Airbus Tackles Its Procrastination Problem
May 24 2016 - 08:50AM
Dow Jones News
Airbus Group SE executives are trying to end what has become an
unwanted annual rite: the plane maker's scramble to hit its
year-end jet-delivery promise.
Last December, the company cranked out 79 aircraft, a record
monthly output that represented about 12% of its annual total. The
feat provided last-minute relief for anxious investors, who had
started to worry Airbus would miss its 2015 goal. The company ended
up meeting it, but had to pull the corporate equivalent of an
all-nighter to make it happen.
In 2014, it kept investors on the edge of their seats, too. It
delivered 75 aircraft in December—again, about 12% of its annual
output—to meet its yearly output promise. It was largely the same
drill the two previous years.
"It is certainly a frustration for us," said Tom Williams, chief
operating officer at Airbus's jetliner unit. "We need to do
better."
Airbus's year-end frenzy has helped it deliver consistently on
its annual promises. Airbus delivered 635 aircraft last year, six
more than in 2014. That marked the 13th year in a row of higher
output for the Toulouse, France-based company.
But the last-minute push has long irked investors and customers.
Plane deliveries are closely linked to cash flow, so investors take
Airbus's annual output more seriously than its orders. They prize
consistent deliveries through the year—the sort of steady output
for which rival Boeing Co. is better known.
So far this year, it is off to another slow start. The company
has promised a record for 2016, forecasting 650 plane deliveries.
But in January, it only finished 22 of those, or 3.4%. At the end
of April, it had delivered only 177 planes, or 27% of its annual
goal.
That has hit cash flow hard, and Airbus's share price. On April
28, Airbus reported net cash outflows of €3 billion ($3.37
billion), largely a result of lagging deliveries. Investors reacted
badly, sending shares down 4.6% that day.
With a record backlog of jet orders, Airbus plans to boost
production sharply in coming years to meet that demand. Mr.
Williams says Airbus can no longer afford the late-year rush.
Buyers are also eager for steady output.
"Customers want certainty when the aircraft is going to be
ready," said John Leahy, chief operating officer for customers at
Airbus. "From a production point of view, we need to smooth this
out."
It won't be easy, and officials are already acknowledging they
expect another scramble this winter. After the annual December
rush, Airbus typically has to give workers time off to recover,
inevitably putting the company behind early in the next year.
Airbus's complex industrial structure, which spans Europe, is
also partly to blame. Wings are built in the U.K., and other big
sections of the airplanes in France and Germany. The countries have
different vacation periods, which Mr. Williams said leads to
different downtimes. That reverberates through the production
system, disrupts parts flow, and can affect when planes are
ready.
This year, there is added worry about Airbus's promise. It has
already shifted deliveries of some of its newest planes, the
A320neo, a single-aisle plane with a new engine configuration, to
the second half of the year. That will give it and engine supplier
Pratt & Whitney, a unit of United Technologies Corp., more time
as they muddle through the inevitable learning curve of putting
together a new model.
It has delivered only four A350 long-range jets in the first
three months against a full-year target of at least 50. Airbus is
wrestling with supplier problems on the model.
Airbus is exploring ways to change the way it builds planes to
make the process more clock-work-like. The company hasn't disclosed
what steps it is considering—a sensitive topic among its workforce,
since any big changes in the manufacturing process could affects
jobs. Airbus says only it will first consult with staff before
making any adjustments.
Airbus rival Boeing surprised investors when it said it would
build fewer planes this year, between 740 to 745, than the 762 jets
it shipped last year. But the Chicago-based giant will still far
outstrip Airbus in deliveries this year, holding on to the title of
the world's largest plane maker.
Boeing has done a better job smoothing out production. It
delivered 53 planes in December, or about 8% of annual output. The
U.S. plane maker isn't encumbered by Airbus's complex multination
setup and also operates with more flexible labor rules. It
delivered 176 planes in the first quarter.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
May 24, 2016 08:35 ET (12:35 GMT)
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