Boeing expects another banner year for customers

By Dan Catchpole

Danieljcatchpole[at]gmail[dot]com

Feb. 13, 2019, © Leeham News: Boeing Commercial Airplanes expects another banner year in 2019, Randy Tinseth, BCA vice president of marketing, said Tuesday at the PNAA conference.

The airplane maker expects its customers to make about $36 billion in profit this year, he said. That would make five consecutive years of BCA customers recording more than $30 billion in profits.

Tinseth declined to comment on the company’s decision to delay possibly launching the New Midmarket Airplane (NMA) to 2020. However, as Boeing CEO Dennis Muilenburg noted during the Jan. 30 earnings call, Boeing likely will seek authority to offer this year from its board of directors.

He did say he was surprised to hear so many people already referring to it as the 797.

“I can tell you one thing—that has not been discussed,” Tinseth said.

Services share stage with aircraft sales outlook

Tinseth typically presents Boeing’s commercial aircraft market expectations during the annual conference. However, this year, services played a much more prominent role in his presentation than in prior years. Under Muilenburg, the company has taken an aggressive strategy on expanding its services revenue. That is principally through its newest revenue division, Boeing Global Services (BGS). However, it has integrated BGS and BCA sales teams to pitch aircraft and services together.

Boeing expects the commercial aircraft market to grow by about 2.3 percent per year over the next two decades. However, it expects the services market to grow by 4.2 percent per year.

The purchase price is a small portion of what an airline spends on an aircraft over its life. Over 20 years, an airline might spend about $1 billion operating a 737-800, Tinseth said.

Offering services to improve efficiency is “a huge opportunity” for Boeing, he said. Currently, Boeing only has about 8 percent of the aftermarket services and MRO market.

Already, Boeing customers are using their aircraft “more effectively and more efficiently than they ever have before. In the last 10 years, the average stage length flown by our customers has increased about 10 percent,” Tinseth said.

Aircraft utilization during that same time has risen about 15 percent, he said.

Nearly 40 of the growth in air travel in the last decade has come from more efficient aircraft utilization, rather than simply adding airplanes, he said.

Market share concerns contribute to low-priced duopoly

Selling aircraft is still Boeing’s bread and butter. It’s push into services is an outgrowth of BCA’s position, not a replacement of BCA. For years, Boeing and Airbus have been locked in a bare-knuckle duopoly. Rather than use their duopoly position to raise prices, the two often have pushed the other to keep prices low, especially in the single-aisle sector, where airplanes are more of a commodity good.

The OEMs reluctance to raise prices has puzzled some analysts in recent years. Kevin Michaels raised the point at the 2018 PNAA conference, noting that there is enough demand that Boeing likely could raise prices, lose some orders and still increase its profit margin.

From Boeing’s perspective, though, too much hangs on each sale to risk losing market share.

“When it comes to a single-aisle program or a wide-body program, oftentimes you only have one opportunity in 20 years to win that business,” Tinseth said when asked about pricing. “Think about it, because if you lose that business, you lose it for a 20 year period. You don’t know (when) those ebbs and flows in the market will happen.”

10 Comments on “Boeing expects another banner year for customers

  1. Bonuses seem to be the last thing to be reduced.
    Remember the banksters :
    first they did a high speed crash on a frictionless cushion formed by bonuses.
    Later they felt entitled to even larger bonuses for “fixing” the damage.

    • Not Boeing profits.

      But Boeing customers make .$$$… profit.
      Bit of a distraction, isn’t it?

      • It was a talk at an aviation conference, not really a “distraction” to talk about how much money customers make using your product…

        • In the majority of the cases, Boeing customers are also Airbus customers and others’. Or is Randy privy to Boeing-aircraft-only profit figures from those customers?

        • I read it as: our customers make 36 billion in profits, we should get a larger share of that (through higher prices on planes, or through expanding services).

  2. “I can tell you one thing—that has not been discussed.” Did Randy’s nose grow when he said that? 😉

  3. Ditto: stuff like that is always discussed. I would guess his nose is 4 feet long.

  4. But let’s cheers for the industry, Guys. Those of us who remember flying in 2001-2009 in the US feel for all the baggage luggers/mechanics/attendants who lost their pensions. And decaying cabins…endless of minor mechanical issues that would create more delays, etc.

    Not sobbing for the pilots though like the United guys — remember the work-to-rule slowdown in 1997 or something? where they got insane 30-40% raise after 2-3 months for just showing up and not doing more? And very little for the other lower earthling colleagues… I was caught quite a few times then at ORD/EWR… never forgave them 🙂

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