Boeing’s planned maintenance services partnership with SIA Engineering Company (SIAEC) represents the manufacturer’s most aggressive push into the lucrative commercial aftermarket and tracks with the company’s strategy of teaming up with partners that add value as it seeks to grow its services revenues.
The deal, announced earlier this week and slated to close this year, would create Boeing Asia Pacific Aviation Services (BAPAS). Boeing would hold 51% of the joint venture (JV), and SIAEC 49%.
"This JV will be executing the largest aftermarket services deals Boeing has ever signed," a Boeing spokesman confirms.
The JV’s offerings, which will start out supporting Boeing 737s, 747s, 777s, and 787s, blend Boeing’s most promising in-house GoldCare services, mainly materials management, engineering, and data-driven diagnostics, with SIAEC’s airline-centric expertise, notably day-to-day maintenance program planning and management. Such a combination gives BAPAS practical experience across the MRO services spectrum that it can pitch to potential customers.
While Boeing’s knowledge of its aircraft is unsurpassed, airlines and MRO providers are quick to point out that building aircraft, supplying spares, and collecting data on them is not the same as setting up and executing practical maintenance programs. SIAEC, the former Singapore Airlines engineering division and still a subsidiary of the carrier, has the deep MRO experience that a manufacturer lacks. It also has stakes in 26 ventures with airlines and manufacturers, making it a seasoned partnership participant.
BAPAS is Boeing’s first maintenance JV outside of China, where it has shares in Boeing Shanghai Aviation Services and Taeco. It also has a 737 and 777 component pooling deal with Air France Industries KLM Engineering & Maintenance, but holds no equity in the venture.
BAPAS makes strategic sense for Boeing on several levels, says Canaccord Genuity analyst Ken Herbert. "First, it’s additional business for Aviall and Boeing’s material management solutions services," he notes. "Second, it’s a great way for Boeing to put its toe in the water in a very dynamic market [Asia] without taking a huge amount of risk."
Bigger picture, it supports the manufacturer’s strategic push – including organic growth, acquisitions and partnerships – to capture more of the projected $2.5 trillion commercial services market up for grabs during the next 20 years (Aviation DAILY, May 28).
"Does that mean we have to do everything ourselves? Not necessarily," Boeing Director of Material Management Services Joe Dunne told MRO Americas attendees in April. "We have no desire to control the market. We have a strong desire to participate in the market. If there are things within the services required by our customers that are better done by somebody else, then we will entertain relationships with those providers."
Canaccord Genuity’s Herbert estimates that Boeing’s Commercial Aviation Services annual revenue, which the manufacturer does not disclose, is $6.5 billion, including $5.5 billion of traditional MRO services. While that is just a bit more than 10% of Boeing Commercial’s total revenue, it has higher margins and – with Boeing projecting a doubling of the global airline fleet to 42,000 aircraft by 2033 – significant upside.
Demand for different services is also driving aftermarket growth. Services like pooling are becoming more desirable as airlines look to cut provisioning costs, especially as more reliable – and more expensive – components are introduced on newer-technology aircraft like the 787. Smaller carriers and startups are more likely to embrace nose-to-tail service offerings. By teaming up with SIAEC, Boeing in theory can offer a full aftermarket menu as part of an aircraft purchase agreement, while assuring customers up front that the experienced providers will deliver the services.
Initial BAPAS work will focus primarily on Singapore Airlines family aircraft, a Boeing spokesman says. Two deals signed just before the JV was unveiled lined up 47 aircraft for services. Singapore-based Scoot will have its fleet of 20 on-order Boeing 787s supported by BAPAS, while Singapore Airlines will turn its 27 777-300ERs over to the venture. Both deals call for maintenance and engineering management.
"The joint venture will start with over 80 airplanes from the [Singapore Airlines] family and some third-party airplanes," a Boeing spokesman says. "We expect this number to grow significantly as the joint venture expands over time."
The JV will be based in Singapore, "most likely in the Changi Airport area," says an SIAEC spokesman. It will have a dedicated executive and administrative staff, and will use existing SIAEC office space, warehouse and hangar facilities.
"The joint venture will not be performing MRO services itself, so it will not need to own or lease hangars," the Boeing spokesman confirms. "It will procure MRO services from its partner in Singapore, SIAEC, and from other MROs on an as-needed basis."
Specific services offered include maintenance planning, program management, and aircraft ownership transition support. Materials management, including component pooling and forward-deployed spares, will also be a focus. BAPAS will also offer line and base maintenance, "often with airplane-level dispatch reliability guarantees," the Boeing spokesman says.