Major plane buyer sees Boeing, Airbus supply chain risk

SAN DIEGO, March 18 Tue Mar 18, 2014 11:17pm EDT

SAN DIEGO, March 18 (Reuters) - Boeing Co and Airbus are risking over-stressing the fragile aerospace supply chain as they ramp up plane production to unprecedented levels to meet strong demand, one of the world's most influential plane buyers said on Tuesday.

Steven Udvar-Hazy, chief executive of Air Lease Corp, one of the world's biggest aircraft lessors, is also urging the two plane makers to build new jets to fill the gap between larger twin-aisle aircraft and smaller narrow-bodied planes, dubbing the proposed aircraft the 'Boeing 797' and 'Airbus A360'.

Udvar-Hazy, a major customer in the $110 billion global passenger aircraft business, said the pressure of production acceleration could cause problems at the lower end of the complex aircraft supply chain.

"I'm less concerned about Boeing and Airbus assembling the airplanes," Udvar-Hazy told Reuters on the sidelines of the annual ISTAT air leasing conference in San Diego.

"As you go down the supply chain, hundreds of suppliers, small suppliers, can they keep up with 100 single-aisle aircraft a month? That's a big concern of ours, because a little guy can slip up and then it holds up everything."

Delays in the supply chain can be costly for everyone in the industry, as Boeing found out in the late 1990s when it was hit by billions of dollars in accounting charges after parts shortages stopped production.

Airbus recently said it will lift production of its single-aisle A320 planes by nearly 10 percent, matching a similar move by Boeing. Both companies also are building many of their double-aisle planes at faster rates. By 2017, Boeing and Airbus will be churning out a staggering 138 new jetliners a month.

Udvar-Hazy said both companies are being cautious about these production hikes, but the potential for trouble still exists. "They realize the weak link in the chain is not at their level, it's down several layers," he said.

FILLING THE SIZE GAP

Udvar-Hazy founded International Lease Finance Corp in 1973, and turned it into a powerhouse in the plane-buying business. He then left to start Air Lease Corp in 2010.

He said he was now focusing in particular on the gap between the latest range of mid-sized widebody planes, Boeing's 787 and Airbus' A350, and the top of their narrowbody range of 737s and A320s.

"We've talked about this concept of the (Boeing) 797 and the (Airbus) A360 which would be a smaller twin-aisle aircraft that would have capabilities both in the short haul and as far out as transatlantic range, that would fill in that 200 to 250 (seat)size, that's where there is a gap in the current line-up," Udvar-Hazy said in a panel discussion at the conference.

He said later that both plane makers were listening to his views, but cautioned that there were no guarantees that they would follow his advice, or adopt his names for the new planes.

"They are devoting lots of engineers, lots of people to these things, but it's not in the public realm," he said.

"These things are the next generation. Maybe next year we'll have more visibility on things." (Reporting by Bill Rigby; Editing by Miral Fahmy)