Airbus Goes Slow on A220 Output as Factories Near ‘Highest Risk’
(Bloomberg) -- Now that Airbus SE is starting to see fresh sales momentum for its sleek A220 jet, it faces a different challenge: getting the small single-aisle planes to impatient customers.
The airliner formerly known as the C Series has amassed a backlog of 480 unfilled orders under Airbus and Canada’s Bombardier Inc., which handed control of its marquee jet to the European planemaker in July after years of disappointing orders.
But it won’t be until the middle of next decade that Airbus reaches the peak production target of 14 jets a month, shared across two factories: four a month at a yet-to-be-built plant in Mobile, Alabama, and 10 at the original assembly line in Mirabel, Quebec. That’s a slower ramp-up than Bombardier envisioned in late 2017, when it said Mirabel would deliver as many as 10 of the planes a month in 2020.
Airbus is deliberately moving slowly because the transition to full-rate production is “where the highest risk is,” said Philippe Balducchi, chief executive officer of the A220 partnership, in which Bombardier maintained a minority stake. “We’ve seen that both at Airbus and Boeing. It’s a critical stage.”
Airbus inherited the factory north of Montreal last year when it assumed control of the aircraft program. Bombardier bet more than $6 billion to develop the twin-engine jet over more than a decade -- more than the debt-laden company’s current market value of C$5.19 billion ($3.9 billion).
The Toulouse, France-based aerospace giant booked 135 firm orders for the aircraft in the first two weeks of January, all in the U.S. But only 57 of the jets have been delivered to customers since its 2016 commercial debut. That’s the equivalent of about a month’s output for Airbus’s A320 family of single-aisle jets.
“They’ve got a medium-sized challenge on their hands,’’ said Richard Aboulafia, an aerospace analyst at the Teal Group. “Renegotiating prices with suppliers is pretty big. Then again, these are the guys who are getting up to 60 planes per month’’ with the A320.
To move A220 production into higher gear, Airbus is retraining mechanics in Mirabel and eliminate out-of-sequence work by suppliers and on the factory floor. It’s also focused on extracting savings from key suppliers to trim unit costs by a “significant double-digit” percentage.
At the same time, Airbus must also decide how to share gains in efficiency between the existing plant and the planned Alabama facility that will serve the growing U.S. market. Airbus opted to dial back output targets after taking control of the partnership.
“Airbus did look at it and did reevaluate the deliveries,” said Rob Dewar, a former Bombardier executive who is now in charge of engineering for the jet. “In addition to Mirabel, we are now supplying Mobile. From the suppliers’ perspective they now have to supply two facilities.”
For the A220, Airbus and Bombardier are working to increase the capacity of the interior-completion and pre-flight hangars as part of a $30 million investment in Mirabel, said Florent Massou, head of the aircraft program. The partners are also preparing to build a new delivery center that will be ready by the end of the year.
Also under consideration: modifications that would boost the maximum capacity of the largest variant, the A220-300, by four seats to 149, Dewar said.
Originally slated for a late 2013 commercial debut, the plane finally entered service about two and a half years late. Bombardier’s time in charge was marred by production issues on such supplies as engines and interiors.
The Montreal-based manufacturer also grappled with slower-than-planned orders as Airbus and Boeing Co. slashed prices on competing planes to prevent their Canadian rival from making major inroads.
Airbus has committed to keeping the headquarters and the main assembly line of the partnership that builds the A220 in Mirabel for 20 years. The Quebec government, which invested $1 billion in the program in 2016, holds a minority stake.
Under the terms of their agreement, Airbus will have the right to buy out Bombardier starting seven and a half years after the closing of the partnership, or in early 2026
Air Canada is planning for its first A220 delivery this year and plotting new potential routes. On other airlines, passengers and crew members have praised the jets for their airy cabins, marked by big windows and large luggage bins.
But before the planes win widespread support from aircraft lessors to pad Airbus’s order book, they’ll need an even larger operator base plus the lower costs that come from speedy and efficient factories.
The aircraft is “price-challenged,” especially compared with mass-produced Airbus and Boeing single-aisle jets, John Plueger, CEO of Air Lease Corp., the largest publicly traded U.S. airplane financier, said at an investor conference Jan. 10. “We are watching closely to see how this comes along under the Airbus management and ownership of that program.”
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