that focus, which really means that whatever they build, it can be modified or adapted quickly to become a freighter. And it's just the way they've always done it. And as Jens points out,  that's a difference that maybe Airbus should consider when they go round for the next design cycle.

Joe Anselmo:             Jens, we're running short on time, but I wanted to wrap this up with you. Airbus obviously is introducing a new long range, single aisle, the A321XLR, which is very popular. Is the XLR going to cannibalize the widebody market?

Jens Flottau:               I think it has the potential to do that. We just don't know yet. Obviously Airbus itself will say no, because it would then cannibalize obviously the A330 in particular, possibly some of the A350 routes. But I would say that, going out of this crisis, this is a low risk way of going back into long-haul flying. You don't have the upfront investment that you would have for a widebody, for a larger aircraft. If they managed to keep it on a unit cost trajectory, that's kind of similar to widebodies, then there's no incentives there either. Your risk of filling the aircraft is lower. That's one of the big structural shifts that we may see in the future. And that may change the market for much larger aircraft. So stay tuned for this one. I wouldn't be surprised if that became a major factor.

Joe Anselmo:              Okay, well, Jens and Guy. thanks for talking today. It was nice to talk about some good news at least. The clouds are starting to lift. So, that's good news.

That is a wrap for this week's Check Six, which is available for download on iTunes, Stitcher, Google play, and Spotify. Special thanks to Donna Thomas, our producer in Washington, DC.

I will be getting on an airplane in another week. I hope you'll be joining Guy and me in Beverly Hills, California for the SpeedNews A&D Suppliers Conference. That's June 7-9. And join us again next Friday for another Check 6, when Guy will be back with Graham Warwick to talk about the Advanced Air Mobility market. Have a great day.