As Boeing looks to grow its Boeing Global Services (BGS) aftermarket business, traditional MRO work and long-term fleet agreements are the most logical areas for near-term expansion. So says a survey of MRO providers conducted by Canaccord Genuity.
The survey, done as part of Canaccord's quarterly barometer-check of the MRO market, is likely biased towards the traditional repair and long-term support agreements, the firm acknowledges. Those services are, after all, what the survey respondents focus on most. But the results, gleaned from more than 50 companies, shed some light on what the marketplace views as the biggest threats of BGS's expansion plans.
As anyone following the aftermarket now knows, Boeing has made noise about expanding its aftermarket revenues—not just MRO, but also parts sales, training and digital services—to $50 billion in a decade or so. BGS is on pace for perhaps $14.5 billion in 2017, based on its recent quarterly earnings figures. (http://www.mro-network.com/maintenance-repair-overhaul/boeing-global-services-growth-slow-out-gate) Growth in the third quarter was 2%, far off the pace needed to even approach $50 billion by the end of the next decade.
Acquisitions seem inevitable, but Boeing executives are adamant that organic growth is the top priority. (http://www.mro-network.com/manufacturing-distribution/14-billion-and-growing) The company has identified several areas, including avionics and flight-control systems, as growth areas—some of them linked to producing new parts and capturing related aftermarket revenue.
The Canaccord survey respondents sees BGS's greatest potential in MRO. Nearly 25% of them picked the bedrock aftermarket activity as BGS's most logical expansion target, with 21% seeing the closely related pooling and flight-hour support services.
Canaccord agrees, to a point.
"We believe Boeing will look to expand into component MRO, but we do not believe the company views heavy, or airframe [MRO], as a very attractive business," Canaccord's Ken Herbert writes. "We are not surprised that over 20% of the companies in this survey view pooling and component support agreements (Global Fleet Care) as an area Boeing will expand. We agree with this, and look for Boeing to try to capture as much of this market as possible, especially around new aircraft introductions and aircraft sales."
Interestingly, training and digital analytics—two major Boeing focus areas—were far down among respondents' best bets for BGS, at 8% and 5%, respectively. This could reflect the aforementioned bias, or it could be insight from the front lines on how challenging it would be to grow services revenue in these areas.