Bloomberg News

Airbus, Boeing Ramp-Ups Testing Supplier Credit Access, GKN Says

January 12, 2012

Jan. 11 (Bloomberg) -- GKN Plc said some of its suppliers are struggling to secure the financing needed to step up production of components for planes including Airbus SAS’s delayed A350 model as bank credit for new equipment dries up.

While GKN’s own ramp-up plans are on track, with a second set of A350 wing spars and trailing edges due to be delivered this month, the limited access to capital of its suppliers is of some concern, according to aerospace unit chief Marcus Bryson.

Airbus pushed back the A350’s service entry by as much as six months on Nov. 10, the project’s second delay, saying some parts were arriving late. Redditch, England-based GKN also supplies wing structures and engine housings for Boeing Co.’s 787, which began deliveries three years late in September.

“If you talk to some of the supply chain they do find it difficult in the current climate to get access to finance from the banks,” Bryson said in an interview in London. “We know the ones to watch and work closely with them. It’s not that many.”

Some banks are holding back on lending to reduce risk and maintain higher reserves, potentially threatening production, Airbus Chief Executive Officer Tom Enders said in October.

GKN employs about 200 engineers in designing and developing large-scale structures for the A350 at Airbus’s former site in Filton, England, which it bought in 2009. Its own acceleration to peak production is fully costed, according to Bryson.

“We’ve already calculated what we need to spend to reach capacity,” he said. “We’re on track and it’s all planned out. I think they would like us to build a bit faster but at this stage of the program engineering-definition is still coming through.”

Airline Impact

Airbus and Boeing are also making heavier demands on suppliers as they lift production of older models, with the European company boosting output of its A320 from 38 a month in August to 42 by the second half of 2012. A further acceleration to 44 may be made if the supply chain is deemed able to cope.

Assembly of the A350 will start by the end of 2012, rather than late last year as originally slated, according to Toulouse, France-based Airbus’s latest schedule. Qatar Airways Ltd. is the No. 1 A350 customer and the first airline due to get the jet.

GKN makes components for all of Airbus’s planes, including the A330 and discontinued A340 wide-body models, the A380 superjumbo and the A400M military transport.

Bryson said he’s also concerned that any further impact from the euro crisis on the international banking system could limit financing available to airlines, jeopardizing contracts.

“An order-book might look great, but if you’ve got customers that can’t raise the capital to buy the planes that would be a problem,” he said.

--Editors: Chris Jasper, Benedikt Kammel.

To contact the reporter on this story: Sabine Pirone in London at spirone@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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