Boeing’s Commercial Aviation Services is part of the company’s strategy to broaden its business beyond “hardware” into services. CAS, which serves Boeing Commercial Aircraft and Boeing Defense, Space and Security, now comprises 15% of The Boeing Co.’s revenue.
Here is a story we did last week for Commercial Aviation Online looking at only the BCA side.
|Source:||Commercial Aviation Online|
Boeing’s freighter conversion business has a reputation for high quality work-and very high pricing. Also for taking a long time to do the conversion.
But Louis Mancini, SVP for the Commercial Aviation Services that does the conversions, says not only have turn-times improved dramatically, pricing is coming down as well.
“We had to put a lot of work in those years between 2003 and 2006 to meet customer expectations,” Mancini said. “Our aircraft modification is a thriving business.”
Mancini pointed to improvements in the turn-time with one example. The first conversion for Cathay Pacific Airways for a 747-400 P2F took 22 ½ months “from the time you said yes, to research your airplane, to do the tail-number engineering and secure the parts and do the modification. Today we will give you a freighter conversion in nine months. We hope to drive that down further.”
CAS has sold 50 744 P2F conversions since the programme launch. Mancini said it stalled during the recession but it is coming back. With prices dropping on the passenger models, notably with Japan Air Lines grounding all its 744s following bankruptcy, Mancini does not believe the cheaper airplanes will have a notable impact on the slow-selling 747-8F.
“If you look at the freight market, you’ve always had converted airplanes,” he said. “Obviously the new planes have range that [747-400Fs] don’t have. Many of our customers have both. They use the newer ones for over-sized cargo on long range and they use the older ones for shorter distances. I think if you look at the market, they segment nicely.”
CAS has performed all McDonnell Douglas (now Boeing) MD-11s conversions, with few passenger models left. It’s studying launching a 777-200 P2F program, but residual values remain too high for now. CAS is also gearing up to do 767 P2F conversions, a market that right now is dominated by Israel’s IAI and for which Italy’s Alenia undertook a programme that proved disastrous and contributed to the P2F conversion delays in Boeing’s KC-767 International programme.
As for Boeing’s pricing premium, typically millions of dollars more than the independents, Mancini said CAS is working to get the cost down but still expects a premium on the “Boeing value.”
“In general, we really had to face tough decisions when I got the job: could we continue to exist that way? I was able to source some really wonderful Boeing leaders. We were able to decrease our flow times and decrease our costs. We capture a value premium because we believe our mods and Boeing conversions are better. We think they fly farther, they are lighter and carry more freight, so we don’t have to compete on price.”
Yet one well-placed market source says CAS has lowered the P2F conversion price of the 767-300 from about $15m to about $12m, putting pressure on IAI to drop its price.
CAS, which also provides maintenance and a variety of other services to the industry, accounts for about $14bn in revenues for Boeing Commercial Airplanes and Boeing Defense, Space & Security. CAS accounts for more than $7bn in revenues at BDS, said Mancini, and 15% of the revenues at BCA.
BCA CEO Jim Albaugh last year told employees in an Excellence Hour meeting that CAS contributed about $1bn in profits to BCA.