(Adds services unit start date paragraph 9, analyst comment
By Alwyn Scott
NEW YORK Nov 21 Boeing Co on Monday
named a senior General Electric Co executive to head its
commercial airplanes division and announced a new services unit,
in moves to capture more of the profitable market for parts and
repairs after a jet is sold.
The changes are "a big and important step" toward Boeing's
goal of increasing annual services revenue to about $50 billion
in 10 years from about $15 billion currently, Boeing Chief
Executive Officer Dennis Muilenburg said on a call with
The changes do not alter plans for developing aircraft, but
put a new "emphasis on generating life-cycle value," Muilenburg
said, referring to building an aircraft with an eye to gaining
revenue from servicing the plane during its decades-long life.
"We've always said growing services is a core part of our
strategy, and now you see us emphasizing and investing
accordingly," Muilenburg said.
Boeing tapped Kevin McAllister, 53, to lead its $66 billion
commercial airplane business, succeeding Ray Conner, 61,
Conner, who started as a Boeing mechanic nearly 40 years
ago, will serve as vice chairman through 2017 to help with the
transition, the world's biggest planemaker said.
McAllister has been with GE's aviation unit for nearly 30
years and knows Boeing and its customers well, Muilenburg said.
Boeing named Stanley Deal, 52, to head the new services
unit, to be known as Global Services. Deal had been senior vice
president of Boeing's Commercial Aviation Services business.
The Global Services business is due to begin operating in
the third quarter of 2017.
McAllister has been chief executive of GE's $8 billion
aviation services business, a unit that earns much of its
revenue from contracts servicing GE aircraft engines. Airlines
generally pay a fee for every hour they run the engines, which
covers service and maintenance.
"Muilenburg is shaking up BCA with a surprise outside
appointment which is likely a healthy move given that fresh
leadership eyes can create positive movement," said analyst
Peter Arment from Baird Equity Research.
Last year, Muilenburg named Leanne Caret head of the defense
business. She had run Boeing's defense services business.
Now, Muilenburg said, "the leaders of all three of our
business...all have depth of understanding of services."
Muilenburg said the new division headed by Deal would
combine about 20,000 employees from the customer services groups
within the company's existing commercial airplanes and defense,
space and security businesses. It will have a small headquarters
near Dallas, but most of the work will remain where it is, he
Since Muilenburg took over as CEO in July 2015, Boeing has
been steadily building up its services business, moves that have
irked some of its partners.
Earlier this year it ended an agreement with one of its
largest suppliers, Spirit AeroSystems Holdings Inc,
effectively taking away manufacturing of profitable spare parts
used in aircraft repairs.
It also began bringing some parts production in-house to
gain control over repairs, and sifting its databases to help
airlines predict when planes will need service.
Engine repairs make up nearly half of the service market,
but those are largely beyond the reach of Boeing or Airbus.
Engine makers such as GE and Pratt & Whitney locked up
their aftermarket more than a decade ago.
Still Boeing's aftermarket sales growth is outpacing the 4.5
percent growth of the broad aftermarket, Dennis Floyd, vice
president of services strategy and business development at
Boeing, told Reuters recently.
"That means we're taking market share," he said.
(Additional reporting by Ankit Ajmera in Bengaluru; Editing by
Andrew Hay and Lisa Shumaker)