Tuesday, May 24, 2016

Airbus Tackles Its Procrastination Problem: Plane maker had to work round-the-clock the past two Decembers to meet yearly jet-delivery targets

Kathryn's Report: http://www.kathrynsreport.com

The Wall Street Journal
By Robert Wall
May 24, 2016 5:30 a.m. ET

Airbus Group SE executives are trying to end what has become an unwanted annual rite: the plane maker’s scramble to hit its year-end jet-delivery promise.

Last December, the company cranked out 79 aircraft, a record monthly output that represented about 12% of its annual total. The feat provided last-minute relief for anxious investors, who had started to worry Airbus would miss its 2015 goal. The company ended up meeting it, but had to pull the corporate equivalent of an all-nighter to make it happen.

In 2014, it kept investors on the edge of their seats, too. It delivered 75 aircraft in December—again, about 12% of its annual output—to meet its yearly output promise. It was largely the same drill the two previous years.

“It is certainly a frustration for us,” said Tom Williams, chief operating officer at Airbus’s jetliner unit. “We need to do better.”

Airbus’s year-end frenzy has helped it deliver consistently on its annual promises. Airbus delivered 635 aircraft last year, six more than in 2014. That marked the 13th year in a row of higher output for the Toulouse, France-based company.

But the last-minute push has long irked investors and customers. Plane deliveries are closely linked to cash flow, so investors take Airbus’s annual output more seriously than its orders. They prize consistent deliveries through the year—the sort of steady output for which rival Boeing Co. is better known.

So far this year, it is off to another slow start. The company has promised a record for 2016, forecasting 650 plane deliveries. But in January, it only finished 22 of those, or 3.4%. At the end of April, it had delivered only 177 planes, or 27% of its annual goal.

That has hit cash flow hard, and Airbus’s share price. On April 28, Airbus reported net cash outflows of €3 billion ($3.37 billion), largely a result of lagging deliveries. Investors reacted badly, sending shares down 4.6% that day.

With a record backlog of jet orders, Airbus plans to boost production sharply in coming years to meet that demand. Mr. Williams says Airbus can no longer afford the late-year rush. Buyers are also eager for steady output.

“Customers want certainty when the aircraft is going to be ready,” said John Leahy, chief operating officer for customers at Airbus. “From a production point of view, we need to smooth this out.”

It won’t be easy, and officials are already acknowledging they expect another scramble this winter. After the annual December rush, Airbus typically has to give workers time off to recover, inevitably putting the company behind early in the next year.

Airbus’s complex industrial structure, which spans Europe, is also partly to blame. Wings are built in the U.K., and other big sections of the airplanes in France and Germany. The countries have different vacation periods, which Mr. Williams said leads to different downtimes. That reverberates through the production system, disrupts parts flow, and can affect when planes are ready.

This year, there is added worry about Airbus’s promise. It has already shifted deliveries of some of its newest planes, the A320neo, a single-aisle plane with a new engine configuration, to the second half of the year. That will give it and engine supplier Pratt & Whitney, a unit of United Technologies Corp. , more time as they muddle through the inevitable learning curve of putting together a new model.

It has delivered only four A350 long-range jets in the first three months against a full-year target of at least 50. Airbus is wrestling with supplier problems on the model.

Airbus is exploring ways to change the way it builds planes to make the process more clock-work-like. The company hasn’t disclosed what steps it is considering—a sensitive topic among its workforce, since any big changes in the manufacturing process could affects jobs. Airbus says only it will first consult with staff before making any adjustments.

Airbus rival Boeing surprised investors when it said it would build fewer planes this year, between 740 to 745, than the 762 jets it shipped last year. But the Chicago-based giant will still far outstrip Airbus in deliveries this year, holding on to the title of the world’s largest plane maker.

Boeing has done a better job smoothing out production. It delivered 53 planes in December, or about 8% of annual output. The U.S. plane maker isn't encumbered by Airbus’s complex multination setup and also operates with more flexible labor rules. It delivered 176 planes in the first quarter.

Original article can be found here:  http://www.wsj.com

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