GE venture to build more Airbus engines to help offset Max shutdown

General Electric Co. and France’s Safran SA have struck a deal to increase production of engines for Airbus SE’s rival to the 737 MAX, helping the pair deal with Boeing Co.’s production halt of its embattled plane, according to people familiar with the matter.

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The agreement—made via the GE-Safran joint venture CFM International—will increase its output of LEAP 1A engines, one of two turbine options for the Airbus A320neo, to around 58% of total deliveries, the people said. The A320neo is the Airbus alternative to MAX aircraft.

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Pratt & Whitney, a unit of United Technologies Corp . is due to slow output to about 42%, the people added. The share has previously been closer to a 50-50 split.

The timing of the deal is crucial for GE. The extended MAX grounding coupled with the production halt ordered this month have already strained GE finances, cutting cash flow by as much as $1.4 billion this year as factories produce fewer engines and GE can’t get fully paid for them.

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“We have regular discussions” with plane builders “about potential rate increases,” a spokesman for CFM said in a statement.

“We are always in talks with our suppliers, those talks we keep confidential,” a spokesman for Airbus said.

A spokeswoman for Pratt & Whitney said the company’s geared turbofan engine used for the Airbus A320neo also powers aircraft made by Bombardier and Mitsubishi, adding that company plans on competing “for the one third of Neo commitments that have yet to select an engine.”

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CFM has seen its market share on the Airbus craft gain in 2019 as a series of design glitches for the Pratt-made engine disrupted operations for some airlines. The enginemaker scooped up a major order from Pratt-customer Indigo in June to provide engines for some 280 aircraft for the Indian carrier. Deliveries are slated to start next year.

While the mix of engines being produced has changed, Airbus’s overall output of its A320neo will remain at 63 a month, the people said. The European plane maker, which has been studying the feasibility of increasing its total output rates, is still being plagued by its own production issues.

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The delivery delays on the A320neo, which is sold out until late 2024, have been a frustrating constraint for Airbus at a time when its rival is facing its biggest crisis in decades.

Instead, the delays have forced it to cut back its 2019 delivery target by as many as 30 aircraft. Still, the company plans to deliver 860 aircraft this year. With Boeing hampered by the MAX grounding, Airbus will overtake its U.S. rival in total deliveries for the first time since 2011.