Airbus plots production increase as airlines upgrade fleets

Airbus SAS is poised to further lift production of its bestselling A320 jet series as airlines seek more fuel-efficient aircraft to cope with rising oil prices, helping the manufacturer fund construction of larger planes.

Airbus, the largest commercial aircraft maker, is moving toward 40 single-aisle planes each month by next year from 36 now, and a decision on another hike will come “shortly,” Airbus parent European Aeronautic, Defence & Space Co said.

“What makes it so difficult to take the decision is, clearly we need to deliver on this ramp-up, which is challenging, and we’re depending on our supply chain,” EADS Chief Financial Officer Hans Peter Ring told journalists on a call today. “So we need to move carefully.”

The A320 and Boeing Co’s competing 737 are the workhorses of the airline industry and the main generators of revenue at Airbus, helping finance the new A350 widebody model. EADS reiterated today that it plans to start assembling the A350 by the end of 2011 and have it in service two years later, cautioning that the program remains challenging.

EADS rose as much as €1.04, or 4.7 per cent, to €22.85 in Paris, the most in 15 weeks. The stock traded at €22.68 as of 10:53 am in Paris, the highest since the end of 2007. The shares have gained 30 per cent this year, compared with a 22 per cent increase in the price of Boeing stock.

Both Airbus and Boeing have been ramping up production of their twin-engine, single-aisle models as airlines and leasing companies renew efforts to refresh their fleets. Output at Boeing is now at 31.5 a month and is scheduled to rise in two steps to 38 by 2013. Boeing, based in Chicago, has said it may go as high as 42 planes a month with its 737.

Airbus, at a monthly rate of 36 since December, will reach 38 by August before moving to 40 in the first quarter of 2012.

“Any production increases on the A320 would be good news, as that brings in more cash,” said Yan Derocles, an analyst at Paris-based Oddo Securities, who has a ’’buy’’rating on the shares. A move to 44 planes a month would bring an additional €300 million a year in operating profit, he estimates.

EADS today reported a surprise first-quarter loss after Airbus delivered fewer jets, saw research costs rise, mainly in connection with the A350 development, and suffered the impact of unfavorable currency hedges.

The net loss was €12m ($17 million) compared with a year-earlier profit of €103m, the Paris-and Munich-based company said today in a statement. Analysts surveyed by Bloomberg had predicted net income of €28.8m. Sales rose 10 per cent to €9.9 billion.

First quarter deliveries fell to 119 planes from 122. Company-financed research and development costs rose to €650m from 572m a year earlier as Airbus began producing the first pieces of the long-range A350.

“While advancing with the A350 XWB through achieving several critical milestones, this decisive program continues to require our closest attention,” EADS Chief Executive Louis Gallois said in the statement.

The manufacturer has pushed back the planned first delivery, to Qatar Airways Ltd, by several months to late 2013.

The A350 will compete with Boeing’s 777, operating since 1995, and the US company’s smaller 787 model, which is running 3 1/2 years behind schedule. Boeing is aiming for the first deliveries in September of this year.

Earnings were hurt by foreign-exchange costs because of less favorable hedges based on rates locked in before the recent rebound in the dollar, the currency of passenger jet sales. The stronger dollar will begin to benefit the company in 2012, EADS has said.

EADS’s biggest shareholders include carmaker Daimler AG, the French state and Lagardere SCA. Over the years, Lagardere has whittled its holdings down to 7.5 per cent, and Daimler has placed a 7.5 per cent EADS stake with a group of German banks and states, while keeping voting control of those shares for a total 22.5 per cent stake in EADS. The French state still owns 15 per cent.