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Tue, Jul 10, 2012

Analyst: Airbus, Boeing Production Rates Straining Supply Chain

Component Suppliers Concerned About Keeping Up With Demand

Airbus and Boeing are gearing up to roll out large commercial jetliners in ever-increasing quantities over the next 10 years, according to a new report from Forecast International. But that has component suppliers concerned they won't be able to keep up with demand.

The analyst's newly released "The Market for Large Commercial Jet Transports" projects that 14,655 large commercial airliners will be produced in the 10-year period from 2012 to 2021. The Connecticut-based market research firm estimates the value of this production at $2.04 trillion in constant 2012 U.S. dollars.
Airbus and Boeing, the two dominant manufacturers in the market, are implementing production increases, and are considering additional increases for the future. However, determining how fast and high to increase production is a tricky proposition for the two companies. In addition to the vulnerability of their supply chains, another concern is the overall health of the airline industry.

The desire of Airbus and Boeing to expand production is putting a considerable strain on their suppliers, especially in light of ongoing global economic sluggishness and uncertainty. In such an environment, a number of suppliers may be unable or even unwilling to support continual production increases. Adding to the pressure on suppliers is the fact that Airbus and Boeing are shifting their focus from manufacturing to integration, and are looking to outsource more design and production responsibilities. According to Forecast International senior aerospace analyst Raymond Jaworowski, "The potential for bottlenecks among suppliers means that Airbus and Boeing need to tread cautiously when it comes to future production increases."

A second major concern is the health of the airline industry. Air traffic is growing, and the industry as a whole is profitable. Still, many individual airlines are experiencing financial difficulties, including some carriers that have hundreds of orders on the books for new aircraft. At the same time, Airbus and Boeing have considerable incentive to keep production rates high and growing. The two companies hold large numbers of unfilled orders, but this means long waiting times for customers to take delivery of their aircraft, which often results in considerable frustration for these customers. A lack of early delivery slots could also tempt potential buyers to take a serious look at new aircraft emerging from manufacturers outside of the Airbus/Boeing duopoly. Such aircraft include the Bombardier CSeries, the COMAC C919, and the Irkut MC-21.

With an eye on this new competition, Airbus and Boeing have launched development of new, re-engined versions of their narrowbody airliner families. The Airbus A320neo series and the Boeing 737 MAX family will battle each other for the lion's share of the narrowbody market. In the widebody segment of the large airliner market, the new Boeing 787 entered service in 2011. The Airbus response to this new aircraft is the A350 XWB, which is currently scheduled to enter service in 2014. The A350 is also aimed at the popular Boeing 777, with the result that Boeing is looking at ways to upgrade the 777.

FMI: www.forecastinternational.com

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