Planemakers Taking Steps To Keep Market Viable

European planemaker Airbus has weathered this year's economic crises relatively well, with orders for 737 planes so far in 2008 and deliveries expected to come close to 470 aircraft. But that doesn't mean Airbus expects the good times to last.

On Wednesday, Airbus gave its first clear indication it expects the market for new airliners to decline... and for cancellations to impact its best-selling line of narrowbody aircraft, the A320 Family. Dow Jones Newswires reports Airbus has opted to "pause" its planned ramp-up of A320 production, keeping deliveries at the current rate of 36 aircraft per month.

"As a precautionary step, after having studied the market, we have decided to pause the production ramp-up at the present rate," an Airbus spokeswoman said, adding the planemaker will also scale back plans to ramp up production of its A330 and A340 widebody models.

Airbus announced several months ago it planned to produce as many as 40 A320s per month, to help fill a healthy order backlog. The narrowbody airliner is sold in four variants, and is Airbus' best-selling commercial airliner by far.

Last month, the company opened a Chinese final assembly line to meet regional demand for the aircraft, as ANN reported. That plant will produce a relatively meager 44 planes per year by 2011.

Both Airbus and its American rival, Boeing, must tread carefully in today's economic environment, lest either manufacturer glut the market. Too many planes in the market lowers the overall value of each new aircraft, as well as the values of existing planes already in service. The latter is particularly important, as airlines often rely on the value of their existing fleets when negotiating financing for new planes.

Both companies have seen cancellations hit their order books this year, as airlines scale back their optimistic plans in the face of a slumping global economy... but for the moment, those cancellations have resulted in few net losses for either company. The Wall Street Journal reports Airbus received a cancellation notice from India's Kingfisher Airlines last month; those three A340s were promptly snapped up by Nigeria's Arik Air.

"Clearly, in light of the financial situation, we are reviewing our production plan," said Airbus chief operating officer John Leahy, who also serves at the manufacturers top salesman and head cheerleader. "But we still have very strong demand, and we are confident that these aircraft are needed."

In particular, Boeing has experience in dealing with sudden market shifts. During the last so-called "aviation boom" in the late 1990s, Boeing took all the orders it could... orders it couldn't fill in the end, forcing shutdowns in production lines. Despite those shutdowns, the market still ended up flooded with Boeing planes -- forcing the company to sell airliners at cut-rate prices, which further taxed the American manufacturer and led to the loss of some 20,000 jobs.

Today, Boeing is facing an uncomfortably similar situation... though not for lack of market interest, or even production capability. The planemaker has been hit by a crippling machinists strike for nearly six weeks, idling Boeing's production lines and resulting in no new aircraft deliveries.

So far this year, Boeing has taken net orders for 623 planes, with first deliveries projected anywhere from 2-6 years out, depending on model. The company had delivered 325 aircraft before the machinists struck Boeing on September 6.

FMI: www.airbus.com, www.boeing.com