Airbus Flies into the Global Credit Storm

Posted by: Carol Matlack on October 15

The downdraft from the global financial crisis has finally hit Airbus. On Oct. 15, the European planemaker confirmed to Bloomberg News that it will delay a planned production ramp-up because of uncertainty about the firmness of its order book. “This is a prudent decision following our current market view,” CEO Tom Enders told Bloomberg.

Plans to increase production of the popular A320 narrowbody model from 36 to 40 planes a month have been put on hold. Production of widebody planes such as the A330 will rise to 10 a month by 2010, rather than 11 a month as projected earlier. Shares in Airbus parent European Aeronautics Defence & Space Co. fell 8.36% on the news.

Both Airbus and its U.S. archrival Boeing Co. are sitting on record order backlogs, and both have reported relatively few order cancellations and delays, despite a wave of airline-industry bankruptcies and fleet downsizing. Knowing if and when airlines will actually take delivery of planes is critical to the planemakers, because typically more than 90% of the aircraft’s pricetag is paid upon delivery.

As recently as this week, Airbus reportedly was shrugging off the economic downturn, saying airlines were still eager to get their hands on newer, more fuel-efficient aircraft. In fact, the impact of the global credit crunch was just delayed, because airlines typically lock in their financing a few months before delivery.

Leaders of aircraft leasing companies, the jetmakers’ biggest customers, have warned in recent days that Airbus and Boeing should consider reining in production because of continued tight credit conditions.

Boeing, at least, doesn’t have to worry at the moment about slowing production. Its assembly lines have been shut down since Sept. 6 because of a strike. Talks with unions broke down on Oct. 14, making it likely that the strike will continue into November.