Airbus urges suppliers to begin investing for rebound in air travel

Fearful suppliers are not prepared for a post-COVID rebound, European aerospace giant [hotlink]Airbus[/hotlink] warned on Thursday, urging suppliers to begin planning investments in new machinery and staff right away due to the industry’s long lead times.

“The aviation sector is beginning to recover from the COVID-19 crisis,” Airbus chief executive Guillaume Faury said in a statement, adding that suppliers need to “be ready when market conditions call for it.”

With the world gradually emerging from a year-long pandemic, manufacturers are scrambling to secure raw materials to feed their factories and meet demand. As things stand, car companies are halting assembly lines due to an acute shortage of semiconductors, steelmakers are stung by a surge in iron ore costs and construction firms are considering using lumber scarred by pest infestation for the lack of affordable alternatives.

To prevent the same kind of bottlenecks from constraining its operations, Airbus has projected its likely future production rates all the way out to 2025. This is important as it can take considerable time for Airbus to cope with supply chain failures. Switching to a new parts maker is an elaborate process due to the sheer scale of safety standards that need to be met and certified by aviation regulators.

Last month, Faury told shareholders that he ordered output to be slashed by 40% on average last year. “Production rates will remain lower for longer,” he warned at the time, citing continued headwinds from the pandemic. But at least some of the those headwinds are falling away.

Shares in Airbus surged 8.5% in trading on Thursday, lifting peers in the process. UK jet turbine manufacturer Rolls-Royce rose 2.2%, while German blue chip supplier MTU Aero Engines gained 3.5% during the session.

Airbus has delivered more planes this year than Boeing, a testament to the strength of its supply chain and manufacturing network. The U.S. rival has, however, cleaned up when it comes to winning new business. [hotlink]Boeing[/hotlink] booked 307 new gross orders excluding cancellations to Airbus’ 87 through the first four months of 2021 as Europe's vaccine rollout lagged North America's.

With the tourism sector losing an estimated $4.5 trillion last year, Europe is now moving to open up its borders and facilitate travel internally as well.

Global aviation industry body IATA warned authorities worldwide needed to make even greater strides by eliminating quarantines and rolling out COVID vaccine passports. "Aviation is ready. But I don’t see governments moving fast enough,” said IATA Director General Willie Walsh said.

Unfortunately for many manufacturers, growth is being held up by record supply chain delays. IHS Markit estimated last week that new orders were running ahead of production at the highest rate in the 23-year history of its purchasing manager survey.

Some suppliers to benefit

Luckily for Airbus, single-aisle planes typically used for domestic or regional flights, is where traffic is expected to rebound earliest. The market for civilian aircraft in this segment could return to pre-pandemic levels as early as 2023, according to Airbus.

The aerospace group is urging suppliers to be ready for a sharp ramp up of production — particularly in the A320 family. This model represents the bulk of its business, responsible for around 80% of both its 566 aircraft deliveries last year as well as its 7,000-strong order book for planes.

In this segment, output is expected to grow from 45 planes per month in the final quarter of this year to what Airbus calls a “firm rate” of 64 by the second quarter of 2023. The firm also wants suppliers to be prepared for a pace of 70 per month at the start of 2024, rising to as much as 75 by the following year, although there is more uncertainty around these estimates the further out they go.

By comparison, demand for large widebody aircraft with twin-aisles may not fully recover until 2025. As a result, Airbus only guided for a cautious increase in A350 monthly output to 6 planes in autumn 2022 from 5 currently.

The updated production guidance could mean greater business for [hotlink]Raytheon[/hotlink] Technologies’ jet engine subsidiary Pratt & Whitney, which supplies the A320 family. By comparison U.K. peer Rolls-Royce only delivers propulsion systems for the larger A330 and A350 widebodies, where the outlook remains subdued.

“This is certainly a positive signal for the aerospace industry,” said Pratt & Whitney supplier MTU Aero Engines in a statement to Fortune. “Given the requisite lead times, we can achieve the corresponding volumes agreed due to the flexibility in our production at MTU. This is equally true for our own suppliers downstream, where we do not expect any bottlenecks.”

Due to the uncertainty surrounding long-distance flights, Airbus is expanding its A320 family to include the single-aisle A321 XLR, which will be able to service transatlantic routes such as from Frankfurt in Germany, to New York City.

These are expected to be more economical for airlines to operate. Thanks to their smaller size, carriers can easily achieve higher passenger load factors, a measure of capacity utilization that determines profitability, while simultaneously cutting their fuel bill.

Although the A321 XLR won’t launch until 2023, the company has already received more than 420 orders for the aircraft.

This story was originally featured on Fortune.com