Boeing taps GE exec to head airplanes unit as part of services push

November 21, 2016 5:08 PM EST

Boeing's logo is seen on its KC-46 Aerial refuelling operator's station demonstrator during Japan Aerospace 2016 air show in Tokyo, Japan, October 12, 2016. REUTERS/Kim Kyung-Hoon


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By Alwyn Scott

NEW YORK (Reuters) - Boeing Co (NYSE: BA) on Monday named a senior General Electric Co (NYSE: GE) 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 journalists.

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, effective immediately.

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 added.

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 (NYSE: SPR), 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 (NYSE: UTX) 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)



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