Boe­ing takes on peers, part­ners in bid for re­place­ment

Kuwait Times - - BUSINESS -

In search of higher prof­its mar­gins, Boe­ing Co is aim­ing to win more of the lu­cra­tive mar­ket for re­place­ment parts and re­pair ser­vices, pit­ting the plane maker against ma­jor sup­pli­ers who view that growing $62 bil­lion a year mar­ket as their turf. Boe­ing told Reuters it has added 35,000 parts to stocks it po­si­tions around the world to serve air­lines in the last year, af­ter an­a­lyz­ing its vast store of air­craft data to see where the parts will be needed. It has also cut prices on 24,000 parts to be more com­pet­i­tive, and it is ex­pand­ing train­ing and other ser­vices.

Boe­ing is try­ing to cap­ture more profit from spare parts made un­der li­cense by sup­pli­ers as well. To get there, it is pro­duc­ing some new parts in house to gain con­trol over re­pairs, and sift­ing its data­bases to help air­lines pre­dict when planes will need ser­vice. The maker of such flag­ship jets as the 787 Dream­liner and top-sell­ing 737 has been build­ing its af­ter­mar­ket busi­ness for years. But as de­mand for planes has slowed over the last 18 months, Boe­ing is now turn­ing more ag­gres­sively to spare parts and ser­vices to help meet its own am­bi­tious tar­gets of dou­bling over­all mar­gins to the mid-teens by 2020.

The main rea­son: a dol­lar of added af­ter­mar­ket sales is more valu­able than a dol­lar of new air­craft sales. Boe­ing’s af­ter­mar­ket sales have risen over the last three years and are out­pac­ing the 4.5 per­cent growth of the broad af­ter­mar­ket, Den­nis Floyd, vice pres­i­dent of ser­vices strat­egy and busi­ness de­vel­op­ment at Boe­ing, told Reuters.

“That means we’re tak­ing mar­ket share,” he said. Boe­ing’s ef­fort is ratch­et­ing up com­pe­ti­tion with many of its big­gest sup­pli­ers, in­clud­ing Honey­well In­ter­na­tional Inc , United Tech­nolo­gies Corp and Rock­well Collins Inc, and re­pair op­er­a­tions such as Delta Air Lines Inc Tech­ni­cal Op­er­a­tions and Lufthansa Tech­nik - which are all tak­ing ac­tion to de­fend their lu­cra­tive fran­chises.

Af­ter­mar­ket sales typ­i­cally of­fer mar­gins of 20 per­cent or more - which makes ex­pand­ing its pres­ence in that mar­ket cru­cial to Boe­ing’s ef­fort to hit Chief Ex­ec­u­tive Den­nis Muilen­burg’s over­all prof­itabil­ity goal, an­a­lysts say. Boe­ing doesn’t break out af­ter­mar­ket rev­enue, and has not pub­licly dis­cussed its af­ter­mar­ket strat­egy in de­tail. An­a­lysts es­ti­mate parts and ser­vices gen­er­ate about $15 bil­lion a year, or nearly 16 per­cent of Boe­ing’s $96 bil­lion in an­nual sales, split roughly evenly be­tween its com­mer­cial air­craft and de­fense busi­nesses.

In­dus­try ex­perts say Boe­ing aims to more than triple af­ter­mar­ket sales to as much as $50 bil­lion over the next 10 years. Boe­ing de­clined to con­firm a spe­cific tar­get, but the com­pany’s “lead­er­ship has set high as­pi­ra­tions,” Floyd said. “We are in­vest­ing heav­ily into these busi­nesses.”

Boe­ing has logged its largest num­ber of or­ders for its “GoldCare” air­craft main­te­nance ser­vice this year, and now counts 60 cus­tomers and 2,200 planes in the pro­gram.

“We’re see­ing the re­turns on these investments,” Floyd said.

Boe­ing part­ners with the likes of Honey­well Aero­space to do some re­pairs. But both are try­ing to in­crease their own sales of re­pairs and parts to air­lines. That’s why the two man­u­fac­tur­ing heavy­weights are “competimates,” said Mike Bea­z­ley, vice pres­i­dent of af­ter­mar­ket sales at Honey­well. “There’s a seg­ment of the mar­ket that will pay a pre­mium to deal with one com­pany” through Boe­ing GoldCare, he said. But many “would still like to have a di­rect re­la­tion­ship with the big­gest sup­pli­ers.”

At Honey­well Aero­space’s 360,000 square-foot af­ter­mar­ket cen­ter in Phoenix, the largest of its 40 re­pair sta­tions around the globe, An­drew New­ing­ham re­cently cir­cled a small aux­il­iary air­craft en­gine on his work­bench. As a robotic voice called out ques­tions and New­ing­ham an­swered, a com­puter logged de­tails about what work the en­gine needed, re­duc­ing to min­utes what was for­merly an hours-long task in­volv­ing pa­per check­lists and typ­ing on a com­puter.

Honey­well aims to cut en­gine re­pair times to 20 cal­en­dar days or less, and of­fers up­grades and en­hance­ments when en­gines come in for re­pairs. “What keeps us com­pet­i­tive and al­lows us to win new busi­ness is be­ing able to of­fer speed,” said Steve Foust, se­nior plant di­rec­tor. — Reuters

WIN­NING ON PRICE

Re­pair or­ga­ni­za­tions also are re­act­ing as Boe­ing and its Euro­pean ri­val Air­bus Group SE try to grab busi­ness. Boe­ing part­ners with Lufthansa Tech­nik on some ser­vices. But it also un­der­cuts Lufthansa on oth­ers.

Low-cost, long-haul air­line Nor­we­gian Air Shut­tle ASA , for ex­am­ple, con­sid­ered sev­eral ser­vice groups, in­clud­ing Lufthansa Tech­nik. In the end it picked GoldCare to main­tain its 737 MAX and 787 jets, As­geir Ny­seth, chief op­er­at­ing of­fi­cer of Nor­we­gian Group, said in an in­ter­view. — Reuters

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