Prior to the Paris Air Show starting last week, comments by Airbus CEO Tom Enders were sure to have ruffled a few feathers and caused some eyebrows to rise.
With both the aerospace and airline industries battling to recover from the worst economic downturn in memory, Enders remarks that Airbus “could cope” with up to 1000 orders being cancelled from its bulging backlog of over 3500 units again highlights the reliance of financially weak airlines making up its client base and its continued approach for market share, seemingly at any cost.
Just take a look at the make-up of some of the announcements made last week at the show. (Link)
Of course, announcing yet-to-be-firmed MOU’s has become an inherent trademark for Airbus while showcasing at Le Bourget every two years, but the cavalier attitude to potentially losing up to a third of your backlog should make the hairs on the backs of necks stand up.
Orders thus far have been sparse this year – it will be interesting to see whether or not these “commitments” actually materialise as firm orders in just over six months time.
A view of the static display at the Paris Air Show 2009 (More pics here)
Image copyright/owned by FleetBuzz Editorial.com
Across the Atlantic, Boeing has itself been in-and-out of positive territory for orders this year, in part weighed down by 787 orders being dropped, taking its tally for the year so far to 66 cancellations.
That’s only half the story of this year so far.
In a long overdue change of tack, Enders did follow Boeing’s VP Marketing Randy Tinseth’s lead by about the need to protect the backlog.
“The priority is not to get new orders but to maintain those we have and turn them into deliveries,” he said.
Critically, Airbus’ ability to survive with up to 1000 lost orders is not in question, however there are two key areas for reflection. Firstly, that the French Government backed 5bn Euro acts as an incentive as “lender of last resort” to those airlines who are struggling with financing their purchases to remain committed to their contracts and secondly, that losing triple or quadruple-digit orders will play havoc with production rates and agitate the wider supply chain, particularly as both Airbus and Boeing use many of the same companies for various components on their airplanes.
From reducing its artificially higher-than-produced A320 rate already, Airbus’ biggest two exposed jets are the A380 and A320 families. The love-hate relationship between the Franco-German constituents of Airbus would surely be tested if rates on the A320 line were adjusted downward again. Overbooking aside, the likelihood of another A320 production cut before the first quarter of 2010 is out is pretty high.
Adding pressure to Airbus is the production line in Tianjin, China. Many Chinese carriers have looked to defer airplanes as far out as possible while they aim to trim capacity, shore up demand and try to focus on yield management. This added headache for Airbus will only get worse as time goes on.
Bizarrely, Airbus spoke of increasing production too – this at a time when industry consensus is focussing on production and deliveries to go down.
“We are ready to raise our production again, and that is one of the challenges, to increase production when it is needed,” said EADS CEO Louis Gallois. To “raise” rates less than a year before previously announced cuts have been enacted is a dubious story in itself, n’est pas?
Boeing has so far resisted cuts to the 737, in part largely down to reshuffled slots in the wake of the IAM strike it suffered last fall and because deferrals have been backfilled by other customers continuing to take deliveries.
For all the glitz and glamour (and rain) of last weeks show, Airbus still quite hasn’t learnt the lesson that these events are not just for headline-grabbing. Granted, celebrating forty years of commercial success in the market is one thing, dismissing a third of your order book is quite another.
