As the period for annual and quarterly earnings calls comes to an end, commercial aerospace CEOs see in the next five to 10 years a growing trend in providing customers with more services on existing aircraft rather than directly selling more new hardware or airframes. Most notably this week Boeing Chairman, President and Chief Executive Officer (CEO) Dennis Muilenburg, see data analytics, health monitoring and other services as a way to buoy growth of new aircraft orders in the next few years.
Maintenance technicians work on a Boeing 787. Photo: Boeing.
In 2016, Boeing delivered a total of 926 commercial and defense aircraft, generating $94.6 billion in revenue. There were some caveats that have the world’s largest commercial aircraft manufacturer looking at new areas for growth over the next two to three years. Total net new aircraft orders were down to 668 in 2016, compared to 768 in 2015. Boeing’s commercial order backlog is still healthy at 5,700 airplanes, which equates to seven years’ worth of production at its current rate. But despite a strong backlog, some actions in 2016 point to a shift in thinking for growth areas in the next few years.
Last year, Boeing reduced its commercial airplanes workforce by 8 percent and its number of executives by 10 percent. An internal company memo reported by several major media outlets in December noted that workforce reductions would continue this year. The company is also reducing its production rate for the 777, noting a slowdown in demand for the wide-body jet. Muilenburg said during the company’s annual fourth-quarter and full-year earnings call Jan. 25 that one area where he sees more immediate growth opportunities is in the provision of services to existing and new commercial and defense customers and operators in the form of aircraft predictive maintenance, data analytics and other services that leverage Boeing’s expertise.
“We continue to see the Commercial and Defense services market as a major growth opportunity for us. We are aggressively targeting this market as we strengthen our services in support areas, including our traditional parts, modifications and upgrade business, as well as expanding further into data analytics and information-based services,” Muilenberg told analysts and journalists during the company’s annual fourth quarter and full year earnings call on Wednesday Jan. 25, 2017, according to a transcript of the call released by Seeking Alpha.
Further proof of Boeing’s confidence in potential growth and more demand for services was seen in November. Kevin G. McAllister was named the new president and CEO of Boeing Commercial Airplanes. Boeing Global Services, which will bring together capabilities currently provided by the existing service units within the commercial airplanes and defense and space divisions, was also launched.
Other shifts geared toward providing support for avionics, subsystems, engines and other components and technologies were seen with a partnership between Boeing and Teledyne Controls
in October 2016. The effort will launch a new fleet-wide data manager program, which will “set an industry standard for the transfer of navigation databases, software updates and quick access recorder (QAR) data between an airline’s maintenance facilities and its airplane fleet.” The service recognizes the need for an integrated aircraft data management tool with the ability to work across Boeing and non-Boeing airplanes within a commercial airline fleet.
Earlier in the year, a Boeing agreement with Microsoft
calls for the transition of some of its commercial aviation analytics applications, such as those provided by Boeing subsidiaries AerData and Jeppesen, to the Microsoft Azure cloud platform. That announcement came shortly after six airlines, All Nippon Airways, British Airways, Delta Air Lines, GOL, Probed Airlines and Yangtze River Express, signed agreements for Boeing’s advanced data analytics services at the 2016 Farnborough International Airshow
. Among the analytics services contracted in those agreements include AHM, Boeing’s Wind Updates services that provide real-time information about atmospheric conditions and its Fuel Dashboard service.
On Wednesday, Muilenburg said the new global services business unit would become fully operational in the third quarter of 2017 to serve a market that he believes is potentially worth “$2.5 trillion over the next 10 years.”
“We are looking at and targeting services growth for the long run. And as we've valuated our options and the investments we're making, we thought one of the key strategic steps was to create an integrated services business whose number one job every day is to serve our customers and grow our services business. That's in combination with the other investments we're making in both organic and inorganic growth in growing our parts business, growing our mods and upgrades business and growing our data analytics business. It's all part of a holistic services growth strategy,” said Muilenburg.
Today, Boeing has a 7 percent market share in the commercial aviation services business and a 9 percent market share in defense services.
Although Boeing’s shift toward a focus on growing its services is clear, Boeing is still confident that its latest commercial forecast will come to fruition. The latest global outlook from Boeing sees a demand for 39,600 aircraft over the next two decades.