Airbus facing upfront costs to support jet output increase

Airbus is incurring up-front costs as it prepares for higher jet production and plans a breathing space to absorb them once it reaches its output goal, its finance chief said on Wednesday.

Airbus is targeting a roughly 50 per cent increase in production of its A320neo cash-cow to 75 planes a month by 2026.

But to lay the groundwork it has had to invest in thousands of new workers and is building two new assembly lines.

"We want to pre-hire to be ready to achieve rate-75 in 2026. But of course the costs are hitting us now while the full efficiency only comes in 2026, and potentially 2027 when we are at a stable rate," Chief Financial Officer Thomas Toepfer said in an interview. Airbus is also building two new assembly lines.

Industry sources told Reuters such spending has been running over-budget in the civil business for part of the first quarter.

Toepfer declined to comment on first-quarter activity but said "acceleration" or ramp-up costs would pay off over time.

In 2023, Airbus hired 13,000 people including 10,000 new posts. "Why is that? Because we do not want to create our own bottlenecks in a supply environment which is anyway challenging," Toepfer told Reuters.

Airbus reaffirmed the 75-a-month target. "We are on the trajectory to reach the rate," Toepfer said.

DRIVE OUT COSTS

For now, industry sources have said Airbus is lagging the unpublished milestones embedded in its output plans. Toepfer declined comment on current production but said strong deliveries in 2023 were a sign of the progress being made.

Extending a lead over troubled Boeing (BA.N), opens new tab, Airbus is hiking output to meet demand but has said it will take its foot off the pedal once it gets to 75 a month, in a move seen as an olive branch to suppliers fretting about their own investments.

Toepfer said this is when full efficiencies would kick in.

"I think even when we achieve rate-75 we will not be at maximum efficiency, but will maintain the rate for a certain amount of time to drive out what I call these acceleration costs," he said.

Ramp-up costs are expected to be an item to watch when Airbus reports quarterly results on April 25.

Toepfer said supply chains were improving, but Airbus would keep pressure on suppliers to invest.

"There is uncertainty so we should not overdo it, but we have to put some pressure so that everybody gets moving. It is a balancing act. We feel that has not fundamentally changed relative to last year," he said.

Some suppliers have expressed doubts over Airbus' ramp-up plans and worry they may be left with expensive unused capacity if the industry hits another severe downturn.

But Toepfer, who joined Airbus last September, said the company's large order backlog was the best guarantee that jetliner production would avoid the yo-yo effect some predict.

One of the German executive's challenges will be to improve margins at the company's Defence and Space division as CEO Guillaume Faury oversees a reorganisation and strategic review.

Toepfer expressed confidence that Airbus could improve its struggling Space business following recent charges. And after inheriting more than a decade of financial pain on its A400M military airlifter, he believed most of the turbulence was over.

"We have also been transparent that the programme is still loss-making ... (but) we have taken out a lot of the uncertainties and risks," he said.

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