Boeing’s increasing emphasis on services and lifecycle revenue streams for its products is a “key development” for the company, says Fitch Ratings.
The credit rating agency had affirmed Boeing’s long-term rating at ‘A’ with a stable outlook, and says that Boeing’s $4.25 billion takeover of parts supplier KLX Aerospace Solutions – expected to close in the third quarter – will not affect this assessment.
However, it also notes that Boeing’s ambition to push services revenue from last year’s $15 billion up to $50 billion must entail it taking market share from other aftermarket providers, or further acquisitions.
It also pointed out that another purchase of the size of KLX could affect Boeing’s credit rating since it would “use up much of [Boeing’s] debt capacity at the current rating”.
Nonetheless, Fitch broadly approves of Boeing’s aftermarket strategy, which it believes could drive growth and margin gains.
It also increases the viability of clean-sheet aircraft programs by opening another revenue stream to recoup high development costs.
“Potentially greater services revenues through the life of a program could make some proposed programs more economically viable than if evaluated only on an original equipment basis,” Fitch states.
The obvious potential program in this regard is Boeing’s new midsize aircraft (NMA). Fitch questions whether Boeing’s current setup can provide a business case for the aircraft given development costs, but notes this might change with production system improvements and aftermarket gains.
It also says that some concerns remain about the “ultimate profitability” of the 787, which was plagued with production delays and huge cost overruns in its development.
“Key questions for [Boeing] over the next year will be whether it raises 737 rates further [and] whether the supply chain can support additional rate hikes,” it adds.