Boeing Aims to Expand Parts Unit -- WSJ

By Doug Cameron Features Dow Jones Newswires

Aircraft maker targets doubling of business's sales to $50 billion within five years

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Boeing Co. is doubling down on a profitable parts and services business that could bring the plane maker into competition with its own suppliers.

Boeing has complained for years that other companies profit more selling spare parts and services for its jets and military systems than Boeing makes building them. Boeing says it has just 8% of the business servicing the 10,000 Boeing jetliners and thousands of military jets in service.

Now the Chicago-based aerospace giant plans to more than double annual sales in its services business to $50 billion in five years. A new unit overseeing combined commercial and military services will open in Plano, Texas, on July 1. The push is central to Chief Executive Dennis Muilenburg's efforts to cut costs and push up Boeing's profit margins to the midteens from around 10% now.

"I expect them to be accretive to that target," Mr. Muilenburg said of the new Boeing Global Services business in a recent interview.

Aircraft engine makers provide a model. They sell engines for little or no profit, but generate earnings from maintenance and new services that parse reams of data to find ways for airlines to fly more efficiently. General Electric Co. has branched into other services such as storing aircraft maintenance records and airline crew data.

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Boeing hired the head of GE's services business last year to run its own commercial airplanes arm and wants to take some business from GE and other suppliers.

"There is always going to be this healthy tension," Stan Deal, president of Boeing Global Services, said in an interview.

Suppliers are already eyeing Boeing's move warily. Eric Schulz, head of the civil aerospace unit at Rolls-Royce Holdings PLC, said the sector will invest less in the technology needed for Boeing's next generation of jetliners if the plane maker encroaches too deeply in its turf.

Boeing and rival Airbus SE typically make about a third of a commercial jet and rely on suppliers for the rest of the parts. The suppliers in turn make the bulk of their earnings repairing and replacing parts for the airlines, leasing companies and governments that buy the planes from Boeing and Airbus.

The plane makers largely ignored the spare parts business, licensing the rights to make them to others, but that is starting to change.

"There are negotiations going on between the suppliers and [plane makers] to give up intellectual property to go down this path," said Robin Lineberger, head of the aerospace and defense practice at consultant Deloitte.

Boeing has already tightened licensing of its own intellectual property of plane parts made by others and is making more parts itself. Mr. Deal, the head of the new services unit, said Boeing wants to drive a cultural shift to generate more money from its products.

The company aims to boost annual service product launches from 17 last year to 100 over the next several years, taking on more work from carriers eager to cut their own fixed costs and capital spending.

Boeing aims to use data from aircraft and airline operations to price its planned offerings more competitively.

"We've got very comfortable with taking more operational risk," Mr. Deal said.

Boeing also wants to service rivals' planes, said Mr., Deal.

Fabrice Br gier, president of Airbus Commercial Aircraft, said at the Paris air show this week that he admired Boeing's chutzpah.

"I am very pleased to know that Boeing without the knowledge of Airbus aircraft knows how to maintain Airbus aircraft," he told reporters ahead of the Paris Air show.

He joked that the move made sense because Airbus planes are so easy to maintain, adding Airbus will remain focused on selling and servicing its own planes.

Robert Wall contributed to this article.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

June 20, 2017 02:47 ET (06:47 GMT)