By Tim Hepher

MUNICH (Reuters) -Jet engine maker CFM has agreed to divert some engines to Airbus to narrow a supply gap as the planemaker battles to hit end-of-year targets, three people familiar with the matter said.

This month’s agreement follows a tug of war over supplies between planemakers and maintenance shops and is expected to involve CFM diverting to Airbus some engines that had initially been allocated to the aftermarket, the sources said.

The number of engines was not immediately clear, but the deal raises confidence that Airbus can take a step towards meeting challenging delivery targets of “around 770” aircraft for 2024, barring other supply setbacks, they added.

“We are working hard to meet demand from our customers and to maximise fleet utilisation,” said a spokesperson for CFM, which is jointly owned by GE Aerospace and Safran.

An Airbus spokesperson said: “We are working with our suppliers, including our engine suppliers, to deliver on the commitments.”

The agreement is expected to ease recent tensions between Airbus and CFM over the supply of engines but could disappoint airlines eager for relief from long engine-repair waiting times for existing jets, a senior industry source said.

JUGGLING DEMAND

Engine makers routinely have to juggle the demands of planemakers, who need the right number of power units to carry out their targets for assembling new planes, and the aftermarket where airlines rely on spare engines or parts to keep existing fleets flying with the minimum disruption.

But a stronger than expected snapback in demand following the pandemic, coupled with industrial snags and increased wear and tear, have left the two opposite ends of the aircraft market fighting over access to a limited supply of engines.

In July, Airbus lowered its annual delivery target to “around 770” aircraft from 800 and CEO Guillaume Faury said he had been “blind-sided” by a drop in engine supplies from CFM. Landing gear and seats have also been blamed for delays.

Last week, however, Faury pointed to increasing confidence over the engine supplies, telling Reuters that CFM should be able to supply enough units, but that it would be “very tight”.

He added: “It should be ok; I don’t know yet. It will be within a few engines – not tens of engines – if any.”

In midday trading, Airbus shares were up just over 1%.

Some analysts remain cautious about the sprint in deliveries needed for Airbus to reach its target, even though its wording leaves some flexibility to deliver an estimated 750 jets without necessarily having to lower its guidance to investors again.

“Based on current performance, something has to change to facilitate 770 or even 750 deliveries – and as of today I’m not seeing that change,” said Rob Morris, global head of consultancy at UK-based aviation advisers Cirium Ascend.

The uncertainty over CFM supplies follows a lengthier bout of disruption caused by problems and delays at Pratt & Whitney which competes with CFM to power the A320neo series.

Engine makers have been struggling to square the improved performance of recent engines with their hotter internal running temperatures, which have needed more maintenance than expected.

GE Aerospace CEO Larry Culp said last month that CFM aimed to take care of both airlines and airframers. He told analysts he was encouraged by trends in the third quarter when a key set of suppliers had raised output by 18% from the previous quarter.

(Reporting by Tim HepherEditing by David Goodman and Ros Russell)

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