By Daniel Michaels
TOULOUSE, France — The production manager of AirbusTom Williams has spent the past five years ramping up production for the European aircraft manufacturer. Now, as airlines postpone or delay their orders, it must strike the difficult balance of adjusting factories to the new scenario without hurting the chance of a recovery.
Airbus announced on Friday that it received orders for just 16 aircraft in March, compared with 54 orders in March 2008 and 37 the previous year. The company expects to receive only between 300 and 400 new orders this year compared to 777 last year, to which we must subtract last year's cancellations.
Building airplanes is so complex that slowing down production can be as difficult as speeding it up. Plants that Williams had recently optimized for faster production should be scaled down without allowing the fixed cost per aircraft to increase significantly.
Airbus' dozens of suppliers, who supply all kinds of components, cannot be left with warehouses full of unsold parts or factories shut down, or they will find themselves too weak when demand picks up.
Additionally, laying off skilled employees could cause a loss of talent that could hinder an eventual recovery. "We spend a lot of time training our employees who design and assemble airplanes, so we have to be careful," said Williams, Airbus' executive vice president for programs, in an interview at company headquarters. Since 2003, Airbus has increased its aircraft production by 60%, to a record 483 deliveries last year.
However, in October, the unit of the European Aeronautic Defense & Space Co. (EADS) shelved plans for further production increases and in February said it would reduce deliveries of its popular single-aisle models from 36 to 34 a month. It also announced that it would consider further cuts.
Airbus and its American rival Boeing co, which announced the layoff of 4.500 employees but would keep its production stable this year, are reacting much more cautiously than other large industrial companies to the global crisis. United Technologies Corp., which makes aerospace equipment, air conditioners and elevators, said in March it will cut 5% of its workforce, or 11.600 jobs. Caterpillar Inc. It has announced more than 20.000 layoffs, while reducing production and freezing some factory operations.
Airlines and industry representatives predict that Airbus and Boeing will need to cut production more drastically to avoid making planes that can't find buyers. Douglas Harned, an aviation analyst at Sanford C. Bernstein & Co. in New York, predicted in a report published last month that Airbus and Boeing should cut their deliveries next year by 20% from their current plans. Companies that lease planes recently asked both manufacturers to cut production to avoid saturating the market and reducing the value of the planes on their balance sheets.
Representatives for Airbus and Boeing say building planes is different because the planes, which cost between $ 50 million and $ 300 million, take a year to produce. As a result, the cycle evolves more gradually.
Boeing's experience shows that sudden production swings can be devastating. A decade ago, the aircraft maker tried to ramp up production in a short period of time, but ran into a shortage of parts and a lack of qualified personnel. Solving production problems caused huge losses for Boeing, even as it delivered record numbers of aircraft. Since then, both Boeing and Airbus have tried to avoid big jumps in production.
European labor law prevents Airbus from laying off employees with the ease of Boeing. For this reason, in recent years the European manufacturer has hired a greater number of part-time and subcontracted workers. Williams says that by using these employees less frequently, you can reduce your production by 20% without laying off full-time staff. The first reduction implemented by Williams in recent months has been in overtime shifts, which Airbus had allowed to meet strong demand, said the 56-year-old executive, 37 of them dedicated to the manufacture of engines, aircraft engines and jets.
Managing suppliers is a bigger challenge. More than 80% of the value of each Airbus aircraft comes from other firms, according to Louis Gallois, CEO of EADS. Some of these suppliers are much smaller and financially weaker than Airbus and will have a more difficult time coping with the crisis, some executives say.
Source: W.S.J. Americas