Below is an excerpt from the article. Full access is provided with an upgrade.
In 2016, Boeing communicated plans to triple its Global Services businesses from $15bn to over $50bn by 2026. It combined its commercial and defense services business into a Global Services division (BGS) and specifically targeted clawing back ownership of the commercial aftermarket. Although Boeing’s current CEO has walked back the $50bn target, persistent supply chain challenges and the potential competitive risk from COMAC is increasingly pushing Boeing to capture more of the commercial aftermarket profit pool.
Last month we attended MRO Europe and we’ve spent the last 12 months interviewing Former Boeing, TransDigm, Honeywell, and other commercial aerospace executives to understand the durability of TransDigm and Tier 1 suppliers’ commercial aftermarket earnings.
Why and how does Boeing and Airbus allow companies like TDG to earn consistently higher operating margins?
And what can the airframers really do to take back ownership of the commercial aftermarket?
This analysis walks through how a TDG valve and a Honeywell APU is sold as original equipment to new planes and in the aftermarket. We share details of how Boeing aggressively tried to recoup aftermarket royalties from OEMs with its GoldCare integrated maintenance plan and how this could impact supplier PBH revenue streams.
We also explore Boeing’s recent program to reverse engineer TDG parts after several complaints from airlines about TDG pricing:
In 2012 or 2014, Jim McNerney had gone in a conversation with Wall Street on an earnings call. He said that TransDigm was this horrible company that was jacking up prices and creating chaos in the industry, and that began an ongoing tit-for-tat between the companies…Where the idea came from of this specific battery was Boeing had said we need to take TransDigm out of the picture. So, being an engineering company, their idea was let's reverse engineer TransDigm parts. Let's identify these egregiously priced TransDigm parts, and we will make a Boeing version that we can offer the customer at a lower price. - Former Managing Director at Aviall, Boeing
We walk through how Boeing displaced a TDG battery and how this may translate into a risk for the wider portfolio. This piece of research is over a year in the making and is an output of our exploration to handicap the bargaining power between Boeing and suppliers and the durability of TDG’s aftermarket earning power compared to a Tier 1 like Honeywell.
This document may not be reproduced, distributed, or transmitted in any form or by any means including resale of any part, unauthorised distribution to a third party or other electronic methods, without the prior written permission of IP 1 Ltd.
IP 1 Ltd, trading as In Practise (herein referred to as "IP") is a company registered in England and Wales and is not a registered investment advisor or broker-dealer, and is not licensed nor qualified to provide investment advice.
In Practise reserves all copyright, intellectual and other property rights in the Content. The information published in this transcript (“Content”) is for information purposes only and should not be used as the sole basis for making any investment decision. Information provided by IP is to be used as an educational tool and nothing in this Content shall be construed as an offer, recommendation or solicitation regarding any financial product, service or management of investments or securities.
© 2024 IP 1 Ltd. All rights reserved.
Subscribe to access hundreds of interviews and primary research