Boeing, Airbus Strain to Deliver the New Jets They Have Promised – Update

Boeing Co. and Airbus SE, swamped with orders for new jets, are struggling to deliver them all on time - in some cases angering customers and delaying payments.

Airbus has missed a number of deadlines for deliveries, forcing airline customers to find alternatives, change routes, or cancel flights. It has delivered fewer planes than it did by this time last year, despite promising 80 more this year.

The missed deliveries mean delayed payments, since most cash changes hands only upon delivery. That has hit Airbus's closely followed cash flow over the year.

Boeing hasn't missed any deliveries and says it won't. But it is straining with the same supplier shortfalls as Airbus, particularly when it comes to engines.

"It is on all of our radars every day," Boeing Chief Executive, Dennis Muilenburg told reporters Sunday at the Farnborough Air Show, the industry's biggest trade show of the year. The company has made investments to help manage its suppliers, he said, including in technology to help monitor their performance.

Those efforts are crucial, he said, with Boeing poised to deliver more than 800 planes for the first time this year, and more than 900 by the end of the decade.

For years, booming demand for new aircraft has made it more challenging for jet makers to deliver planes on time to airline customers. A supply-line crunch for everything from engines to wing components is now magnifying the strain.

The result: some airlines have been left waiting for months for new planes. That has angered executives and, in some cases, even stranded passengers.

Airbus is late delivering new A321neo single-aisle jets to Primera Air, a Scandinavian airline, because of a lack of engines made by CFM International, a joint venture of General Electric Co. and Safran, SA. The airline has had to suspend plans for some of its routes, including trans-Atlantic flights from New York and Toronto to Birmingham, England.

British Airways is waiting for A320neo planes for the same reason - no engines. Willie Walsh, Chief Executive of parent International Consolidated Airlines Group SA, said he is "clearly very disappointed with the performance of Airbus." He has had to rent planes and operate older, less efficient ones from his fleet as he waits for his new jets to arrive.

CFM, which had fallen behind on deliveries by up to seven weeks, has started to catch up and will be back on schedule before year-end, said Sébastien Imbourg, Executive Vice President for the engine maker.

Boeing, too, has suffered delays on engines for its 737 Max planes, though it hasn't yet held up deliveries of planes to customers. Both jet makers also have been hit by delays for components used to make wings and fuselages made by Spirit AeroSystems Holdings Inc., which fell behind because of its own supply-chain problems.

"The suppliers are saying, 'Houston, we have a problem, we need to slow down,'" said Eric Bernardini, Head of Aerospace at consultant AlixPartners.

Airlines have been left waiting for planes before. Boeing was late with its then brand new 787 Dreamliner and Airbus with the A380 superjumbos. But this time it is the scale of production, rather than issues with assembling new plane designs that is hobbling the companies.

Boeing, the No. 1 plane maker by deliveries, and No. 2 Airbus and are on track this year to deliver more than 1,600 airliners in total, more than double the figure produced in 2000, and both are expected to add hundreds more to their backlogs this week at the Farnborough Air Show. The plane makers have been struggling for years under the surge, and have spent heavily reviewing and retooling supply lines.

Mr. Muilenburg said the plane maker boosted its 20-year industrywide demand growth outlook, projecting delivery of 43,000 new commercial planes worth nearly $7 trillion, up from 41,000 aircraft forecast last year. Airbus also recently lifted its equivalent projection.

The record production pace is due in part to surging demand for flights. This year is poised to be the ninth in a row of growth in passenger demand. The International Air Transport Association, an industry lobby group, forecasts planes will carry 4.4 billion passengers this year, compared with 2.7 billion in 2010. Amid higher oil prices, airlines are also eager to update their fleet to more efficient planes that burn less gas.

Suppliers to Boeing and Airbus have struggled to keep up. Engine production delays have been among the most painful. At one point this year, Airbus had more than 100 near-finished planes waiting on the tarmac for their engines. In the first six months, the company delivered only 303 jetliners against a full-year target of 800 deliveries, mostly down to late engines.

Airbus Chief Executive Tom Enders this month said meeting the full-year goal was "doable" but "hard."

Boeing had delivered 378 planes at the midyear point against a full-year target of between 810 and 815 planes.

Airbus has two engine suppliers for its popular A320neo-family of new single-aisle planes and both have struggled. CFM remains behind schedule, Airbus said.

Safran Chief Executive Philippe Petitcolin has blamed the delays on the joint venture's own supplier issues, particularly with forgings, often-large metal parts that can be difficult to produce. The company said it planned to catch up this summer.

Airbus also buys engines from Pratt & Whitney, a unit of United Technologies Corp. Pratt & Whitney said it held back deliveries while it fixed design problems that were causing components to fail early. Pratt & Whitney is now delivering as planned, according to Airbus.

Pratt & Whitney said it had caught up on delivery commitments and remained committed to achieving its 2018 goal.

Airbus considered slowing production of single-aisle planes while the engine makers recovered, but it feared that could disrupt other parts makers, causing knock-on delays, said Airbus Commercial Plane Boss, Guillaume Faury. Instead, it continued building planes, Mr. Faury said, gambling engine makers would catch up.

Boeing took a more conservative view on the number of engines its suppliers could deliver, according to company representatives.

Spirit AeroSystems, the aircraft fuselage and wing-parts maker, started sending parts for Airbus's long-range A350 jets to its factory in France via expensive airfreight, to get them there in time, said Scott McLarty, Spirit's Vice President for the U.K. and Malaysia. After catching up, the parts now are again going by sea.

Airbus has asked Spirit to keep extra inventory for both A350 and A320 plane parts, Mr. McLarty said. Spirit, to protect its own production commitments, is asking its suppliers to keep spare inventory, too. It also has audited vendors to make sure they have the staff and resources to keep pace, he said, and has started sourcing parts from more than one supplier.

"The job today is not just about running a factory but running the entire supply chain," Mr. McLarty said.

The supply-chain woes have trickled down to passengers. Joanna Barlow and her partner Dan Winyard were due to fly to Boston from Birmingham, England, next month to visit family on Primera, the Scandinavian budget carrier. That flight was canceled because Primera couldn't get its jet on time from Airbus. They rebooked, but then their return flight was also canceled for lack of jets.

"You definitely don't expect flights to be canceled," Ms. Barlow said. "And certainly not because of lack of aircraft."

Written by: Robert Wall and Doug Cameron, with contribution from Andrew Tangel, for Morningstar.