Boeing risks losing orders in aftermarket business push, says consultant

Feb. 13, 2018, © Leeham Co.: Boeing’s drive to dramatically increase its aftermarket business, competing with suppliers or even controlling the parts needed by airlines for maintenance, repair and overhaul operations have a risk, says an industry consultant.

Kevin Michaels, president of AeroDynamics, said Boeing potentially could lose airplane sales if it takes too hard an approach to controlling aftermarket parts.

Michaels appeared at the 2018 annual conference of the Pacific Northwest Aerospace Alliance (PNAA) today in a Seattle suburb.

Boeing’s goal

Boeing wants to increase its share of a trillion-dollar after-market industry to $50bn in 5-10 years, an ambitious goal.

Michaels says airlines already are complaining that their normal suppliers are finding it difficult to get parts that Boeing controls; Boeing wants to sell the parts directly for the revenue and high profit margins, Michaels says. Anecdotal evidence is that Boeing is taking a hit on customer satisfaction in some cases, he says.

In a question on the sidelines of the PNAA conference, Michael said the risk goes beyond customer satisfaction.

MRO operations

Several airlines operate their own maintenance operations for their own fleets and to provide MRO services to other airlines. Among them are Delta Air Lines, Lufthansa, Air France-KLM, Singapore Airlines and several Chinese carriers.

These companies often tie the right to provide MRO services through their technical facilities as a condition to awarding an aircraft order to Boeing, Airbus or the engine OEMs.

It’s well known in the industry that Air France delayed ordering the Airbus A350 because Rolls-Royce refused for more than a year to grant MRO rights for the engines.

Delta is said to have selected the Airbus A321neo in its recent competition over the Boeing 737-10 in part because Pratt & Whitney was more willing than CFM to grant the MRO rights. (Boeing’s trade complaint against Bombardier over the Delta C Series orders was also a reason, market sources say.)

Should Boeing refuse to grant MRO rights for the aftermarket it controls, it risks losing airplane orders to Airbus, Michaels said on the PNAA conference sidelines.

18 Comments on “Boeing risks losing orders in aftermarket business push, says consultant

  1. Is it just me, but does this like full speed ahead for Boeing (i.e. RMS Titanic) — headed straight for disaster with the management of the company blinded by greed?

  2. For the next 10-15 years, there is little downside to BA’s behavior.
    AB can’t outproduce them. Other competitors outside AB are nowhere near BA products (and capabilities).

    BA can tighten the screws and let the rest scream.

    Air France did cave-in btw. AFI got a face saving, lip service MRO deal from RR.

    • Based on backlog alone, Airbus should quite easily be able to go to 80-plus units per month on single aisles within half a decade — CSeries not included. Boeing won’t be able to match that.

      Then, Airbus could further tighten the screws by launching a CS-500 and an A320.5neo with EIS in, say, 2023 — leading to the 738MAX being caught in a pincer movement.

  3. Because PFS and PFS 2.0 didn’t do a thorough enough job of lowering Boeing Part Supplier profit margins to the point of driving part suppliers to their competition (if not to folding completely).

  4. And by the way, the big-3 engine makers are doing the same thing. What do you think their total care packages are and where they are going with that?

    MROs are scared sh…less. Witness the main 3 core network alliances being formed.

    I was at Engine Americas a couple of weeks ago, and boy… was that clear. Independent MROs are going to really really suffer in a few years.

    • It’s a different story with the engine OEMs. They typically sell their engines at a loss in return for a long-term service contract. That’s not the case for OEMs in the LCA business.

  5. Wartsila set the example years ago in the large diesel engine market.
    They succeeded big time.
    Boeing will do the same despite all the kicking and screaming of the industry.

    • Hi Andrew,
      Interesting parallel you’ve given with Wartsila. Do you have any info that can be read up on it? Thanks

      • Sorry, not really,
        Just been in that industry for fifty years and watched them swallow up the opposition, Only two major players left in Europe,
        Oddly enough the USA were never a player in that market except for locomotive diesels,

          • Wartsila used to be in shipbuilding business but clearly recognised the future was that the hull and superstructure construction were just a commodity product. ( bankruptcy helped their vision become clearer)

  6. So in summary, they’re adopting the printer business model — sell the airframe at a big discount and then make money selling replacement parts at ridiculous margins. Expect the next Boeing CEO to come from HP, Epson, or Brother.

    • Well those printer guys are screwed with all the NoName replacement – so they already did gave up this strategy, with the airplane vendors it is a different story – no No Name parts possible !

      I just wonder how much margin they do have on a complete plane and how much on a spare part. I am sure it is at least 2.5times that much …..

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