European aircraft manufacturing giant Airbus (NASDAQOTH:EADSY) got off to a very slow start in 2017. During the first 11 months of the year, it booked just 333 net firm orders -- roughly half the order intake of archrival Boeing (NYSE:BA). That left Airbus in danger of posting its worst full-year order total since 2009.
However, Airbus inked a record monthly order haul during December, pushing it above 1,000 annual orders for the fifth time since 2011. Nevertheless, an ongoing slowdown in widebody sales remains a significant concern for the company.
Making up for a slow start
While Airbus didn't finalize many orders during the first 11 months of 2017, it did announce a handful of major aircraft commitments during that time. Most notably, investment firm Indigo Partners agreed to buy 430 A320neo-family aircraft for its four portfolio airlines at the Dubai Airshow in November.
Thus, one of Airbus' biggest tasks for December was to firm up the orders that it already had in the works. It was extremely successful in that regard. In addition to finalizing the 430-plane Indigo Partners deal, it locked in a 50-aircraft order from ultra-low cost Latin American carrier group Viva Air.
Airbus also struck several new deals last month. Of note, it beat out Boeing to win an order for 100 A321neos from Delta Air Lines. Furthermore, several aircraft leasing companies ordered a combined total of 127 single-aisle jets.
The net result was that Airbus booked 841 firm orders in December, offset by 65 cancellations. This more than tripled its total for the year to 1,109 net orders, and gave it a fifth consecutive victory in the annual order race. Boeing brought in 912 net orders last year.
More widebody orders needed
Airbus may have won the year on quantity, but the quality of its order haul was less impressive. Of those 1,109 net firm orders, just 55 were for widebodies. The remainder were for single-aisle planes -- primarily the A320neo and A321neo.
By contrast, Boeing had a somewhat more balanced order mix, with 167 widebody orders versus 745 single-aisle planes. Since widebodies have significantly higher selling prices, Boeing actually outpaced Airbus in terms of total order value despite having nearly 200 fewer net orders for the year.
More importantly, many widebody models have short order backlogs. The A350 is in the best shape among Airbus' three widebody programs, with a backlog equaling a little more than six years of production. However, order activity has been practically nonexistent since 2013. The A330 and A380 programs are on shakier ground. In fact, Airbus warned on Monday that it may have to stop producing the A380 if it doesn't receive more orders soon.
Meanwhile, Airbus' rush of A320-family orders pushed its single-aisle backlog to 6,141 planes by the end of 2017. Based on the company's current production plans, it would take nine years to build that many planes. From that perspective, Airbus' recent order spree seems like overkill.
A320neo production is ramping up
Last year, Airbus' production hit a record, with 718 aircraft deliveries. The bulk of those (558) were single-aisle planes, including 181 from the next-generation A320neo family, up 166% year over year. Airbus and its suppliers seem to have resolved most of the supply constraints that limited production a couple of years ago.
That's important, because Airbus plans to boost single-aisle output to a rate of 60 per month as of mid-2019. Combined with the phase-out of the older A320ceo models, this means that it will be delivering nearly 700 A320neos annually within two or three years.
Even at this unprecedented production rate, Airbus may not be able to keep up with demand, if its massive A320neo backlog is any indication. As a result, it may start talking to suppliers this year about raising A320neo production to an even higher rate a few years down the road. Otherwise, it risks losing business to Boeing simply because of an inability to build jets as fast as customers want them.