Airbus is interested in bringing a second engine manufacturer onboard the A220 program.
On the surface, the story is pretty simple. Through a combination of clever strategy and the mistakes of rival Boeing, Airbus has achieved a commanding—and enduring—lead in most segments of the commercial airplane market.
Its products are selling so well that its main issue is figuring out how to build and sell more of them faster. The company also has developed a vision for the future and has promised to deliver its first hydrogen-powered aircraft in 2035, the initial sign of the aerospace industry’s transformation toward a sustainable future.
- Production and supplier constraints likely to limit growth for years
- CEO Faury outlines new conventional narrowbody for the first time
- Commitment to hydrogen aircraft remains
It seems to be the ideal scenario for the European commercial aircraft manufacturer as the industry heads into its first Paris Air Show since 2019. But while Airbus’ success is undeniable, its future may be more complicated than many expect, particularly internally. Its challenges, some of which are issues for the industry at large, are substantial—and it has more than a few. They include operational questions and strategic issues that likely will keep management busy. High on the agenda and more pressing than is apparent at first: the OEM’s strategy for future products. Intertwined with that concern is an evolving relationship with—and realignment of—the three engine manufacturers. All of that makes for some complicated game theory.
GOOD AND GRIM
But more on that later. Last fall, things looked simultaneously good and grim for Airbus. The COVID-19 downturn was largely behind it. Airlines had just gone through a problematic summer, but that season also had shown demand bouncing back more quickly than anyone had anticipated—a recovery that was not at all clear a few months earlier. Aircraft orders were picking up again, and the ambitious production growth Airbus had outlined to customers and investors quickly gained credibility. If demand was that good, Airbus may have gotten it right, more and more pundits declared.
On the grim side, CEO Guillaume Faury and Chief Commercial Officer Christian Scherer had to inform more customers that their aircraft were going to be late. As with airport security personnel, aircraft component manufacturers and chip, seat and lavatory specialists could not cope with the fast return of business. Faury told investors last November he believed he had seen the worst.
As it turned out, he was wrong. When the industry moved into 2023, the supply chain problems were far from resolved. In fact, many maintain that the issues are at least temporarily worsening, making it unlikely that Airbus will be able to achieve its production target of 75 A320neo-family aircraft per month, a goal already delayed by one year. Aerospace recovered from previous crises relatively quickly, but not this time. “Why is it that the industry is in so much trouble?” asks one senior executive. “That is the single most strategic question that we have.”
His answer is that COVID-19 has broken the entire system, as a painfully large number of experienced engineers left the industry. For Airbus, the structural disruption of its supply chain—which it had tried to avoid by keeping narrowbody rates at 40 per month even in the worst phase of the pandemic—could have severe consequences. Its underperformance could continue even beyond 2024. Air Lease Corp. Executive Chairman Steven Udvar-Hazy does not foresee a full recovery until 2028, and CEO John Plueger has made clear that customers are no longer willing to accept the constant delays without compensation.
What worries some observers is that Airbus’ industrial management may be operating at the limit of their abilities. “Apart from Faury, the Airbus management team is just not capable of facing the challenges,” says one particularly critical insider. “They and the industry as a whole have not gotten their arms around them.” In early February, after Airbus delivered a dismal 16 A320neo-family aircraft in January—many fewer than required for it even to approach its production targets—the usually composed Faury is said to have “gone ballistic” in a senior management meeting.
Two months later, he ousted Michael Menking, who had led the A320neo-family program since just before the pandemic. Menking had been brought in to fix production at the previous peak and associated problems. But can changing one senior executive address endemic structural problems?
Airbus has launched other initiatives as well. It set up Airbus Atlantic in France and Airbus Aerostructures in Germany. Stelia and Premium Aerotec, both former arm’s-length Airbus subsidiaries, were merged with various previous Airbus sites to form stronger aerostructures firms that are more integrated than a supplier would customarily be.
The process is more advanced in France, in part because of earlier restructuring successes in the Stelia days. But union opposition has slowed the German efforts. Even German units considered uncompetitive as part of Airbus because of their high cost structure are not planned to be sold. They must instead be turned around, requiring management attention that could be better used elsewhere—such as in securing production, adding contingency and stock in an attempt to avoid further frustrating customers. But, International Air Transport Association (IATA) Director General Willie Walsh says airlines are already “beyond frustrated.” IATA Chief Economist Marie Owens Thomsen notes that when an aircraft delivery is six months late, “that is now considered on time.”
The latest projections are for the most urgent supply chain constraints to persist until at least 2024 and possibly the end of that year and for aircraft demand to outstrip supply for the foreseeable future.
THE ELEPHANT IN THE ROOM
The even longer-term question is: Where does Airbus go from here with its product strategy once the industrial situation is under control? Faury surprised the industry in April when he commented twice in the same week—in a radio interview and at a French trade group GIFAS event—that Airbus could bring a new conventional narrowbody, replacing the A320neo family, to market in the second half of the 2030s.
While that comment was in some ways stating the obvious, it opened up room for much speculation and interpretation. “That is a very positive statement,” says Adam Pilarski, senior vice president at consultancy Avitas. “They started out by saying that by 2035, everything will change [with the introduction of a hydrogen aircraft]. They may realize that it will take longer—it could be 2050—and in the meantime, they will have to do something else.”
Sash Tusa, aerospace analyst at Agency Partners, is clear about his view: “The elephant in the room is that everything civil aviation does for sustainability is not good enough.” There are still many questions about whether sustainable aviation fuel is really the solution, he contends. At the same time, as other economic sectors improve in sustainability, “aviation could become the single biggest source of industrial emissions,” he adds. Tusa says he is convinced there is no way around a new aircraft program that could deliver double-digit efficiency improvements, enough at least to compensate for a few years of aviation growth.
And just as the industry was heading into the Paris Air Show, Faury went further than he ever has publicly to confirm the internal plans, telling Aviation Week, “We need a new generation of planes.” He explained: “We need planes that burn around 20-25% less fuel than what we are using today with the A320neo or A321neo. That is why we are preparing entry into service of a brand-new generation of planes in the second half of the next decade, targeting 2035, maybe between 2035 and 2040.”
Faury’s rationale is simple: Sustainable aviation fuel will continue to be scarce and very expensive, even in the long term, so aircraft that burn much less fuel will need to be available.
The revelation is huge news even for close observers who had so far seen little or no evidence of Airbus working on something. That Airbus is getting serious about a new aircraft “makes me feel much more comfortable with their strategy,” Pilarski says. “I am impressed with them; they are way ahead of Boeing from a strategic point of view.” He attributes this, among other reasons, to Scherer: “[Scherer’s predecessor] John Leahy was a great salesman, not a strategic thinker. Scherer is a strategic thinker.”
Some in the industry speculate that Airbus is “slowly backing away from hydrogen,” Pilarski notes. Faury strongly rejected that notion: “That that is completely wrong,” he told Aviation Week. “I am absolutely not slowing down or reducing investments of the hydrogen plan.”
One official sees a three-stage approach to new derivative aircraft ahead of the launch of a new narrowbody that looks simple but is really complicated when it comes to the details. “An A220-500 is the obvious next step,” he says, referring to a stretched version of the A220-300 that some key Airbus customers such as Air France and Delta Air Lines would like to see sooner rather than later. That should be followed, he says, by the so-called A322, a stretched A321neo with new wings and new-generation engines. While Airbus is at it, it also could produce an A350neo in the not-too-distant future, the official points out.
Of the three imagined steps, the A322 appears to be the least likely, simply because Airbus is now confirming it plans an all-new aircraft for 2035, has a mountain of orders to deliver for the A321neo and does not foresee large enough technology advances in the short term to justify another multibillion-dollar development program that would soon be eclipsed by a substantially better aircraft.
All three steps, and particularly the first two, would require a change in current thinking about when to act. Conventional wisdom holds that Airbus does not need to move before Boeing does, since it is dominating the market anyway versus the 737 MAX family.
In the new world of sustainability, however, that argument may no longer hold—it does not take into account the considerable pressure on the issue that governments and customers may exert in the coming years. Also, the MAX has been catching up as of late, as Tusa points out. “The MAX is now a serious competitor; it has come back,” he says. “The economics of a 737-8 appear to be good. It worries me that [Airbus] has to make a decision under pressure.”
LIMITING EXPOSURE
Airbus’ product strategy is overshadowed and must be deeply influenced by how it wants to define and alter its future relationship and exposure to the three engine manufacturers. It must face some uncomfortable realities, primarily that it has some dangerously high risks bundled with Pratt & Whitney and Rolls-Royce, both of which are underperforming in their own ways.
As most airlines operating the type can attest, Pratt’s geared turbofan has severe maturity issues, even several years after its initial service entry. On the Airbus side, the A320neo and the A220 are affected. Pratt could need years to recover and bring the engine’s maturity in line with previous-generation powerplants. “The industry is losing confidence in Pratt,” says one industry source. “People are clearly realizing that.” He says customers are doubting the official timeline for the “Advantage” version of the engine, which incorporates many lessons learned from the earlier geared turbofan block standards that have seen so many problems. The more accepted time frame appears to be 2026, versus the announced arrival date of 2024.
“Airbus is overexposed to Pratt,” Tusa says. “[Years ago] Leahy said that you can’t trust Pratt.” With Pratt now part of Raytheon Technologies, the problem has made things worse for Airbus strategically, Tusa points out. “They have very little leverage against Raytheon,” given how many aircraft systems the supersupplier is delivering for Airbus products. “Raytheon has a lot of challenges,” Tusa adds. “And Airbus is not at the top of their list.”
Airbus also is exposed to Rolls-Royce’s issues; the British OEM is the exclusive engine provider for the A350. Rolls’ Trent program is continuing to recover from reliability shortfalls. In addition, the company is in a fragile financial state, and new CEO Tufan Erginbilgic has promised to make few compromises in his efforts to turn it around. Industry sources expect him to try to renegotiate the power-by-the-hour agreements for the Trent XWBs, “and that will upset a lot of customers,” an industry source says.
One observer says he is “very, very concerned” that a much harder-nosed commercial strategy implemented by Rolls-Royce could make the A350 less competitive.” Faury acknowledged the issue: “Obviously, having competitive engine rates is essential for the A330neo and the A350. That’s the tension that Rolls-Royce has to manage. They need to recover their financials but at the same time be competitive and not undermine the ability to win campaigns.”
The launch of new versions of existing aircraft or even a new program could provide Airbus with a golden opportunity to reset its business with engine OEMs for decades to come. The likely beneficiaries: GE Aerospace and its partner in the CFM International consortium, Safran.
On the other side of the Atlantic, GE would love nothing more than to fix its relationship with Airbus. The largest manufacturer of commercial aircraft engines does not have a presence on two of three programs of the biggest commercial aircraft-maker—an undesirable position for the long term. And in the one program in which it does participate, the A320neo family, GE delivers “only” around 60% of the engines, with Pratt having taken the rest.
GE and Airbus have begun working closely together on the questions around the RISE technology program, which is planned to lead to a next-generation open-rotor engine capable of powering a narrowbody-size aircraft around 2035. It is of course no coincidence that this is the same earliest service-entry time Airbus is targeting for its new narrowbody family. “CFM strongly believes it’s viable,” Faury revealed. “Our teams believe it is likely to be viable, but there are still a number of boxes that need to be ticked.” Faury’s bottom line: “We consider it to be a promising technology.”
It is important to note that RISE as a complete engine product would also require a new airframe, simply because the open rotor would be too large to fit under the wing of any current narrowbody. That is why many also have interpreted its launch as a signal to Boeing to not attempt a new narrowbody for entry into service before 2035 because GE would not have an engine ready.
As a side note, Airbus’ selection of an open rotor would force Pratt & Whitney to offer the same technology to power the next Airbus narrowbody or risk being left out.
However, GE could roll out parts of the broader technology program into earlier applications. The most obvious opportunity could be a powerplant for the A220-500. That would give Airbus an engine likely more efficient than the geared turbofan. At the same time, the launch of another A220 version would decrease its exposure to Pratt. For CFM, an A220-500 might even be the chance for a “mini-RISE”—an engine with a new core and a small open rotor.
Airbus would like to have a second engine OEM for the A220. “If we could, over time on the A220, have dual engine options, especially with a new variant being the -500, that’s one thing we would really like to see,” Faury said. “It has been very successful for the A320neo.”
“An A220-500 with an alternative engine would be a rational decision,” Tusa says. An A220-500 with a Leap or RISE engine would be “the answer,” an industry executive says. “GE would love to put a [version of] the RISE on an A220-500.”
Airbus’ Scherer has repeatedly said that the A220-500 is “not a question of if, but when.” The “when” relates to several issues. Among them is when Airbus will be prepared to cannibalize the A320neo, as the A220-500 likely will be the same size. Engine availability is another question. A quick launch at the Paris Air Show, predicted by some, therefore appears highly unlikely. A more realistic time frame would be a launch around the end of 2024 or in early 2025, with a first major stream of new orders coming in at Le Bourget in 2025.
As for the A350, Rolls-Royce appears to have exclusivity on the -900 but not the -1000. “The A350 is starting to lag a little bit,” says one industry executive, mindful of recent large deals scored by Boeing with its 787 at Riyadh Air and United Airlines. Boeing also got a significant share of the recent Air India order (AW&ST May 22-June 4, p. 60) and is in a good position for a big commitment by Turkish Airlines expected in the coming weeks (AW&ST May 22-June 4, p. 54). For the time being, Faury maintains that the A350 has “the best engine in the industry” and does not need to be upgraded soon. Eventually, it will.
