Some Boeing, Airbus suppliers have cold feet about increasing production

By Alwyn Scott
SEATTLE, Feb 17 (Reuters) - Some suppliers to Boeing (N:BA) BA.N
and Airbus AIR.PA are putting the breaks on expansion plans,
saying they fear that planned increases in production by the big
plane makers may not be sustained in the face of slowing growth
and low oil prices.
Consider AccraFab Inc, a precision manufacturer in Spokane,
Washington, that produces parts for Boeing's 787 and other
aircraft.
It recently spent $500,000 for high-speed punching equipment
that can stamp complex metal cutouts used in housings for
cockpit display screens, said President Greg Konkol.
"We're dragging our feet on two more investments," worth
about $1.3 million, Konkol said. "We know we have to ramp up,
but we're being conservative about investing too much and
getting overextended."
The situation is similar at Tech Manufacturing, a maker of
milled wing and airframe pieces that supplies Boeing, Airbus,
Bombardier BBDb.TO , Embraer EMBR3.SA , Lockheed Martin's
LMT.N F-35 Joint Strike Fighter and business jet makers.
"We're taking a wait-and-see attitude," said Frank Kimball,
senior vice president of sales at the company, located in Wright
City, Missouri.
Tech Manufacturing bought three new machines in the last
five years, he said, but now is "looking very carefully at
investing." Executives have priced other new equipment they
want, he said. "But it depends on some of these bids coming in."
The comments, made in interviews during a supplier
conference in Seattle last week, reflect growing caution among
the thousands of companies that produce parts for plane makers.
Boeing and Airbus continue to forecast strong growth, and
say they are fully committed to ambitious plans to increase
production sharply through the end of the decade.
Boeing Chief Executive Dennis Muilenburg dismissed investor
concerns about a cyclical downturn on Wednesday, noting large
backlogs of orders are enough to keep factories running for many
years without selling another plane.
"This is fundamentally different than anything you have seen
in history," Muilenburg said at an investor conference. "We're
not seeing any cyclical behavior. This is a strong long-term
growth market."
Passenger traffic is rising more than 6 percent annually,
above its historic 5 percent average, Muilenburg noted, adding
that Boeing plans to deliver more than 900 jetliners a year by
the end of the decade, up from 762 last year.
But increasingly, suppliers are voicing concern that the
high rates of production won't last. They fear that a weakening
global economy, particularly in China and other emerging
markets, will undercut growth.
"It causes us to play things a little tighter to the chest,"
said Konkol. His company now wants new equipment to pay back
costs in one to two years, down from two to five years.
Not all suppliers are being so cagey. Some say the
lackluster growth forecasts and fears about falling sales of new
fuel-efficient planes due to low oil prices are just temporary.
"We all know oil's going to go up," said Rick Taylor, a vice
president at ALTEK Manufacturing, a parts maker in Liberty Lake,
Washington. "And if oil goes up, you're right back into new
aircraft demand," he added. "This is just a snapshot in time."
But automation companies also report caution among some
suppliers. "They're trying to plan, but they don't want to get
too far ahead," said Tim Shumate, a vice president at Ascent
Aerospace, an automation and tooling supplier based in Santa
Ana, California. "Nobody would. You don't want to make an
investment and have it sit idle."
Mark Irby, senior account manager at KUKA Systems' aerospace
group, which supplies automation to Boeing, said his company is
bidding for work on the 737, but it's diversified in autos and
other sectors, protecting it against a downturn.
But many smaller parts makers are especially worried about
production targets Airbus and Boeing have set for their A320 and
737 assembly lines, rising to 60 and 57 a month in 2019,
respectively, said Brian Murphy, an aerospace-focused investment
banker at Meridian Capital in Seattle.
"Very few I know are taking steps today to meet the 2018 or
2019 rates," Murphy said. "They're saying let's get to 47 and
then 52 and they we'll worry about 60."