Airbus Revs Up The Engines

To generate badly needed cash, it's boosting output of its popular A320 to record levels

For months now, Airbus has seemed paralyzed. The launch of its A380 megajet has fallen two years behind schedule, while multiple redesigns of its A350 widebody have delayed that plane's launch until 2013. On Feb. 19 a clash between the French and German governments over the aircraft maker's future forced the postponement of a long-awaited restructuring.

As these setbacks dominate the news about Airbus, the company has embarked on an ambitious and risky strategy to pull itself together. The European planemaker will need an estimated $15 billion to build the A350, even as the A380's woes slash billions from the bottom line. To generate that badly needed cash, it is boosting production of its single-aisle A320 aircraft to record levels while wringing efficiencies from its factories and suppliers as never before.

Popular with discount airlines and other carriers on short-haul routes, the A320 models sell for as little as $55 million, about one-third the catalog price of most widebodies. And while A320s yield razor-thin margins, some 2,019 are on order by airlines, making them a rich source of cash. Already, an average 32 A320s are rolling off German and French assembly lines each month, more than any commercial aircraft in history. By the end of 2008, monthly output is set to rise to 36, then to 40 after Airbus opens a new assembly line in China in 2009. By comparison, Boeing Co.'s (BA ) production of its competing 737 models is about 25 planes a month. The Airbus ramp-up "is a huge challenge for us," says Tom Williams, executive vice-president in charge of aircraft production. "We are really stretching."

Stretching too far could be dangerous. In the mid-1990s, Boeing's assembly lines suffered a near-meltdown when the company tried to speed up production of several models simultaneously. Mindful that it could suffer a similar fate, Airbus has studied that debacle in detail. A key finding: Boeing didn't work closely enough with suppliers to ensure a smooth flow of parts. So for more than a year, Airbus engineers have been meeting regularly with subcontractors, reviewing everything from the capacity of their tooling equipment to their procurement of titanium and other raw materials. "One part of the supply chain failing endangers the whole chain," says Alain Flourens, the A320 program manager.

Airbus' drive to tune up production is evident at its A320 factory near Hamburg, Germany. In a cost-saving method borrowed from Wal-Mart Stores Inc. (WMT ) and other discount retailers, it has leaned on suppliers for just-in-time delivery of components. And Airbus suppliers now deliver parts in prepackaged trays loaded onto carts resembling chests of drawers, a technique patterned after the auto industry. The carts are rolled from the loading dock directly to the assembly line, so workers get everything they need without leaving their stations. "No one would have thought we'd be able to work this quickly," says Susanne von Arciszewski, supervisor of an assembly line where efficiency has nearly doubled in the past two years.

Major Airbus suppliers are scrambling to keep pace. For example, Messier-Bugatti, which builds aircraft wheels and brakes, recently broke ground for a factory in Kentucky to help meet its growing Airbus order book. But such expansion creates cascading demands that can tax the limits of other parts makers. "There are lots of small suppliers where Airbus is a customer, we are a customer, and some other suppliers of Airbus are customers, and we are all going to increase our requirements at the same time," says Dominique Hédon, executive vice-president for strategy and development at Messier-Bugatti's Paris-based parent, Safran Groupe. Airbus has to avoid any weak links in the supply chain—or the A320 could join the company's list of troubled aircraft programs.

By Carol Matlack, with Stanley Holmes in Seattle

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