Boeing To Broaden Vertical Integration, Canaccord Predicts.jpg Boeing
KAL 777-F Factory Rollout in Everett WAK65805

Boeing To Broaden Vertical Integration, Canaccord Predicts

Push could target UTC product lines.

Boeing's in-sourcing strategy likely will see the OEM continue to broaden its vertical-integration efforts into areas with substantial aftermarket upside, further pressuring large suppliers, analysts at Canaccord Genuity believe.

"Considering the expectations for future cost reductions on the 787, and the growing focus on the commercial [aftermarket], we believe Boeing will look to expand its vertical integration into other areas, and this is a major risk for the supply chain," Canaccord analyst Ken Herbert wrote in a recent research note based in part on a Boeing investor event.

Herbert believes United Technologies (UTC) products, such as wheels and brakes, could be particularly vulnerable as Boeing seeks to offset what it sees as a lack of benefits from the proposed UTC-Rockwell Collins union. He added that Boeing's ramping up of its avionics development is likely a preemptive strike along these lines, as avionics specialist Collins has been a sought-after acquisition target for some time.

"Boeing management remains concerned that it will not see the value creation from the [UTC-Collins] transaction, and we believe Boeing has clearly targeted UTC for in-sourcing initiatives," Herbert said.

Herbert noted that following UTC's last major supplier acquisition—Goodrich, in 2012—Boeing pulled in nacelle production and changed 777 landing gear suppliers, costing Goodrich work. The new gear supplier, Heroux-Devtek, will not see aftermarket revenues from the 777 and 777X gear it supplies.

Herbert also expects Boeing to major a "major" push into used serviceable materials, expanding an already formidable new-parts business.

"We believe Boeing proprietary parts are the highest margin piece of the BGS segment," Herbert wrote.

TAGS: Airframe
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.