Plane maker Boeing Co. seems to have different plans for its new jet on Tuesday, as the company proposes to put the designing of its next aircraft into the test for in-house services, which could significantly change the business model for selling planes worldwide.
Boeing stated that its new plane will not offer innovative technical designs, but will instead provide the opportunity to analyze its new business strategy of developing the jet, bringing in beneficial services revenues for the corporation, while also offering efficiency over the business.
Including production expenses, the move could help the Illinois-based corporation to choose whether to invest $15 billion or more in designing the aircraft.
Boeing’s chairman and chief executive Dennis Muilenburg said if they decide to launch, it would be a huge investment, which has to reflect not only the product itself, but all of their other strategic goals as well.
He added that they would want to look at the plane through lifecycle value, as they were developing their services business.
Boeing to Have More Control
Until recently, Boeing and aeronautics group Airbus SE did not have much involvement on how their aircrafts were operate and maintained. Instead, their suppliers or third-party shops were in charge of that task.
Significant outsourcing on planes, such as its 787 Dreamliner has bolstered the method by leaving suppliers, like engineering group and 787’s carbon wings supplier Mitsubishi Heavy Industries Ltd., to head core components.
While the world’s largest plane maker wringed its balance sheets to roll out jets, several of their suppliers benefitted from their design influence, building lucrative relationships with airlines, as they carry out part exchanges or repairs required by regulators.
Muilenburg saw this to be slightly unbalanced, but said that control over parts and flow of aftermarket services that is included in owning a part’s design is now returning to Boeing.
The long-term move to its proposed jet is the latest proof of transformations in the $180 billion aero-aftermarket, as aircraft manufacturers compete against suppliers and airlines for control of repairs, training, and data to gain larger margins.
Since the peak of aircraft demand in 2014, Boeing has relied more on parts and services to help reach the target of doubling margins to the mid-teens by 2020. Its key plane margin rose from 2016’s 3.4 percent to 9.6 percent in the prior year.
Still, suppliers and analysts said the downside of Boeing doing more by itself, is that the company could dwindle access to outside innovation, import risk and tie-up capital, as well as limited engineering supplies.
Industry sources also believed it may also suggest changes in models of profit making. Even as plane makers receive payment on delivery, engine manufacturers charge small upfront and earn on services offered over the years.
Some analysts stated that new aircraft manufacturer approaches indicated that those business models might start to merge and push them to be kinder in slashing prices on jets.
Boeing’s chief executive acknowledged its services approach could have some effect on the timing of future profits, saying that services business tend to be accretive to margin, but it does provide them the flexibility of where they make margin in the business, with the goal of improving standards overall.
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