Boeing’s plan to grow its aftermarket services unit’s revenue to about $50 billion annually in the next decade means more than tripling current revenues of about $14 billion—a figure company CFO Greg Smith tossed out last week that will be officially broken out in third-quarter earnings.
The new business unit, Boeing Global Services (BGS), is but a month old. During the company’s second-quarter earnings call July 26, executives indicated that organic growth is expected to play a sizable role in BGS’s expansion. Earlier this week, the company revealed the next in what figures to be many steps along this strategic path.
Boeing has quietly been standing up a new organization tasked with developing avionics and electronics systems. The organization, building on experience Boeing has with data interface units and similar systems, employs 120 and could hit the 600-staffer mark by 2020, company executives say.
More tellingly, one of the long-term upsides that the company cites in the internal announcement revealing the move: tapping into “the growing services aftermarket.”
In other words, more build it, then fix it.
If BGS is going to hit its aftermarket-revenue goal, it will need to be firing on all cylinders—and making more of its own products to service certainly fits. Boeing in the last year or so has revealed plans to pull in actuation systems and some structural parts, and switched Boeing 777 landing-gear suppliers, grabbing aftermarket rights in the process.
Its parts business and fleet-care services are seen as other major near-term opportunities. Canaccord Genuity analyst Ken Herbert says 737 Max and 787 fleet-care deals could generate $2 billion annually by 2025, while parts, which likely contributes another $6 billion, will grow at a high-single-digit clip. Boeing sees great potential in its digital offerings--predictive analytics, fleet data management and such--but the company is hardly alone in this white-hot space.
To hit $50 billion in less than a decade, even more will be needed, it seems.
"While we see the potential for ~6% organic growth in BGS, based on the business mix, [Boeing] will have to look at over $20 billion in acquisitions for it to have a realistic chance of hitting its $50 billion revenue target for the services business by 2025,” Herbert wrote in a recent note.
Boeing CEO Dennis Muilenburg is confident that his team has myriad options on the table.
"We do expect some complementary inorganic investments, either acquisitions or, in some cases, new partnerships,” he told analysts last week. "We're working through a whole range of options right now that will fuel that growth. So this is a place where we will invest to grow, but we do see it primarily as organic growth.”