EADS Says Suppliers Are Bottleneck in Airbus Ramp-Up

European Aeronautic, Defence & Space Co. Chief Executive Officer Louis Gallois said suppliers are the “main bottleneck” toward lifting production, as its Airbus SAS unit pulls in record orders for single-aisle jets.

Gallois cautioned that suppliers may strain Airbus’s ability to meet demand, as the aircraft manufacturer becomes an increasingly dominant part of the company’s portfolio. Earnings surged 39 percent in the first half, as operating profit almost doubled at Airbus, EADS said today. The unit accounts for 70 percent of sales, which rose 8 percent to 21.9 billion euros.

Suppliers of equipment ranging from aircraft engines to seats are struggling to keep up as Airbus and rival Boeing Co. (BA) rake in orders and retool their aircraft. EADS today predicted orders for more than 1,000 planes this year, up from 644 in 2010. Airbus plans to boost monthly output of A320 single-aisle jets to 42 in 2012 from 38 before going even higher.

“The question is the capacity of the supply chain,” Gallois said on a conference call with journalists. “Reaching 42 is already a challenge, and to go further we have to make sure the supply chain is able to follow.”

EADS rose as much as 41 cents, or 1.7 percent, to 24.71 euros in Paris, and traded at 24.31 euros as of 1:27 p.m. in Paris. The stock has gained 41 percent in value so far this year.

Boosting Production

Boeing announced plans in June to boost production of its 737 jetliner by 33 percent to 38 a month by 2013 to work off a record order backlog. Last week, Chicago-based Boeing decided to follow Airbus in offering new engines on its 737 to improve fuel efficiency. The Airbus variant, called A320neo, has become the company’s fastest-selling aircraft to date.

Airbus has garnered orders or commitments for more than 1,000 A320neos since it went on offer in December 2010, with 667 at the Paris Air Show in June. The A320 is powered either by the Leap, a new engine that supersedes the CFM56, or with geared turbofan engines by Pratt & Whitney. Boeing’s updated 737 will only feature the CFM’s Leap as the engine choice.

Gallois singled out CFM as one company that may be under strain, because the company already supplies engines to the existing Boeing 737 and the A320. The manufacturer has also won a place on the planned Chinese 168-seater being developed by Comac for introduction in 2016.

Chinese Assembly

“They have their own supply chain, and have to take that into account,” Gallois said.

General Electric Co. (GE), which runs the CFM joint venture with Safran SA (SAF) of France, and Pratt & Whitney are hiring to handle rising demand. GE is adding more than 1,000 U.S. workers, while Pratt & Whitney plans more than 800 jobs, with 500 engineers tied to geared turbofan engines.

Airbus assembles its single-aisle A320 family in Hamburg, Toulouse in southern France and in China, where the company opened a final assembly line in 2009 to help it win local orders. The factory in Tianjin will build aircraft at a rate of four planes a month, a fraction of the European output.

Airbus had considered adding a final assembly line in the U.S. when the company competed for an aerial refueling contract. After Boeing won the deal, the plan fell through. Gallois said adding another line is “speculation” at this point.

The planemaker may need to rethink it strategy for protecting dollar revenue later in the decade, and one way to assure that would be doing more work in the U.S., EADS Chief Financial Officer Hans Peter Ring said.

“We have to think strategically about this question of getting more natural hedges into our exposure,” he told analysts on a call. “It’s a long-term topic, which would mean to buy even more in dollars and probably do more in the dollar area but we don’t have a concrete plan as of today.”

To contact the reporter on this story: Andrea Rothman in Paris at aerothman@bloomberg.net

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