New Boeing jet to accelerate services shake-up

Boeing Co is doubling down on its landmark new strategy designed to muscle in on the business of maintenance providers by making its next jet the laboratory for in-house services that could radically alter the global business model for selling planes.

Unlike Boeing’s last all-new design, the 787 Dreamliner, its proposed new mid-market plane will not bring a flood of revolutionary technical designs to the drawing board.

But it will give the world’s largest plane maker a chance to test its new business approach of designing the plane so that it generates lucrative services revenues for Boeing while also offering efficiencies to airlines over the aircraft’s decades-long lifespan.

Along with production costs, the new approach could help Boeing decide whether to invest the $15 billion or more in development needed to build the jet.

“If we decide to launch, it’s a big investment and it’s an investment that has to contemplate not only the product itself but all of our other strategic objectives,” Chairman and Chief Executive Dennis Muilenburg told Reuters.

“So you can imagine we would want to look at this airplane through the lens of lifecycle value as we are growing our services business,” he said.

Until recently, Boeing and Europe’s Airbus sold planes with little involvement in the way they were operated and maintained. Instead, that was work carried out by their own suppliers or third-party shops.

Heavy outsourcing on jets like the 787 expanded the trend by leaving suppliers – such as Mitsubishi Heavy Industries , which supplies the 787’s carbon wings – in command of key components.

While Boeing and others squeezed their balance sheets to launch jets, many of their suppliers used their design influence to forge profitable relationships directly with airlines as they conducted part swaps or repairs required by regulators.

“That seems a little out of balance, doesn’t it?” said Muilenburg, describing how the pendulum is now swinging back to give Boeing more control over parts and therefore the stream of aftermarket services that comes with owning a part’s design.

“We do take the majority of the risk in developing new products, and we think that would cause us to want to gain the financial benefit of that risk-taking for the long term,” he said.

The long-term approach to the new jet is the latest evidence of changes in the $180 billion aero-aftermarket as planemakers jostle with suppliers – and even airlines – for control of repairs, training and data in pursuit of higher margins.

Last year, Boeing centralized services formerly spread across the company in a new division with a goal to more than treble sales to $50 billion in a decade.

The new unit posted operating margins of 15.4 percent last year, compared with 16.1 percent that United Technologies Aerospace Systems, a major supplier, earned from selling new equipment, services and aftermarket parts.

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