European aircraft giant Airbus (EADSY, Financial) announced its plans to cut the production rate of its most popular wide-body, the A330. The aircraft is currently produced at the rate of 10 a month. However, the plane maker said that it would pull down the production rate of the A330 to nine by the last quarter of 2015. What’s made Airbus reduce the production rate of this popular jet?
Just a couple of months before at the 2014 Farnborough Air Show the jet maker had announced the upgraded version of the plane on the back of continuous pressure from its airline customers who have been demanding a more fuel efficient version of the jet. What could be the possible reason for curbing the production rate?
Is A330neo the culprit?
Cutting down the production rate indicates that the demand for this aircraft is slowing down. More and more airlines are opting to place orders for the newer version of the plane. And that’s quite logical of the operators. The successor of A330, dubbed the A330neo, has new engine options that make it more fuel efficient and attractive. More than a third of the operating expense is spent on the fuel consumption of the plane, and airlines are desperate to trim this expense. Under such circumstances, it’s is quite obvious for them to choose A330noe over its predecessor. The re-engineered version has already received commitments for 120 units.
Picture from: Airbus
However, this has a problem too. The A330 has a current backlog of 234 units as on September 30, 2014. The French aero major can deliver these units in less than two years at the current production rate. But this will not provide a smooth transition to the A3330neo, which is scheduled for delivery from 2017. The launch of the upgraded model has made it difficult to sustain the record level production rate of its A330. Thus the plane maker has pretty wisely and reasonably decided to reduce the production rate to nine a month.
But Sanford Bernstein analysts predict that the Toulouse-based company might have to trim its A330 production rate further, down to six jets a month in 2017 after the deliveries of A330neo begin. The order backlog of the plane would fall sharply in 2016, with less hope that airline operators would place orders for the A330 when they have the choice to get A330neo.
Boeing faces the same difficulty with the 777
Fellow American player Boeing (BA, Financial) is also on the same page with its 777 aircraft. Last year at the Dubai Air Show the Chicago-based jet maker had announced that it would re-engineer its highly appreciated 777 model, and named the derivative designed plane the 777X. The idea was to retain the popularity of this jet which was otherwise getting a bit dated. With newer technology and engines Boeing intended to bag solid orders, but this overshadowed the predecessor.
Boeing 777, Picture from Wikimedia Commons
Though Boeing has received enormous orders for the 777X, it’s facing challenge with the 777 as its order will evaporate at the current production rate. However, the jet maker is confident that it would receive 777 orders in due course of time and has no plans of trimming its current production rate of 8.3 a month. The company expects to continue to get orders for the 777, and thereby make a smooth transition to the 777X with expected deliveries to begin in 2020.
Parting thoughts
New replacements is making it hard to sell the older versions. Both Airbus and Boeing are finding out ways to tackle a seamless switch over to the upgraded versions. While Boeing’s optimistic about bagging more orders for the 777, Airbus has decided to cut the production rate. Be it the A330 or the 777, both planes are the long haul backbone of their makers. What remains to be seen is if Boeing will follow suit and reduce its 777 production rate. Only time will tell, and until then let’s stay glued for the next update.
