Airbus to Ramp A320s to 75 per Month
Airbus is setting an ambitious target for A320-family production rates, rising to 75 aircraft per month in 2025, even as analysts worry about suppliers’ ability to match that growth.
The airframer previously had said it would raise production rates for its most popular aircraft family to 65 per month by the summer of 2023. It still intends to hit that goal and has worked with suppliers to ensure that it can. It is confident that it can ramp production up to 75 between next year and 2025.
CEO Guillaume Faury acknowledged that some suppliers have yet to return to their pre-pandemic capabilities. The availability of parts and raw materials remains constrained as shipping routes continue to be snarled and factories in China and elsewhere in Asia are shuttered due to Covid outbreaks. Labor markets remain tight and wages are rising to attract talent. “Emerging from Covid creates this complexity on the supply chain,” Faury said.
The ramp up will be progressive from now through 2025, but Airbus has not identified milestones beyond the 65 next summer and 75 in 2025.
The Russian invasion of Urkaine so far has not crimped Airbus’ access to titanium. The manufacturer has developed “secondary sources” for the metal, Faury said. But costs have risen across the board due to the Ukraine war. Combined, energy, raw materials, and loss of Russian customers led to about €200 million ($211 million) in headwinds for the company.
China is another area of concern. The country’s domestic market, once a pandemic-era success story, is down to 20-30 percent of its pre-pandemic size, due to China’s “zero Covid” policy. Major population centers are locked down, and domestic air travel is limited. Although that hasn’t affected Airbus orders from the country, Chinese airlines are unable to take delivery of the aircraft they have ordered. Airbus believes orders may take a hit if China’s lockdowns persist into the third and fourth quarters of this year, Faury said.
Another worry for the manufacturer is certification of the A321XLR. Reports surfaced that regulators were concerned with the rear fuel tank in the long-range variant. Faury and Airbus executives did not address the issue specifically, but said EASA and the FAA were working together on guidelines for rectifying the problem. The first flight is now expected by the end of the year.
Other than these headwinds, Airbus reported a strong first quarter. The airframer delivered 142 aircraft, or 14 percent more than in 2019. It is on track to deliver 720 this year. Production ramps of all its aircraft are on track, Faury said.
In the quarter, Airbus had 253 gross orders, 243 of which were for narrowbodies. Of its 10 widebody orders, seven were for its new A350F freighter variant. Net orders including cancellations were 83 aircraft.
Airbus reported revenues of €12 billion ($12.7 billion), up 15 percent from last year. Adjusted earnings before interest and taxes was €1.3 billion. Guidance for the rest of the year is unchanged from the first quarter, although given the effects of the Ukraine war, ongoing restrictions in China, and the rising cost of fuel, and the threat of new Covid outbreaks, Airbus said its risk outlook for the remainder of the year is “more challenging.”
Air Lease Takes $802 Million Charge Against Aircraft in Russia
Air Lease Corp. is taking a $802 million charge due to the Ukraine war, and said it will “vigorously” pursue insurance claims to recoup its losses.
The lessor earlier this year had said all of its aircraft in Russia were placed with private airlines, so it expected to recover them. That no longer is the case, as the Russian government has barred its airlines from returning leased aircraft. But ALC remains optimistic that is relationships with these airlines will survive the current crisis. “It’s too early to make predictions,” Executive Chairman Steven Udvar-Hazy said. “But our relationships with these airlines are very cooperative.”
Udvar-Hazy struck a personal note during the company’s first-quarter earnings call on May 5. “These events are particularly painful for me and my family,” he said. “We were forced to leave our home country of Hungary in the late 1950s under very similar circumstances.”
He said the lessor has made a “deliberate policy” of not leasing to state-owned Russian carriers. All aircraft that were to be placed at private Russian carriers this year have been placed at airlines outside of Russia.
Russia’s domestic air travel market, a pandemic success story, will start to buckle soon, he warned, as aircraft illegally impounded there are grounded due to a lack of spare parts and inability to access maintenance providers.
China’s domestic market is faltering due to the government’s “zero Covid” strategy, although Udvar-Hazy said the recent relaxation of restrictions in Hong Kong could be a way for the Chinese government to test relaxing its restrictions on the mainland. ALC is not as exposed to China as some analysts feared. Five years ago, the more than 20 percent of the lessor’s portfolio was in China. Now, it’s about 12 percent. The company consciously chose to diversify from China — and other geopolitical hotspots, like Russia — as political tensions rose. “We continuously evaluate this risk,” CEO Jon Plueger said.
Manufacturing delays are more of an issue. Airbus narrowbody deliveries have been delayed due to supply chain and labor problems, Plueger said. The FAA is evaluating Boeing’s proposed fixes to the 787, with no timeline for when the approval may come. ALC now thinks it will take only one of its expected 787 deliveries this year. On the narrowbody front, Plueger said Boeing’s inventory of undelivered 737 Maxes also is causing headaches, as are the certification delays of the 737-7 and -10 variants. “To have all of this at once clearly is taxing on the organization,” he said.
The Boeing 777X delay is a problem, but one with a silver lining. The delay is causing airlines to seek new leases for or extend leases on existing 777s, Plueger said. The cargo market’s strength also plays a role in large widebody demand, and Plueger expects this trend to continue for at least the next 18 months.
Still, ALC is encouraged by trends in air travel. Year-over-year, traffic is up 425 percent in Europe, 246 percent in the Middle East, 240 percent in Latin America, 228 percent in North America, and 197 percent in the Asia-Pacific region. This has fueled demand for narrowbodies, but widebody demand also is trending back up, Plueger said.
ALC reported first-quarter revenues of $597 million, a 26 percent increase from last year. Factoring in the write-off of its Russian assets, the lessor reported a loss before taxes of $602 million, compared with a $104 million profit last year. Excluding the write off and other adjustments, ALC had a quarterly net income of $201 million. It ended March with 370 aircraft in its portfolio, and 451 in its orderbook.
AirBaltic Wet-Leases UIA 737 Due to A220 Spares Shortages
In one of the most tangible demonstrations of the how geopolitics, economics, and the pandemic have affected airlines, AirBaltic will operate a Boeing 737-900 owned and crewed by Ukraine International Airlines (UIA) this summer.
The wet-lease will see UIA base a 737 and four flight crews totaling 28 staff at AirBaltic’s home airport in Riga, Latvia. The aircraft is expected to operate on routes between Latvia and Europe, including to Berlin, Brussels, Copenhagen, Madrid, and Oslo, UIA said in a statement.
UIA suspended flights on February 24, when Russia invaded Ukraine. The airline has extended its suspension several times and now says it will remain grounded until at least May 31, depending on the state of the war at that time. Shortly after the war began, UIA said it had moved its aircraft and many of its flight crews out of the country. The carrier began soliciting wet-lease arrangements in March.
“We are sincerely glad that our European partners are helping both the Ukrainian state and business with a clear, absolutely transparent support for Ukraine,” UIA CEO Evheniy Dykhne said. “This is especially true against the backdrop of the recent decision by UIA Compliance not to wet-lease its aircraft to operators that continue to fly to Russia. This narrows down the scope of opportunities, but it is fully consistent with our morality.”
Latvia, a former Soviet republic, has been among the most vocal supporters of Ukraine in the face of Russian aggression, and has seen an influx of refugees from the war and emigres from Russia. Wet-leasing isn’t the only way AirBaltic is helping Ukraine. The carrier said it is handling cargo operations from Kyiv via surface routes to Latvia, from where cargo and mail is loaded onto AirBaltic flights.
“It is now a very challenging time for the Ukrainian people and their national airline,” AirBaltic CEO Martin Gauss said in a statement. “By temporarily wet leasing their aircraft, we are also providing short term work to the employees of Ukraine International Airlines.”
A Boeing 737 is not a logical match for AirBaltic, which operates a fleet of 32 Airbus A220s, the European airframer’s smallest offering. The carrier is expecting summer demand to be high, a spokesperson said, but that is not the only reason it is wet-leasing the UIA 737.
The airline is running straight into the supply-chain and shipping constraints that have bedeviled not just Airbus and its suppliers but the entire global economy. AirBaltic is having difficulty sourcing spare parts for its A220s, resulting in the aircraft spending more time out of service and in maintenance, the spokesperson said. This required the airline to resort to wet-leasing. The spokesperson said the length of the wet-lease depends on AirBaltic’s ability to secure spare parts to return its entire A220 fleet to the air.
During the pandemic, suppliers sharply reduced their workforces, and as manufacturing began to spool back up last year, analysts worried that Airbus, in particular, would not be able to realize its ambitious production goals. The airframer said earlier this year it has worked the kinks out of its supply chain and can raise production rates for all its aircraft types.
But the supply of spares is another matter altogether. The global shipping crisis, which has snarled supply chains just as manufacturers are aggressively restocking, is affecting the availability of spares. Compounding the problem is the rising cost of energy, and access to Russian aviation-grade titanium, now subject to Western sanctions.
Fleet Briefs
- Virgin Australia has signed leases for four Boeing 737-8 aircraft, which will be its first in the Max family. The aircraft are due to enter service in February 2023, and will allow the airline to move forward with retiring its 10 remaining Fokker F100 aircraft. Once the 737-8s arrive, Virgin plans to begin replacing the F100s with 737-700s. The Maxes are separate from the 25 737-10s that Virgin has on order.
- Avolon is taking a $304 million impairment on its 10 aircraft in Russia, the lessor said in its first-quarter earnings report. This drove the lessor to a $182 million quarterly net loss. The aircraft held by Russian airlines account for 1 percent of Avolon’s portfolio by value. Other than that, it was a good quarter for the lessor, which reported $658 million in lease revenue, or $188 million more than last year. At the end of the first quarter, Avolon had 592 aircraft in its portfolio.