Airbus squeezes suppliers to end losses on new challenger to Max

Airbus SE is pushing suppliers on its A220 jetliner program to renegotiate contracts and reduce the price of parts to help slash costs and turn the former Bombardier Inc. model profitable.

Safran SA said it’s in talks with Airbus to trim expenses in the A220’s cabin, while engine producer Pratt & Whitney and partner MTU Aero Engines AG have agreed to deliver a 10% saving, people with knowledge of the plan said. Senior Plc says it could win more work by pitching production at low-cost sites.

Airbus is pressing for cost reductions against expectations of higher A220 sales as it brings to bear a formidable marketing machine and offers the model alongside its in-house A320-series narrow-body. The grounding of Boeing Co.’s 737 Max has also presented a chance to grab more of the single-aisle market.

“Airbus are clearly a lot more confident in their ability to sell the A220,” said Bank of America Merrill Lynch analyst Benjamin Heelan. “Being able to go to suppliers with higher medium term volumes is a big lever to get costs down.”

Airbus is striving to reach break even on the A220 after paying Montreal-based Bombardier $591 million to lift its stake to 75%. While the jet’s composite wings, airy cabin and state-of-the-art cockpit make it a technological leader, Airbus Canada head Philippe Balducchi said in January that overall costs need to be reduced by “a significant double-digit” percentage.

A spokeswoman for Toulouse, France-based Airbus said significant progress has been made with some suppliers but that it remains in talks with others. The firm will invest as much as 1 billion euros ($1.1 billion) in the A220 this year.

Some savings could come from looking at component design or increasing commonality with the A320, according to the people familiar with the plans, who asked not to be named discussing the changes. Airbus’s leverage with suppliers may be high right now because many also serve Boeing, where the Max crisis has stunted demand.

Airbus shares declined 0.5% to 111.60 euros as of 1:55 p.m. in Paris. Airbus and Boeing have each declined about 14% this year.

Safran Chief Executive Officer Philippe Petitcolin said on a call Thursday that the challenge is to cut costs without compromising on the quality of the jet’s interior. The Paris-based group supplies the A220’s seats, galleys, lavatories and overhead storage bins, as well as oxygen, waste-removal, water and sound-insulation systems.

A spokeswoman for Munich-based MTU referred questions to Pratt & Whitney. A representative for United Technologies Corp., which owns Pratt and Collins Aerospace, declined to comment. Collins is another major supplier on the plane, providing onboard computers, electrical power supplies and actuators that control wing flaps.

Senior CEO David Squires said in an interview Monday the U.K. firm is also in talks with Airbus to pare A220 costs. While it now provides air-conditioning systems and ducting, the recalibration may present an opportunity to bid for aerostructures work via its lower-cost southeast Asian operation, he said.

Airbus will most likely revisit the entire A220 supply chain, BAML’s Heelan said, as it targets mid-2020s output of four jets a month at the former Bombardier plant in Mirabel, near Montreal, and 10 at its own site in Mobile, Alabama.

Bombardier, which spent $6 billion on the A220, originally sought breakeven this year, but said Jan. 16 the goal had slipped, prompting an exit from the jet sealed this month when Airbus bought its remaining stake.

In a sign of the competitive advantage the model offers, Airbus on Feb. 13 secured an order from Nigerian startup Green Africa Airways that appears to threaten an existing accord for the Boeing Max.

Airlines including Air France-KLM have also expressed an interest in a larger, 160-seat-plus A220. Airbus CEO Guillaume Faury said last month that it’s not currently working on a stretch model but sees that as a likely development.