Airframe suppliers are comfortable with manufacturers’ plans to push narrowbody production rates up to a combined 100 per month, but express concern that anything beyond that could strain the supply chain or dampen demand after a few years, trigging costly rate fluctuations, a Canaccord Genuity survey reports.
Airbus and Boeing are producing 84 narrowbodies per month—42 each—and have announced plans to go up to the mid-90s combined. Rumblings of 50 per month or more out of Boeing—a move likely to be matched by Airbus—could be supported by suppliers, the survey found. But added demand from emerging programs, like Bombardier’s CSeries, could muddy the waters. Suppliers also expressed doubt that the costly ramp-ups would be sustained for long enough periods to justify the investment needed to get them there.
“This survey raises questions about the sustainability of rates above 100/month for Boeing and Airbus,” Canaccord wrote. “We believe many suppliers are reluctant to invest to support rates above which have been announced for fear that they would be capitalizing for a rate that is not sustainable.”
Despite the long-term concern, suppliers—notably the crucial higher-tier ones—are confident that current and planned production rates are both sustainable and aligned with demand. Structures firms are the “most optimistic,” Canaccord noted, believing that rates exceeding 100 per month are feasible. Their optimism is “closely followed” by material suppliers.
The one supply chain segment expressing concern is interiors suppliers, which face both record production rates and increasing demand for retrofits as carriers capitalize on innovations such as slimline seats and new premium cabin offerings.
“Interior suppliers see the most to worry about with higher narrow-body production rates,” Canaccord said.
Regarding widebody aircraft, suppliers are mixed about whether Boeing will reduce rates before transitioning from the 777 to the 777X. Among the ones that foresee a rate cut, they believe Boeing will provide at least two years’ notice, meaning it will be business as usual well into 2016 at least.
Canaccord notes that it has no evidence that Boeing plans to cut rates and expresses optimism that the manufacturer can bridge the gap without building fewer current-generation models.
“We believe Boeing has 10-15% in pricing it can play with on the 777 before the program crosses the economic threshold whereby a reduction in rates makes more sense than further price concessions,” Canaccord suggested. “We believe investors, and suppliers, are being too pessimistic on the 777, and we still see a [greater than] 50% chance Boeing will be able to bridge the 777 order gap as it transitions to the 777X.”
Boeing is producing 777s at 8.3 per month, a rate it hit in January 2013. In 2011, it bumped rates from five to seven per month. Canaccord is projecting 98 Boeing 777 deliveries this year.
The Airbus A330-to-A330neo transition is more straightforward, Canaccord explained.
“Suppliers largely expect Airbus to eventually announce a reduction to A330 rates as part of its transition from the A330ceo to the A330neo. This is consistent with what Airbus has been signaling,” Canaccord added.
Suppliers expect the current 10-per-month rate to drop to seven per month in 2017-2018, before stepping back up again, Canaccord said.
Editor's note: this story appeared in the Oct. 2 Aviation Daily, which closed before Boeing's Oct. 2 announcement that it would increase 737 production rates to 52/month in 2018.