KLX-22.jpg KLX

Why Boeing Bought KLX and How It’s Reaping Benefits Already

In just a few weeks since the acquisition closed, the companies are reaping benefits faster than expected.

Boeing closed its acquisition of KLX on Oct. 9 for $4.25 billion, its largest since buying McDonnell Douglas in 1997 for $13.3 billion.

The acquisition was important for Boeing because it saw it as a complimentary business with few overlaps, a way to build out its distribution capabilities and make it more nimble in its response to customers, says Stan Deal, Boeing Global Services president and CEO. He adds that KLX’s management culture is very similar to Boeing’s, which makes the integration easier.

“KLX is strong in many areas we were looking to grow into, and likewise, we had a lot of strengths that they were looking to grow into,” says Ken Shaw, senior VP supply chain for Boeing Global Services.

Now that the deal is closed and the companies are sharing data, Boeing is seeing opportunities to accelerate its synergy captures and translate that into results.

For instance, Shaw says they are seeing quantity price breaks by combining purchase orders for commodities that both companies were buying on their own, which can result in cost savings for customers.

Boeing didn’t distribute fasteners, but it buys about the same quantity for its production operation as KLX did before the acquisition, so when you overlap part numbers, suppliers and commodity codes, Boeing’s purchasing power doubles, says Shaw. Expect Boeing to seek cost savings from its fastener suppliers, which could also benefit its customers.

Chemical management is another area in which both KLX and Boeing were investing prior to the acquisition. Shaw says KLX is particularly strong in Europe and Aviall is strong in North America, so combined they get synergies and additional buying power.

Boeing has not publically disclosed the synergy savings it hopes to derive from the companies’ combination, but Deal stresses he sees a revenue upside from eliminating cost and overhead duplication—like any acquisition.

Supporting customers faster is another goal as a result of the acquisition.

Before acquiring KLX, Boeing was starting to invest in ways to be more integrated with customers’ parts stocking operations as a step to achieve this. KLX already is doing that by being integrated in customers’ shop floors day to day through its bin stocking programs for OEMs, airlines and MRO. “We’ve been pushing toward that but we frankly run more of wholesale operation, where we’ll ship to the customers but we don’t do as much ‘last-half mile of service,’” says Shaw. That will change via KLX.

The Boeing/KLX combination also allows customers to choose from a much bigger parts offering when you combine KLX, Aviall and Boeing into one integrated operation—and that should also consolidate customers’ supplier management and drive down costs.

When asked about OEM price escalation, which is a concern in the industry, Deal says the merger is not intended to be justified via cost escalation but rather to “focus on ways to drive costs out” and “drive productivity for our customers.”

He says it will take 1-2 years before the IT and ERP systems are integrated.

It will take time for Boeing to deliver the service response rate is targeting, too, but Shaw says “KLX is teaching us how to be faster.”

“We’re becoming more nimble, but we’re not where we want to be yet” in its drive for competitive service offerings, says Deal. However, its work to differentiate its portfolio is resonating in the market. Boeing Global Services’ third quarter revenue increased to $4.1 billion, which was largely driven by higher parts volume.

Based on its acquisition of KLX, which will be included in Boeing’s fourth quarter earnings, the company increased its guidance to $16-16.5 billion for full year.

TAGS: Airframes
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