Airbus tells suppliers to cut prices by 10%

The demand for austerity echoes rival Boeing's cost-cutting initiative, which has redrawn the relationship between suppliers and the planemaker

European planemaker Airbus is pressing suppliers on its A320 jet program to slash prices by at least 10 percent by 2019 in order to make the company's main cash cow more competitive, three people familiar with the matter said.

The demand for austerity echoes rival Boeing's cost-cutting Partner for Success initiative, which has redrawn the relationship between suppliers and the world's biggest planemaker as the industry gears up for record output.

Airbus' cuts are just one part of an internal efficiency program called SCOPe+ that also seeks savings through a close look at procurement and the way planes are developed and sold, according to suppliers and an Airbus document seen by Reuters.

Airbus has told suppliers that the prospect of increased volumes and a longer lifespan for its best-selling jet, which has enjoyed a surge in sales due to an important makeover, means it is time to "review all options" in its supply chain.

This includes a fresh look at the company's procurement strategy that could include extra use of dual sourcing for crucial parts: a strategy designed both to reduce costs and to reduce the risks of shortfalls as production increases.

Airbus is also looking at further shifting its business model to allow airlines less choice over accessories that they previously ordered direct, known as Buyer Furnished Equipment.

Also involved is a longer-term effort to weave manufacturing costs into the design process to prevent unintended overruns in costs on the factory floor, a tool known as "Redesign to Cost."

Though Airbus has confirmed the existence of the SCOPe+ initiative, its details have not been publicly disclosed.

The initiative "is part of Airbus' long-term commitment towards boosting competitiveness through operational efficiency and continuous improvement," a spokeswoman said.

In 2014, Airbus spent about 13 billion euros on parts for its A320 family of jets, which compete with Boeing's 737 in the busiest part of the $120 billion-a-year aircraft market.

Each plane contains three million parts.

Mounting pressure on suppliers for price cuts comes as Airbus and Boeing are raising production of their single-aisle models to around 50 aircraft a month each, up from 42 a month, and pondering a further step-up to 60 a month.

Such increases in volume are traditionally the aerospace industry's most valuable lever for driving down unit costs.