Boeing and Airbus plan expansions to cope with 7 year backlog
Manufacturers encourage horizontal mergers to cope with orders
Boeing and Airbus, the two dominant aircraft manufacturers, have issued plans to increase their combined production by 40 per cent in an aim to deal with the current order backlog of over 4,000 jets. With a combined production last year of only 1,011 planes, dealing with this clog at current rates would take anything from seven to eight years.
In order to increase production, Boeing and Airbus have both encouraged their larger suppliers to buy smaller firms, consolidating the supply chain. The focus has been placed on the manufacturers of aerostructures, such as parts for wings or fuselages. These firms are far less profitable than engine manufacturers such as Rolls Royce because they cannot provide further services, such as engine servicing.
Airbus and Boeing currently each deal with around 1,500 suppliers, so there is space for consolidation; however, if companies do not wish to merge, both Airbus and Boeing have said that they would be willing, in extreme circumstances, to purchase or finance suppliers.
In 1997 a similar plan for expansion left Boeing in a net loss, and made it difficult for suppliers to cope. Airbus hope that slow plans for increases in production will reduce negative effects, planning an increase from production of 40 narrow-body planes per month to 42 by the final quarter of this year, with an eventual hope of increasing to 44 when the supply chain has become more efficient.
This news comes alongside the opening of Farnborough Air Show in which it is expected that Boeing will dominate orders, gaining hundreds of new orders for their forthcoming 737MAX. The stress of new orders can only increase the urgency of changes to process the backlog.