787 Production Line- Seattle. Employees working on airplane and overhead images from crane. 2/9/2011 K65238-01

Boeing's Services Push Could Boost Spare-sales Volume, Sprit Says

OEM's aspirations hurt short-term, but could pay off down the road.

Structures specialist Spirit AeroSystems doesn't expect to become an MRO powerhouse, but the company's agreement to sell spare parts to Boeing could see it grow its nascent aftermarket business as its OEM partner chases a much-bigger piece of the services pie

"As we go forward, we actually expect with Boeing's focus on the service business, the sale of those spare parts should actually go up," says Spirit President and CEO Tom Gentile. "So we're quite confident with our position."

Spirit's recent fiscal 2018 first-quarter earnings review included several references to aftermarket softness. Gentile told analysts that the dip was linked to "a couple of spare parts in terms of the cost of how we source those," and it was not expected to last into the second quarter.

"Nothing structural in terms of the aftermarket business, it's just a reflection of making the transition from being a [direct-to-airlines] provider to just selling the spare parts directly to Boeing," he explains.

Last year, Boeing decided it would not longer allow Spirit to sell Boeing-licensed parts the supplier makes to operators. Instead, Boeing buys the parts from Spirit and sells them to the marketplace. While such deals inevitably cut into supplier margins, Gentile believes Boeing's focus on growing its Global Services business from about $14 billion to $50 billion in a decade could help make up for the loss.

"We sell right to Boeing in terms of all of our spare parts," Gentile explains. "We continue to do some aftermarket repairs, MRO. But the majority of the activity is in the spare parts."

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