Airbus announced this morning that it will expand production of its A32ab0neo jets to 60 units per month by 2020. A new assembly line will open in Hamburg to support the growth and some changes will also happen at Toulouse to facilitate the changes in Germany. This comes on top of the recent expansion in the US with the Mobile FAL plus the not quite as recent expansion in China. The company has a backlog of 5500 A320s to produce for customers so, at least in theory, there is demand for this growth in output; with the increased pace there is still a decade’s worth of manufacturing to be done.
Boeing is not too far behind, with plans to be at 52 737MAX aircraft per month by that same point. The two will combine to produce 112 planes each month, enough to build a new Southwest Airlines twice each year. That’s a massive number of new planes and it raises very real questions about the ability to sustain that pace. Not because they cannot be built that fast, though it will certainly test the supply chains spectacularly. The test is whether the demand will remain that strong and the planes will all end up being needed.
By 2020, Boeing & Airbus will be producing 112 single-aisle jets each month. That's one Southwest Airlines every 6 months. Sustainable?
— Jon Ostrower (@jonostrower) October 30, 2015
Airbus has 9 customers on the books right now with 100 or more A320neo frames on order; Boeing has 5 for its 737MAX. In many cases these are fleet refresh moves, retiring the older aircraft and bringing in newer, more efficient frames. Yes, the older frames become more expensive to maintain and operate over time but historically their useful age has been much, much longer than what these order books reflect. Sure, the old planes can just be scrapped earlier than usual but the glut of “newish” used planes on the market has a significant impact on the overall financial situation of the industry. Leasing companies and even some airlines will reevaluate growth plans; the ability to “cash out” on a lightly used jet will be reduced. And a big part of many airlines’ plans for planes includes cashing out at some point.
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There are also some questions about the viability of certain orders. Lion Air of Indonesia has 200+ 737MAX and 175+ A320neos on order. The company operates only 111 aircraft today so the new orders represent a quadrupling of the fleet. Norwegian will see its fleet triple with planned new deliveries and its existing 737 fleet isn’t that old so retiring them isn’t really necessary. Orders from American Airlines and Ryanair are more in line with the existing fleet sizes but the pace of refresh is hard to fathom without accepting that some other “thing” will happen as the orders ramp up.
Maybe some orders end up canceled because carriers fail. Maybe lessors consolidate further (though it is not clear how much more that would work) to prop up frame costs a bit longer. Maybe Airbus and Boeing run out of carriers at which to place the aircraft. And almost certainly the scrap yards will see an up-tick in activity as more and more of the current generation is sent out to pasture.
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There is still potential for massive growth in commercial aviation across Asia and even some potential in Africa. But it is hard to believe that the growth will continue at such a pace to sustain these open orders. Or maybe I’m too pessimistic about the whole thing. Either way the market is definitely set to change in the coming decade and it will be spectacular to watch that happen.
Oh, and the company managed to announce the growth without requiring that refugees arriving in Germany work as second class citizens, at least so far.
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