Airbus sets services goal, targets productivity gains

By Tim Hepher

PARIS (Reuters) - Airbus has set a goal of tripling services revenues from its commercial aircraft business to $10 billion within seven years and sharply reducing the number of times its jets are stranded on the ground for technical reasons, industry sources said.

It also targets measures worth 450 million euros ($555 million) in 2018 to improve productivity and has told staff reducing recurring costs on its newest jets - the A320neo and A350 - remains a battle, they said, citing internal postings.

The latest sign of competitive pressures comes as Airbus prepares to announce possible job cuts due to slower production of its largest aircraft - the A380 superjumbo and theA400M military air lifter - at a staff meeting on Wednesday.

 

Airbus said earlier it would address implications of the slowdown at a works council meeting, but described reports of3,600 jobs cuts or redeployments as "excessive".

Like rival Boeing , Airbus is driving down manufacturing costs while branching into more profitable services, in a bid to emulate the wider margins of third parties who traditionally control the market for repairs and services.

However it has so far given little detailed guidance on targets by business activity.

An Airbus spokesman, in response to a Reuters query, confirmed the $10 billion service revenue target for the main jets division.

He said the company has for some years had a rolling productivity target, but declined to give details.

"Like any leading company ... year-on-year we strive for continuous improvements, unleashing further efficiencies in every business area, strengthening our competitiveness and focusing on our customers," the spokesman said.

DIGITAL SERVICES

Chief Executive Tom Enders told analysts last month the total services business across Airbus's jetliner, helicopter, defence and space activities was worth 9-10 billion euros.

He said Airbus mainly aims to improve that through internal growth, striking a different tone from Boeing which has been more explicit about eyeing acquisitions on its way to a goal of more than tripling services revenues to $50 billion by 2027.

"...certainly, we don't exclude other measures but the focus is not on M&A. The focus is on organic growth of the services business," Enders told analysts.

Airbus Commercial made up 76 percent of revenue in 2017.

Enders has put emphasis on new digitally based services such as its new Sky wise predictive maintenance system, following deals with AirAsia, Asiana Airlines and Etihad Airways.

But while setting its sights on the aftermarket, Airbus has been wrestling with delays and sporadic reliability problems, which it blames partly on engine maker Pratt & Whitney .

A number of planes have been forced out of service temporarily to switch engines, but the internal targets suggest Airbus is also concerned about quality problems that fall more directly under its control, two industry sources said.

Airbus aims to reduce the number of "aircraft on ground "incidents by at least 30 percent over the next two years.

It also aims to cut by 20 percent the amount of time it takes to come up with a fix for a problem when it is identified after a plane has entered service.

Inside its factories, it aims to reduce the amount of costly outstanding or out-of-sequence work and ensure that 85 percent of quality checks known as "green quality gates" are successful.

The cost-and-quality drive comes as Airbus accelerates record output to meet demand - a trend that can quickly create headaches if productivity lags behind. Airbus aims to boost deliveries by 11 percent to 800 aircraft in 2018, including 30that it could not hand over last year due to engine problems. Reaching that goal and ensuring over 80 percent of jets are delivered on time is essential, Airbus staff have been told.

(Reporting by Tim Hepher; Editing by Richard Lough and Adrian Croft)