August 6, 2019 / 4:23 PM / a month ago

Exclusive: Airbus plans A321 Toulouse expansion in traces of axed superjumbo

PARIS/MUNICH (Reuters) - Airbus is poised to open a new assembly line for the A321neo in Toulouse, France, easing a grip on production of the hot-selling jetliner enjoyed by workers in Germany and accelerating an industrial rethink caused by the demise of the much larger A380.

FILE PHOTO: The Airbus logo is pictured at Airbus headquarters in Blagnac near Toulouse, France, March 20, 2019. REUTERS/Regis Duvignau/File Photo

A formal decision on how to meet record demand for the medium-haul A321 has not been taken and operations in China and the United States are also being considered as part of an A321 study that Airbus says it will complete this year.

But industry sources say Toulouse is all but certain to get the ninth A320-family assembly line because of shorter lead times and the availability of cavernous halls built for the A380 superjumbo, which Airbus is shutting down due to weak demand.

“Toulouse is clear front-runner,” a person familiar with the plans said, while another said Airbus had been close to announcing the move at the end of the July, when it instead said only that it was considering how to shape future A321 output.

Airbus declined comment on locations.

“We see a need to adapt our assembly capacity to reflect our richer A321 mix within the A320 family from 2022 onwards,” Chief Operating Officer Michael Schoellhorn told Reuters by email.

The 180-240-seat A321 is the longest version of Airbus’s medium-haul A320 family which competes with Boeing’s 737 in the busiest part of the jet market, worth $3 trillion over 20 years.

The percentage of A321 deliveries within Airbus single-aisle output has trebled since the start of the century to 16 percent and Airbus hopes to lift that to 50 percent - part of a battle with Boeing for the lucrative “middle” of the jet market.

Responsibility for building the jet lies in Hamburg, which has been struggling to implement a complex new “Airbus Cabin Flex” (ACF) version offering airlines multiple layouts.

Pressure on Airbus to get things back on track was highlighted on Friday when the chief executive of British Airways owner IAG called recent delivery delays “unacceptable”.

IAG defected to Boeing medium-haul jets with a draft order for 200 of the grounded 737 MAX last month.

Although a new robot-assisted A321 line opened in Hamburg last year, challenges remain: more hours are needed to build the ACF version, aerospace demand has created a skills shortage in northern Germany and engineers have not navigated the “learning-curve” - cutting time and costs - to the planned schedule.

The new line in Toulouse would not lead to an immediate increase in overall A320-family output, but would allow Airbus to speed the introduction of new technology as the focus of its rivalry with Boeing shifts from new orders to the factory floor.

It would not lead to any job cuts in Hamburg whose plants have been growing, with 950 new jobs added recently, but instead allocate some of the anticipated future growth to Toulouse.

FRANCO-GERMAN AGREEMENTS

However, experts say it means reopening sensitive agreements over jobs between minority shareholders France and Germany.

While Airbus’s biggest plants are in Toulouse, it placed the A321 at its second-largest site in Hamburg three decades ago in exchange for keeping most wide-body work in France. The pact was renewed when the long-haul A350 was placed in Toulouse, with Hamburg promised leadership over the A320 family’s successor.

But Germany was forced to wait as the success of upgrades like the A321neo delayed plans for an all-new medium-haul jet.

This year’s decision to close the A380 - on which Hamburg has significant work - has added another sore point, though Berlin acknowledges that Airbus has added other jobs there.

“For the federal government the main importance is that Airbus decisions about locations are a matter of competitiveness and not of political deliberations,” said Thomas Jarzombek, aerospace coordinator for the German government.

“Should we have the impression that other countries pursue different targets, we would oppose that. We are convinced of the strength of our sites,” he told Reuters.

Under the plan, Hamburg will have control of the promising new A321XLR, launched at last month’s Paris Airshow, and retain overall leadership of the current generation of single aisles.

Berlin could use the changes as leverage to boost its claim for control of the next generation of single-aisle jets - though analysts say Airbus will be reluctant to make firm commitments beyond promising that it will be a business decision.

“For Germany it is important where the next single-aisle Airbus will be developed and built. We want the center of gravity to be again in Germany, i.e. Hamburg,” Jarzombek said.

FILE PHOTO: A Lufthansa Airbus A321-100 airplane takes off from the airport in Palma de Mallorca, Spain, July 29, 2018. REUTERS/Paul Hanna/File Photo

Switching A380 infrastructure to smaller jets could attract scrutiny from the United States which has accused Airbus of getting subsidies whose benefits did not die with the A380.

The United States and European Union have argued over whether Airbus has room to expand in Hamburg during a 15-year-old subsidy dispute in which their lawyers even spent time debating whether the “city of bridges” is surrounded by water.

Both sides have threatened to impose tariffs after partial victories at the World Trade Organization in the broad dispute.

Additional reporting by Jan Schwartz

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