Rumors of Boeing Commercial Airplanes (BCA) President Ray Conner retiring in 2017 have been making the rounds for months, but the company’s Nov. 21 announcement that he would be replaced by Kevin McAllister, an engine executive from outside the company, caught many by surprise initially.
But surprise quickly turned to understanding as Boeing revealed that the appointment of McAllister, the former president of General Electric’s Aviation Services, forms another element of a broader master plan to dramatically expand the company’s customer focus and aftermarket revenue base. The main plank of this strategy, however, is the creation of a dedicated new unit called Boeing Global Services (BGS), which will be led by Stan Deal, currently head of Commercial Airplanes customer services.
The new business arm will be formed from the customer services groups within BCA and the company’s existing defense, space and security business units. The creation of BGS will spearhead Boeing’s aspirational goal to triple its services business to about $50 billion by the middle of the next decade.
Boeing currently commands only about 7% of the global commercial services market and 9% of the defense services business. “So there is ample room to grow,” says company CEO and President Dennis Muilenburg. Boeing estimates the potential services market across all sectors is valued at approximately $2.5 trillion over the next 10 years. “We have the potential to achieve significant growth in our services business,” says Muilenburg, who adds that the formation of BGS, which will begin fully operating as the company’s third major business unit by the third quarter of 2017, “is a very concrete step in that direction.”
BGS will be formed with a small core headquarters group based in Dallas, where Boeing services company Aviall currently has a large facility. Boeing says that although specific business details and additional leadership assignments are yet to be announced, “the vast majority of the work performed by Boeing Global Services is expected to remain at existing locations for the foreseeable future.”
Deal, 52, was previously vice president and general manager of supply chain management and operations for BCA, before leading customer services. He originally joined the company as an engineer on the C-17 airlifter and has also held senior roles in sales and marketing. Deal will be involved in the detailed planning for the start-up of BGS over the next 6-7 months, and will oversee efforts to grow the services business through organic growth, investments in modification programs, spare parts, new service programs such as GoldCare and leveraging information and data services.
Conner, 61, will meanwhile continue to serve as Boeing vice chairman through 2017 and will work with McAllister through the hand-off. He will also provide “strategic oversight and guidance for the company’s transition to a single integrated services business and remain involved in ongoing product development strategy at Commercial Airplanes,” says Boeing. “Ray will be very engaged, and we want to take full advantage of the year of transition,” adds Muilenburg.
Wall Street analysts embraced the news. Describing the announcement as a “thoughtful change,” Jefferies analyst Howard Rubel says, “We believe that Boeing’s leadership has found in Mr. McAllister a good successor to Mr. Conner, a near 40-year veteran of the company. The new Services structure should be able to build on the success of Mr. Deal to expand and enhance the company’s service portfolio.”
Rubel adds that through GE and its related CFM joint venture with Safran, “many major airlines have a strong affinity with Mr. McAllister and know him to be focused on their needs. We believe he is a tough, analytic, and driven competitor. He has experienced launching several engines and supporting them. He understands preparation, uncertainty and risk.”
“We see this decision as an important positive step for Boeing, says Finbar Sheehy of Bernstein Research. “We have long viewed the BCA organization as too insular, with senior positions almost always filled by managers with 20+ years of experience in the company. The problem is that Boeing’s views of its competitors and the market become too Boeing-centric. McAllister’s background fits well, as he has worked with Boeing and Airbus, as well as with airline customers. He also brings a services background to the position, which is consistent with the company’s recent focus on services.”
McAllister’s recruitment, along with the creation of BGS under Deal, marks the completion of a leadership transformation which Muilenburg began in February, with the appointment of former Boeing Global Services and Support President Leanne Caret to lead the company’s Defense, Space and Security unit.