Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

4-Traders Homepage  >  Equities  >  Nyse  >  Boeing Co    BA

SummaryQuotesChartsNewsAnalysisCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsSector newsTweets 

Boeing : Boosts Push Into Plane-Parts Arena -- WSJ

share with twitter share with LinkedIn share with facebook
share via e-mail
0
04/25/2016 | 08:49am CEST

Company moves to cut costs and secure new source of revenue beyond building aircraft

By Jon Ostrower 

Boeing Co. is ramping up its push into the parts business, as part of a broad effort to cut costs and secure a new source of revenue even more lucrative than making aircraft.

In the past, airlines could purchase parts directly from one of Boeing's largest suppliers, Spirit AeroSystems Holdings Inc., allowing it to diversify its business beyond the 80% of its sales linked to jet production at the Chicago-based plane maker.

But in late February, Boeing quietly stopped Spirit from selling parts such as engine thrust reversers and other large parts directly to airlines, according to both companies. Boeing said it also stopped granting new licenses to suppliers to sell proprietary parts to its airline customers.

It is the most aggressive move to date in Boeing's yearslong effort to assert control over distribution -- and the resulting revenue -- of spare parts.

The initial sale of a jetliner is a comparatively smaller portion of the revenue that aircraft will generate during their multidecade life. The greater proportion of revenue on any single plane comes from the lifetime maintenance and parts that range from fire extinguishers and seat belts to on-board computers and landing gear shared across hundreds of companies.

These parts at airlines and maintenance facilities can fetch up to 4.5 times more than what Boeing pays for the parts during initial production, according to one supply-chain official.

Spirit will continue to manufacture the spares but will have to sell them through Boeing, with the plane maker taking a cut. A Spirit spokesman said the license was a "small component" of its overall business and airlines would still need parts it manufactures.

Boeing executives say the shift is in response to customers who increasingly scrutinize deals -- not only on the performance of its jets, but on the total costs of lifetime ownership. Many analysts also have long questioned why some of Boeing's suppliers earn fatter profit margins than the world's largest aerospace company.

And nothing prohibits Boeing from expanding its business model to emulate engine-makers and business-jet manufacturers, which have tightly controlled that lucrative pipeline with its customers.

Now the company wants to more than triple sales of its commercial and defense aviation parts and services business to about $50 billion by 2025 from an estimated $15 billion last year, according to an industry strategist.

As cost-conscious airlines drive down prices for jetliners, Boeing is searching for new revenue, said Kevin Michaels, vice president with ICF International's aerospace-consulting practice.

It isn't just parts. Boeing in April said it would promote economy-class seats made by new entrant Lift, giving the unit of Encore Corporate Inc. preferred access to its single-aisle jets. In return, Boeing will be able to sell the seats to airlines when carriers refresh older planes with plusher interiors.

A spokesman for Lift said Boeing approached it to collaborate on the new seat's design, which will be ready in 2017.

"The things that we're doing to change our business relationships in the supply base are directly related to how we feel we need to change to compete," said Kent Fisher, vice president of supplier management for Boeing's commercial unit. "I know it can be painful for some of the players, but that's why we're doing it."

The quest for extra revenue comes as Boeing continues a broader cost-cutting effort with suppliers, known in the industry as Partnering for Success. It sought about 15% reductions in unit costs for the parts suppliers provide for the company's jets.

Boeing's cost-cutting isn't limited to suppliers. Boeing said it would cut about 4,500 positions, in part to offer a more competitive price to airlines for its jets and deliver a promised cash windfall to investors.

But with 65% of its costs outside of its factories, the company's focus on the supply chain is getting a renewed emphasis.

In many cases, Boeing provided additional work to suppliers who quickly locked in new contracts and took work away from those that didn't secure a deal, according to suppliers. Boeing also prohibited some suppliers from being given new work or withheld regulatory approvals for parts until revised contracts were complete, they said.

Boeing executives in February said it was restarting the cost-cutting process with suppliers, emphasizing its need for lower costs would be a continuous effort.

The shift to directly claiming revenues that normally go to its suppliers is causing significant concern in the suppliers' sector.

"They're trying to cancel everybody's business model," said a business-development official at one major Boeing supplier.

Not all suppliers are upset about Boeing's moves. Rockwell Collins Inc. chief executive Kelly Ortberg said its contract negotiations with Boeing included changes to its aftermarket sales and considered it a positive for both companies.

New airplanes like the Dreamliner are so infrequently developed that suppliers sign ultra-competitive contracts that gives the lowest possible costs for systems or components to manufacturers for factory installation -- with the expectation that airlines and maintenance facilities will pay premium prices for spares for decades.

"The economics of being a Boeing supplier could be facing their greatest challenge yet," wrote Robert Spingarn, aerospace analyst for Credit Suisse.

Suppliers most at risk for Boeing reclaiming aftermarket control are those that build parts originally designed by Boeing, like many of those made by Spirit, analysts say.

For those parts designed by its suppliers, Boeing in 2012 began charging suppliers a royalty for selling replacement parts to airlines or upgrades such as new in-flight entertainment systems, saying they were created using the plane-maker's intellectual property.

To be sure, suppliers have enjoyed their lucrative position selling parts direct to airlines, which have grown frustrated with increasing prices. The International Air Transportation Association on behalf of its member airlines in March filed a complaint with the European Commission alleging abuses by suppliers into pricing for spare parts.

"This is an area of deep concern for our members. There are relatively few equipment vendors and our members are frustrated that there is little flexibility in negotiations for aftermarket services," Tony Tyler, IATA's director general said last month.

Write to Jon Ostrower at jon.ostrower@wsj.com

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on BOEING CO
10:22a BOEING : Metropolitan Life Insurance Co. NY Lowers Stake in Boeing Co
05:01a FUTURE OF INDUSTRY : Strata to create jobs with Al Ain plant investment
03/29 BOEING : Federal Contracts Awarded to Companies in Washington (March 29)
03/29 BOEING : to Release First-Quarter Results on April 26
03/29 BOEING : MILITARY $59.23 Million Federal Contract Awarded to Boeing
03/29 BOEING : Expands Pilot Training Network; Three new schools added to support Pilo..
03/28DJPentagon Shuffles F-35, Air Force One Leadership -- Update
03/28 BOEING : Expands Pilot Training Network
03/28DJBOEING : Air Force General Appointed to Watch Boeing's Work on Presidential Plan..
03/28DJBOEING : Air Force General Appointed to Watch Boeing's Work on Presidential Plan..
More news
Sector news : Commercial Aircraft Manufacturing
03/29DJHARDIDE : Shares Rise on Airbus Supplier Approval
03/28DJPentagon Shuffles F-35, Air Force One Leadership -- Update
03/27 UK materials testing firm Exova says gets proposals for cash offers
03/27 Honda faces long haul to recoup jet costs
03/24 AIRBUS : Electroimpact to pay $485,000 over alleged hiring discrimination
More sector news : Commercial Aircraft Manufacturing
News from SeekingAlpha
03/29 DIVIDEND GROWTH INVESTORS : Quality Might Be Only Half The Battle
03/29 AT&T : Strong Solid Income Not Just For Widows And Orphans
03/29 Hearing on threats to space assets
03/29 Berenberg initiates BA with Buy rating
03/29 WALL STREET BREAKFAST : U.K. Pulls Article 50 Trigger
Advertisement
Financials ($)
Sales 2017 92 136 M
EBIT 2017 9 155 M
Net income 2017 6 238 M
Debt 2017 372 M
Yield 2017 3,12%
P/E ratio 2017 17,64
P/E ratio 2018 16,06
EV / Sales 2017 1,18x
EV / Sales 2018 1,07x
Capitalization 108 014 M
More Financials
Chart BOEING CO
Duration : Period :
Boeing Co Technical Analysis Chart | BA | US0970231058 | 4-Traders
Full-screen chart
Technical analysis trends BOEING CO
Short TermMid-TermLong Term
TrendsNeutralBullishBullish
Technical analysis
Income Statement Evolution
More Financials
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 27
Average target price 177 $
Spread / Average Target -0,64%
Consensus details
EPS Revisions
More Estimates Revisions
Managers
NameTitle
Dennis A. Muilenburg Chairman, President & Chief Executive Officer
Gregory D. Smith Chief Financial Officer & Executive Vice President
Ted Colbert Chief Information Officer
Gregory L. Hyslop CTO, Senior VP-Engineering, Test & Technology
Kenneth M. Duberstein Lead Independent Director
More about the company
Sector and Competitors
1st jan.Capitalization (M$)
BOEING CO14.10%108 014
UNITED TECHNOLOGIES CO..2.23%89 837
LOCKHEED MARTIN CORPOR..7.32%77 742
AIRBUS GROUP13.97%59 537
GENERAL DYNAMICS CORPO..9.05%57 122
RAYTHEON COMPANY6.99%44 497
More Results