Boeing 737 fuselages are delivered by train to its factory in Renton, Washington. The boom in sales of aircraft is spurring fierce competition with Airbus, and the plane makers are leaning on their suppliers to cut prices. Photo: Reuters

New York - The two largest plane makers are soaring these days, fuelled by historic demand for new jets that has cranked up their factories to record speeds.

But booming sales of aircraft, far from being a bonanza for suppliers, are spurring brutal competition between Airbus and Boeing, which are demanding better deals from the companies that make the billions of parts they need.

GM Nameplate is one such company. The 400-employee Seattle firm makes the signs and placards posted on everything from overhead bins to emergency exits: about 1 500 signs a plane, or 1.6 million a year for Boeing alone.

As Boeing sped up jet output by 40 percent over the past three years, it not only asked GM Nameplate to turn out more signs, it also wanted a 15 percent to 20 percent price cut, said Paul Michaels, the director of its aircraft division, GMN Aerospace. “That’s huge,” Michaels said.

Boeing also wanted GMN to show it was able to meet faster production speeds, and that it had the financial health to stay in business. Two Boeing coaches spent a week going over its factory. Michaels expected to hit the price target in 2016 and ultimately to be better off.

But “it was very nerve-racking at first”, he said.

The price pressure has left many small-tier suppliers grappling with whether to invest and grow, sell to big players or simply fold.

“It’s forcing suppliers to say either I’m in the game or out of the game,” said Christian Schiller, the managing director at Cascadia Capital, a Seattle investment bank. “They can’t just stay still.”

He and others predict buyouts in the sector will rise this year as pressure grows, even though prices for small companies are already relatively high.

Since suppliers provide more than two-thirds of a jetliner’s content by value, they are obvious places for Boeing and Airbus to find cost savings. But squeezing too hard could cause production snarls and hurt an industry that is struggling to keep up with rising demand.

Airbus said last week that it would notch up production of its single-aisle A320 planes by nearly 10 percent, matching a similar move by Boeing. Both companies are building many of their double-aisle planes at faster rates as well.

By 2017, Boeing and Airbus will churn out a staggering 138 jets a month. Smaller manufacturers Embraer and Bombardier are also raising output and bringing new planes to market.

As thousands of suppliers gear up, Boeing and Airbus are pitting them against each other in price competitions to drive down supplier prices more than in the past.

Boeing says it will put companies that do not cut prices on a “no fly” list that bars them from future work, while rewarding those that do with the chance to bid on more work.

Both plane makers are vying for the spare parts market, demanding royalties on parts that are sold directly to airlines and do not enter their factories.

Boeing and Airbus make far less money selling finished planes than suppliers earn from selling parts.

Boeing’s jetliner business, for example, had an operating profit margin of 10.8 percent last year, compared with an average of about 16 percent for suppliers. The profit margin on Airbus’s commercial aircraft was 4 percent. – Reuters