Daily Memo: Boeing Services Business—Free Of $50B Burden, And Free To Soar

Executives at Boeing have been in the expectation re-setting business lately, culminating in what many industry observers agreed was a remarkably transparent investor day Nov. 2.  

While some of the company’s notional targets still raised eyebrows, executives were careful to introduce them along with clearly-articulated caveats. 

The re-setting exercise even extended into Boeing Global Services (BGS), the company’s most well-performing division. Not that BGS’s performance is lagging or facing major program-level crises that are now all too familiar in Commercial Airplanes and Defense, Space, and Security. Rather, BGS has been sandbagged by an overly exuberant revenue target that came with its 2017 launch. 

Boeing President and CEO Dave Calhoun made it clear during investor day that BGS’s clearly established and regularly reiterated target—$50 billion in annual revenue within about a decade—is no longer a thing. 

“I want all of you to know $50 billion is not in any page or any chart or in any discussion,” Calhoun said. “We simply want to make disciplined allocation decisions in a growing market, one that’s very attractive and in our view, can deliver real value for all of us.” 

Boeing’s acknowledgment could be good news for a good chunk of the aftermarket services community, for several reasons. Among them: the company recognizes that while leveraging its intellectual property (IP) is still a prudent tactic for expanding its services revenue, collaboration must play a large role as well.  

“We are being very thoughtful at our capital deployment,” BGS President and CEO Stephanie Pope said. “Where we invest, where we can leverage and grow our IP to deliver value and creating different business models within the industry to partner and collaborate where we can’t.” 

BGS also will need help supporting its high-growth product lines, such as converting passenger airframes to freighters. 

Ironically, Boeing corporate’s pull-down of BGS’s stretch-goal comes at a time when the business is poised to take advantage of its strengths. Serving the blossoming freighter market is one example, as is providing parts for a global fleet hungry to keep up with demand. Issues delaying deliveries of new aircraft—including some of Boeing’s making—also bodes well for BGS, as older aircraft stay in service longer. 

Then there are the less-visible segments of BGS, such as providing software that helps operators become more efficient. Lowering fuel burn and optimizing aircraft tail assignments to fit known events such as upcoming maintenance checks are the kinds of strategies that airlines—desperate to save money and under pressure to reduce their carbon footprints—are poised to embrace. 

BGS’s third-quarter revenue was $4.4 billion, roughly the pace it would need to get back to full year 2019’s high-water mark of $18.4 billion in revenue. More importantly, the unit’s operating margin was 16.5%—two points better than full-year 2019. 

The revenue split is back to 60% commercial and 40% military—another pre-pandemic benchmark.  

As global airlines expand their appetite for ways to become both more cost-conscious and sustainable, BGS seems poised to keep climbing. Without an expectation to hit a specific ceiling in a certain time, it can now take the most prudent route upward.