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Bet On Boeing Buying

Expect a deal or three from the U.S. OEM, with the aftermarket figuring prominently.

If you're in the aftermarket business and you're tired of hearing about the OEM's push into your space, 2018 may not be your year.

Much has been written on this site and elsewhere about Boeing and others eyeing larger slices of the aftermarket pie. So far, it's been mostly talk, such as the public unveiling of an avionics business that Boeing has had going for a while, and talk of more focus on digital services, to name a few headline-generating announcements. The coming year is expected to change this, and the most likely path—at least for Boeing Global Services (BGS)—is via acquisitions.

"We believe Boeing will complete at least one to two acquisitions to support its BGS strategy in 2018," writes Canaccord Genuity analyst Ken Herbert. "We do not believe we exaggerate when we say that this has the potential to be both materially disruptive and game-changing for many layers of the industry, depending on which direction Boeing decides to pursue."

Herbert expects the MRO-related aftermarket to grow in the mid-single-digits in 2018, and its sees BGS's existing business—which extends into other areas, such as pilot training—will perform at a similar clip. "We are skeptical that Boeing will be able to generate organic growth above industry averages, and we do not believe Boeing will enter the engine aftermarket," despite Boeing Commercial Airplanes boss Kevin McAllister's familiarity with the lucrative business.

So what will Boeing do? Herbert remains bullish on Boeing's parts businesses and sees distribution and used serviceable material as potential plays. Other rumored areas of interest include component MRO, pilot training, and even heavy maintenance—perhaps a provider that has ramped up both its airframe MRO and component-support businesses.

For what it's worth, Herbert does not see Embraer as a fit for Boeing beyond being a simple defensive move against the Airbus-Bombardier C Series deal. "Relative to other opportunities in the commercial services market, which we believe provide more upside potential, we do not believe [Embraer] is the best use of capital for Boeing, and we would be surprised if a deal is eventually done here," Herbert wrote.

Meanwhile, Herbert is hearing rumbles that Airbus is "taking a page from Boeing’s book, and is starting to push to own the IP for select products" as part of its commercial-services growth strategy.

Here's to an eventful year ahead.

TAGS: Airframes
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