By Dan Catchpole
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.
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.
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.”