By Robert Wall and Doug Cameron
The Wall Street Journal
The aviation industry is bulging with orders for new planes. If only it can get them made.
There were so many almost-finished jetliners, missing their engines, piled up at an Airbus SE factory in Germany last May that executives joked they were in the glider business. It ceased to be funny when a frustrated Qatar Airways cancelled orders for four planes that were months overdue.
“It is making a huge impact on my bottom line. We are, quite frankly, screaming,” said the airline’s chief executive, Akbar Al Baker.
After years of surging orders, including many from fast-growing Asian and Mideast airlines that sought fuel-efficient jets when oil prices were higher, the aviation industry is heaving under the strain. By the end of the decade, Airbus and Boeing Co. must build 30% more planes annually than they do now to meet existing orders, in one of the industry’s steepest production increases since World War II. The scale of the ramp-up is putting companies to the test.
Suppliers of seats, toilets and engine parts are stretched to the limit and sometimes falling short. In one of the worst holdups, Pratt & Whitney, an engine supplier for a hot-selling new Airbus model, informed the European plane maker in September it would ship only 75% as many engines in 2016 as planned.
Both Boeing and Airbus are making adjustments to cope, retooling factories and tightening oversight of their globe-spanning supply lines. Boeing said at the beginning of 2016 it would make fewer planes during the year than in 2015. The move sent Boeing’s stock to its steepest drop in 14 years. The shares later recovered and on Thursday hit a record high.
Airbus fell so far behind on its 2016 production schedule it had to rush out more than 100 planes in December to meet the year’s target. It took the unusual step of increasing staffing at factories in the final weeks of the year, including the holidays, and told suppliers to do the same.
Airbus’s newest version of its workhorse A320 offers new engines, but the company had 20 of the planes still waiting for engines at year-end. By cranking out more older models, filling back orders, it managed to meet and even exceed its 2016 target of 670 planes.
Today, the years-long order bonanza pressuring manufacturers shows signs of tailing off, but that doesn’t relieve the urgency to deliver ordered planes as quickly as possible. Manufacturers collect most of a plane’s price only when they ship it. For Airbus, cash flow ran steeply negative for much of last year because so many airliners weren’t getting to customers.
Also, for the fiercely competitive Boeing and Airbus, on-time delivery can keep buyers loyal instead of turning to the arch rival or to emerging plane producers in China, Russia and Canada. Qatar Airways, after the Airbus delays, decided to buy some Boeings, a new 737 model called the Max.
Qatar Airways’ Mr. Al Baker blames both of the big two for not being ready for the order boom, which was fed by low interest rates in addition to the higher fuel prices of prior years. The inexpensive financing spurred purchasing by airplane-leasing companies, which buy about 40% of new planes.
In 2011, Mr. Al Baker ordered 50 Airbus A320 airliners with new, more fuel-efficient engines, called the A320neo – an order trimmed to 46 after his cancellations last year. “Both Airbus and Boeing, in order to mitigate their risk, will have to start investing in the industry in order to have a more diversified supply chain,” Mr. Al Baker said.
Airbus, based in Toulouse, France, has moved around shifts and vacation time for factory workers to align them better across its manufacturing centers. It may dedicate more resources to “supporting and understanding proactively possible hiccups with suppliers in the future,” said Tom Enders, the chief executive. He asked his chief operating officer, Fabrice Bregier, to personally supervise suppliers.
“We need to educate” them, Mr. Bregier said. “They are on their way. Some need to continue to make efforts.”
At Boeing, meanwhile, Chief Executive Dennis Muilenburg has staff members and consultants scouring for potential problems that might delay the first delivery of the 737 Max, expected as early as May.
In the frenzy to deliver on time, minor snafus can cascade into big problems. Trouble has arisen with seats, toilets, and in-flight entertainment systems, all in short supply at various times.
Hit by a 2014 strike at a Texas seat maker, France-based aviation-parts supplier Zodiac Aerospace SA was late delivering business-class seats, which cost about $100,000 each, for new Boeing 787s headed to American Airlines Group Inc. in 2015. Typically, airlines buy seats directly from suppliers but have them shipped to the airplane manufacturer.
The delay pushed back deliveries of the 787s by four months and held up fitting new seats in some 777 jets. American switched seat suppliers. The airline declined comment. Boeing now is backing a startup seat-maker to prevent shortages.