Flight International - 10 April 2018

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STRATEGY STEPHEN TRIMBLE PLANO

More than simply a Boeing support act

Company has always set the bar high, but internal target for its services division will require unprecedented growth

A

daring and controversial
stretch goal to treble Boeing’s
services revenue within eight
years, in a market already crowd-
ed with the company’s customers
and suppliers, came out of a 2016
brainstorm session.
In the 1950s, Boeing soared to
the top of the industry after bet-
ting the company’s survival on
jet-powered commercial airlin-
ers, displacing larger American
rivals Douglas and Lockheed in
the process.
As chief executive Dennis
Muilenburg convened strategy
sessions in the year of Boeing’s
centenary in 2016, he sought out
similarly provocative moves that
could propel the company into
its second century.
“We set some pretty audacious
stretches [during those sessions
in 2016],” said Stan Deal, now
the head of Boeing Global Servic-
es (BGS), during a March inter-
view in his new headquarters in
Plano, Texas.
In the two years that followed
those sessions, Boeing has made
several provocative moves, in-
cluding standing up an avionics
business, partnering with auto-

motive supplier Adient to devel-

op seats for airliners and, most re-

cently, proposing a combination

with Brazilian aircraft manufac-

turer Embraer. But the single most

controversial – and ambitious –

change Boeing has made con-

cerns a stretch goal on services.

By 2016, Boeing already had

one of the largest services busi-

nesses in the market, but it was

split up as a support element to

two major business units, with

other key pieces, including Aviall

and Jeppesen, not fully integrated.

When the discussion turned to

the services market in Muilen-

burg’s sessions two years ago,

Boeing’s executives started with

setting a stretch goal for reaching

$50 billion in services revenue by

2025, Deal says.

“Then we looked at, what do

we think we need to do to obtain

it?” he recalls.

A few months later, in Novem-

ber 2016, Muilenburg announced

that Boeing would form BGS on

1 July 2017 by consolidating the

company’s balkanised services

offerings into a single business,

and setting an “aspirational tar-

get” to reach $50 billion in annu-

al revenue by 2025.

The depth of that financial

challenge became apparent a year

later, when Boeing revealed that

the size of its various services of-

ferings within BGS amounted to

only $14 billion. To reach the as-

pirational target within eight

years, the company would have

to sustain an average compound

annual growth rate (CAGR)

of 16.6%.

For comparison, Boeing’s rev-

enues have risen from $64.3 bil-

lion in 2010 to $93.4 billion last

year: a 45% improvement. Meas-

ured by CAGR, however, the im-

provement seems more modest at

4.7%. Boeing must nearly quad-

ruple that performance to achieve

the growth targets set for BGS

over a similar eight-year period.

“That’s pretty phenomenal

growth,” Deal agrees, when told

about the CAGR calculation.

“It is aspirational,” he adds.

“This is, in general, how you see

Dennis running The Boeing Com-

pany under his tenure. Let’s not

be afraid to set a stretch in order

to stimulate a different way of

thinking to go to the market.”

PRICING PROBLEM

The move has put Boeing in com-

petition with some of its biggest

suppliers for aftermarket servic-

es, but Deal makes no apologies.

“There’s some bad behaviour

that’s taking place in the supply

chain on the sustainment side –

exorbitant price increases on cer-

tain parts,” he says. “Airlines

don’t like year-over-year price in-

creases in the double-digit range.”

As Boeing consolidates more

aftermarket services under its

brand, it could wield the same

power to dictate prices on cus-

tomers. But Deal dismisses that

possibility, noting that it still has

to sell airlines factory-built prod-

ucts before competing for after-

market deals.

“We’re a supplier to our airlines

on both sides of the situation,

“There’s some bad

behaviour that’s

taking place in the

supply chain”

Stan Deal

Chief executive, Boeing Global Services

Aftermarket work

forms key part of

BGS strategy