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Airbus Takes a Risky Course and Holds the Line on Production

Airbus Takes a Risky Course and Holds the Line on Production

Airbus (OTC:EADSY) ended last month with a whopping 7,501 commercial jet orders in its backlog. That’s close to a record high and represents more than eight years of production at 2019 production rates.

This big order backlog hasn’t shielded Airbus from the COVID-19 aviation downturn, though. The European aerospace giant has been forced to cut production significantly this year. With air travel demand showing no signs of recovery so far, Airbus faces pressure to cut output even further. So far, it is resisting this pressure, according to a recent Reuters report. This is a risky strategy that could pay off if demand rebounds meaningfully within a year or so, but could backfire otherwise.

Airbus has reduced production

Airlines across the world are bleeding cash and have cut capacity dramatically. As a result, even those that had aggressive growth or replacement plans entering 2020 now have no need for new jets in the near term. This led to a sharp drop in aircraft deliveries at both Boeing (NYSE:BA) and Airbus last quarter.

An Airbus A350 flying in front of a cloud.

Image source: Airbus.

Boeing is radically slashing production to match demand. Wide-body production will decline by about 50%. Demand for freighter and military variants of the 747, 767, and 777 is the only thing preventing an even bigger output cut. Meanwhile, it plans to gradually ramp up 737 MAX production to a rate of 31 per month by early 2022. That would still be 46% below its previously planned production rate of 57 per month. But with more than 450 737 MAX jets in storage waiting to be delivered, it can’t go any faster.

Airbus has also reduced its near-term wide-body production plans by nearly 50%, albeit from a lower base. However, it made more modest adjustments to its narrow-body output, cutting A320-family production by about a third and

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