K63664.jpg Boeing

Boeing Global Services Growth Slow Out Of The Gate

Most near-term potential is in parts, MRO; digital not far behind.

The first look at real-world financials from Boeing Global Services (BGS) reveals a slow-growing business unit, and company executives say near-term plans to accelerate expansion will focus on mature services such as parts, modifications, and MRO.

BGS revenues for the nine months ended Sept. 30 totaled $10.6 billion, up about 1% from year-earlier figures. Third-quarter figures, which represent the first three months that BGS operated as a stand-alone business unit, were slightly more impressive, growing 2% to $3.56 billion, the company reported. 

The BGS figures—the first released by Boeing since it announced the business unit's formation last year—mean that Boeing's total annual aftermarket revenues are about $14.3 billion. Boeing President and CEO Dennis Muilenburg offered a few more details during an Oct. 25 earnings call, saying BGS sales are "about a 50-50 split" between commercial and defense. Breaking down revenue buckets, he says 40% of BGS revenues are from parts and supply-chain services and 40% from MRO and modifications, while the remaining  20% is digital services and trainiing.

Boeing is on the record saying it wants to grow BGS to $50 billion in the next decade or so. The slow growth reported so far this year surprised some analysts, but Muilenburg says the company is satisfied with BGS's progress as it ramps up investments that will pay off down the line.

It's a good solid foundation to start," he says. "Obviously, we're making a number of investments to help grow our portfolio going forward."

Muilenburg says digital aviation and analytics hold the greatest long-term potential "in terms of percent growth opportunity," but the ramp-up to "critical mass" will take time. Boeing has more than 90 customers and nearly 4,400 aircraft in some sort of subscription-based airplane data monitoring program.

Near-term, growth will likely come from its parts, modifications, and maintenance services, both for commercial and defense customers. "Those are critical-mass capabilities that are in place today that we  can grow more rapidly in the near term," Muilenburg says.

Boeing has about 60 operators and 2,500 aircraft in Global Fleet Care-branded long-term support agreements.

Canaccord Genuity analyst Ken Herbert notes that Boeing's first priority with BGS is likely finding efficiencies in combining formerly dedicated units serving commercial, business, and space.

"We continue to see cost savings as the near-term focus, followed closely by a revenue push, both organically and through acquisitions," Herbert writes.

TAGS: Airframe
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