October 29, 2015 / 12:05 PM / 2 years ago

UPDATE 2-Airbus set to announce new hike in A320 production -sources

5 Min Read

* Airbus seen lifting A320 production rate above 50 a month

* Suppliers not yet ready to handle output as high as 63/month

* A320 jet production generates cash for larger projects

* Airbus said to mull 'A350-1100' with Rolls-Royce Ultrafan

* Prospects for quick Airbus A380 upgrade clouded by costs (Adds share reaction, analyst quote, wide-body developments)

By Tim Hepher

PARIS, Oct 29 (Reuters) - European planemaker Airbus is poised to increase production of its best-selling A320 jet after reaching a compromise with suppliers over the capacity of the supply chain, people familiar with the matter said.

The decision, which could be announced as early as Friday alongside quarterly results, would push output of the cash-generating jet beyond its latest target of 50 a month, but fall short of recent expectations of a new goal of as high as 63.

Airbus declined to comment.

Shares in the planemaker were up 1.85 percent at 60.70 euros by 1444 GMT, having risen earlier on news of the sale of 130 planes to China.

Airbus sees strong demand for the 27-year-old narrowbody design as it introduces an upgraded version with mor fuel-efficient engines.

But it was forced to scale back its ambitions after engine makers General Electric and Safran said in June they would not be ready to support Airbus's request for production as high as 63 a month until their own suppliers had demonstrated they could cope with previously planned increases.

France's Safran said last week the ramp-up in production of the new LEAP engine, co-produced with GE through their CFM International venture, was "progressing very well".

Speaking on Oct. 22, CEO Philippe Petitcolin did not rule out an increase, saying "it is hard to say no to a customer" and that talks with Airbus continued.

Rival Pratt & Whitney, whose engines also power the A320 family, has not waded into the public debate but is also said to be concerned about over-stretching the supply chain.

The decision to go ahead with an increase in output reflects strong demand and could allay concerns about cash generation caused by a slowdown in production of the larger A330, while putting pressure on rival Boeing to follow suit.

However, RBC Capital Markets analyst Rob Stallard said a sharp increase "may bring narrowbody oversupply onto the agenda, especially if Boeing decides to match this rate increase".

Cash for Developments

In February, Airbus Group said it would increase A320 production to 50 a month from first quarter 2017.

It currently builds around 42 a month, but industry sources say it is already selling aircraft in anticipation of a further hike above 50 a month, even after building in a margin of overbooking to protect against cancellations.

Boeing is increasing production of its competing 737 to 52 a month in 2018 from 42 now.

With a roughly equal share of the busiest part of the jet market, both planemakers rely on their smallest planes for cash to finance riskier developments of larger jets. Airbus also faces continued pressures from its delayed A400M military plane.

Airline sources say Airbus is exploring more seriously than before a larger version of its A350-1000 widebody jet with a capacity of up to 450 seats to counter the latest Boeing 777, probably powered by the next generation of "UltraFan" engines from Rolls-Royce.

At the same time, they say it may hold off on upgrading its slow-selling 544-seat A380 as it gains a clearer idea of costs, keeping open the option of producing an even bigger version later with 100 more seats to keep a gap with the A350 and 777.

That decision too is seen as key for Rolls-Royce, whose Advance engine technology could be used for any A380 upgrade.

Wide-body gambles, bankrolled by A320 and 737 production, are expected to be discussed at next month's Dubai Airshow, though Gulf airlines have played down the prospect of large new orders.

Dubai's Emirates has been pushing Airbus for a commitment to build a re-engined "A380neo" but most analysts do not expect any decision to be announced at the Nov 8-12 event. (Editing by Mark Potter, Greg Mahlich)

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