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Boeing Aftermarket Sales Race Ahead

Despite overall revenue slides, the manufacturer's services unit produced a stellar first quarter.

Boeing’s first-quarter results were dominated by talk of the 737 Max, yet that aircraft’s problems, which have already led to $1 billion of additional costs, were tempered by improvements in Boeing’s growing services business.

Boeing Global Services (BGS), which encompasses commercial and military support, saw revenues grow 17% in the first quarter compared with the previous year, which Boeing contrasted with a wider services market growth rate of 3.5%.

Overall, Boeing thinks the services market will be worth $2.8 trillion over the next 10 years--roughly the same as its estimate for new commercial aircraft sales--with a little more than half that accounted for by commercial services.

For now, of course, Boeing’s aircraft sales remain its core business, but that may not always be the case; in the most recent quarter, fast-growing BGS sales were already at almost 40% the level of its commercial airplanes arm, albeit during a depressed quarter for the latter due to the Max.

Boeing’s revenue target for BGS is annual turnover of $50 billion within a decade.

“The company is in a very different position than it was 10 years ago,” noted chief financial officer Gregory Smith on an earnings call.

“Obviously, we're a lot larger but a lot healthier in generating in the other parts of the business, outside of 737, a lot more cash. And that certainly helps us navigate this very challenging situation that we're faced with [with the Max grounding],” said Smith.

Wins for BGS in the first quarter included a GECAS order for 10 737-800 freighter conversions and a deal with Royal Air Maroc to optimize the flag carrier’s crew operations, while the total backlog for the services arm grew to $21 billion.

BGS also expanded its digital offering by acquiring Foreflight, a provider of mobile- and web-based aviation applications.

Commenting on the services segment, Boeing chief executive Dennis Muilenburg said: “Strong orders of $4 billion in the quarter reflect our customers' recognition of our value proposition in helping them optimize the performance of their fleets and reduce operational costs through the life cycle.”

TAGS: Airframe
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