Airbus Says It Must Slash A350 Costs to Win Wide-Body Price War

(Bloomberg) -- Airbus SE is looking to cut manufacturing costs for wide-body jets including its latest A350 model as competition with Boeing Co. forces down prices and weighs on margins.

A review of the company’s jetliner plants is geared toward identifying inefficiencies and legacy industrial quirks, Michael Schöllhorn, the chief operating officer at the commercial-plane arm, who is leading the study, said in an interview.

“We are in a price war on the wide-bodies, so we need to work on cost, especially on the A350,” Schöllhorn said Wednesday at the Paris Air Show. “We are pretty complex, sometimes too complex.” The study, reported last week by Bloomberg, concerns the whole industrial footprint, though that shouldn’t be seen as indicating factory closures, he said.

Airbus, formed through an amalgamation of European planemakers in 1970, has made increased efficiency a top priority under Chief Executive Officer Guillaume Faury. The structure was formalized in 2000 and Airbus, based in Toulouse, France, now builds jetliners at final-assembly plants in half a dozen countries, with significant operations elsewhere.

That compares with three major plants in two American states at arch-rival Boeing Co., maker of the hot-selling 787 Dreamliner.

Schöllhorn, who joined on Feb. 1 from German auto-parts and appliance specialist Bosch Group, said it’s premature to speak in terms of factory closures, and that there are other ways to optimize processes.

There need to be “adaptations” at some plants, Schöllhorn said. The chief concern, he added, is to keep up with the demands of ramping up single-aisle plane output with a production system that was designed decades ago to build 700 planes in total but is now churning out that number every year.

The focus is on Airbus’s core locations in France, Germany, Spain and the U.K., but the company needs to take into account its plants in the U.S. and China, Schöllhorn said. In the case of China considerations are complicated by offset obligations and questions surrounding how much production should be based there beyond the current final assembly lines and delivery center.

The split of work has long been a juggling act for Airbus, given the French and German states are both major shareholders. A plant in Hamburg, for example, delivers the double-decker A380 to clients in Europe and the Middle East, while Toulouse hands the plane over to buyers from other regions.

Schöllhorn said Airbus will take those sensitivities on board, while making the case for changes that are required to ensure that the company is still competitive in 50 years and that employment in Europe is sustainable. “Everything needs to be done in a responsible, balanced manner because founding states still have a vested interest,” he said.

Airbus has said U.K.-based wing construction could be jeopardized by the country’s planned split from the European Union, though it has no comparable facilities elsewhere and a shift would require significant investment.

“For the wings, as we speak, we will still depend on Broughton, so we need to find ways to cope with that,” Schöllhorn said. “Whatever Brexit brings, we don’t know, it’s speculative at this time. But if it were to be prohibitive we would look at new investments for a new program and make up our minds.”

To contact the reporter on this story: Benjamin Katz in Paris at bkatz38@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper

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