As Boeing [BA] strives to grow its year-old services segment to $50 billion in revenue within the next nine years, the commercial work will rise faster than defense business but both will be on the upswing, according to Stan Deal, president and CEO of Boeing Global Services.
The services segment is currently roughly evenly split between commercial and defense work but there’s “a little more upside growth in the commercial market,” Deal told Defense Daily in an interview last month just ahead of the July 1 one-year anniversary Boeing Global Services. The defense market was bolstered this year with a two-year budget deal that Republicans and Democrats in Congress agreed to but Deal said it’s “hard to predict” trajectory of defense spending further out.
Boeing Global Services posted $14.6 billion in sales in 2017 and the revenue target for the segment is $50 billion within 10 years. Boeing overall last year reported $93.4 billion in sales.
Deal pointed out that Boeing’s customers spend about 30 percent of their operating capital on acquisitions and the rest on the life-cycle of the platforms they acquire. Boeing Global Services was created, in large part, to put a stronger focus on its customer’s needs in the post-acquisition phase of their platforms, he said.
For both its defense and commercial customers, Deal said it comes down to “getting assets to be efficient at the lowest cost possible.” For airlines, this helps them be profitable and in the defense space this attitude was being driven by tight budgets amid a period of sequestration, which kept a lid on significant increases in federal spending.
The services growth will be driven by a combination of organic growth and acquisitions and other strategic initiatives. In May, Boeing announced a $4.3 billion acquisition of KLX, Inc., which strengthens Global Services’ capabilities in the distribution of parts and chemicals. KLX is mostly a commercial play but does provide some additional defense work.
Then in June, Boeing entered a joint venture with France’s Safran Group to jointly design, build and service auxiliary power units, which are used to start an aircraft’s main engines and power aircraft systems on the ground and, if needed, in flight. The arrangement with Safran is initially targeted at commercial aircraft but potentially can expand into military aircraft, Deal said.
Boeing Global Services is interested in a joint venture for aircraft seating and is also interested in aircraft avionics, Deal said.
Deal outlined four capabilities his group brings to market including digital innovations such as data analytics, supply chain solutions, which are bolstered by the KLX acquisition, engineering maintenance and modifications, and training and professional services. The primary market areas that Deal is focused on with its capabilities are the U.S. government, commercial, business and general aviation, and international governments, he said.
The biannual Farnborough Air Show outside London begins in mid-July and Deal said there will be key announcements there from Global Services that will demonstrate the segment is successfully executing toward its goals.
Last week, Boeing Global Services entered an agreement with Singapore’s Defence Science and Technology Agency to research and develop data analytics around aircraft performance and needs for operations and maintenance. Deal said that work with international governments, particularly around performance-based logistics, is forecast to outpace his group’s overall growth in defense services.
Data analytics services accounted for more than $1 billion in Boeing Global Services’ sales in 2017, with about 90 percent of that work commercial. Deal is focused on bringing more of this digital innovation work to defense customers and expects the defense side of the business to grow to about 40 percent of analytics sales. Overall, he sees the digital analytics business reaching about $10 billion within 10 years.
Some of Boeing Global Services’ competitive discriminators, according to Deal, are a focus within the company overall on integrating its commercial, defense and services segments.
“By that I mean we have the ability to get from a single OEM (Original Equipment Manufacturer) a solution that’s highly integrated across your platform,” Deal said.
Currently, the services market is “highly fragmented,” and Boeing brings a comprehensive and integrated portfolio of capabilities here for one-stop shopping that builds on its expertise with the platforms its sells, Deal said, noting that this is competitive strength for the services business.
Deal also said that “living a day in the life of the customer” as a services business creates a “strong feedback loop” that will make Boeing a better “producer of the next-generation airplane” for commercial and military markets. He also said the executive leadership at Boeing is highly integrated in its decision-making.