Planemakers look at higher output to meet demand

[February 06, 2018]   By Jamie Freed and Tim Hepher

SINGAPORE (Reuters) - The world's largest planemakers signaled a possible increase in output of their most popular passenger jets on Tuesday, highlighting their confidence about growth in demand for air travel.

Although new orders have dwindled following a seven-year boom, executives at the Singapore Airshow suggested Airbus <AIR.PA> and Boeing <BA.N> have enough business in their bulging order books to speed up their already-record production of narrowbody jets.

"The success of the product is forcing us to look at any opportunities we have to improve the rate. We have not come to any conclusion yet but this is something we are looking at very closely," Airbus sales chief Eric Schulz told a news conference.

Schulz, making his first appearance since being recruited from Rolls-Royce to replace retired sales chief John Leahy, shrugged off concerns about the ability of the supply chain to keep up with higher production rates.

"I think the supply chain will be able to cope and we will be able to raise rates as needed in the market," he said.

His comments match confidence from rival Boeing as the industry responds to growing demand for medium-haul jets.

In an interview with Reuters, a senior Boeing official said the U.S. company was confident in demand for its 737 MAX jet, the latest version of which was rolled out on Monday."There is upward pressure (on production rates) because we are oversold," Marketing Vice President Randy Tinseth said.

"If you want a (737) MAX today, we are talking 2023," he added, referring to long waiting times for new jets.

Just as airlines overbook seats, planemakers typically sell more aircraft than they plan to produce to protect themselves from airlines going bankrupt or failing to take delivery.

These comments show both planemakers are confident they can preserve an adequate buffer, even with higher output.

A winglet of an Airbus A350-1000 XWB aircraft, seen at the Singapore Airshow, Singapore February 6, 2018. REUTERS/Kevin Lam

Engine maker CFM International, which supplies both Boeing and Airbus, said last month that planemakers had begun asking about its ability to support higher production.

Boeing currently produces 47 of its 737 narrowbody aircraft per month and is heading toward 57 per month next year.

Airbus is increasing production to 60 per month by mid-2019.

Industry sources have said both companies are looking at increasing production to as much as 70 single-aisle jets a month.

But the head of the world's largest aircraft leasing company is yet to be convinced that markets can support such levels.

"Can both of them go to 70? I don’t think so. 140 a month, I don't think that is possible at the moment," AerCap <AER.N> Chief Executive Aengus Kelly told Reuters when asked whether the market could support such levels of production.

Even so, he expected Airbus and Boeing, who make up the bulk of the $140 billion a year jet market, to exercise restraint.

"If the market can take it, they will give it. If the market won’t take it, they won’t," he said.

"What is much more important for the manufacturers is not what they say they do, and not what the orders are but what they are delivering," Kelly said. "If you look back over the last 20 years what you see is a very strong correlation between traffic growth and deliveries," he added.

(Additional reporting by Anshuman Daga, Fathin Ungku, Editing by Muralikumar Anantharaman. Editing by Jane Merriman)

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