Boeing (BA) has tapped an outsider to run its sprawling commercial airplane division, part of a broader revamp of the business that could have repercussions throughout the aerospace supply chain.
Chicago-based Boeing named General Electric (GE) aviation executive Kevin G. McAllister as CEO of Boeing Commercial Airplanes, replacing 61 year-old Ray Conner. Conner will stay on at Boeing as a vice chairman through 2017, working with McAllister to ensure a smooth transition.
McAllister, 53, joins Boeing after 27 years with GE Aviation including serving as CEO of the unit since 2014.
The company is also forming a third division, Boeing Global Services, to sit beside commercial and defense and coordinate maintenance, service, spare parts and other services for both commercial and defense customers. The move continues Boeing's push to expand its aftermarket business, a portion of the market that should hold up well even when the now eight-year-old surge in commercial plane orders subsides.
The new unit, which will be based in Dallas and be run by Boeing veteran Stanley A. Deal, will have an estimated 25,000 worldwide employees providing 24/7 flight support, parts, training and software for commercial customers and logistics and supplies for the Pentagon.
Boeing dove headfirst into the aftermarket with a $2 billion cash and debt purchase of Aviall in 2006, but in recent years has been more focused on expanding new jet production to manage a swelling order book. But it has shown signs that it is refocusing on the aftermarket, this summer deciding against renewing a deal with one-time subsidiary Spirit AeroSystems (SPR) which allowed Boeing to take control of some of its spare parts manufacturing.
"Substantial services growth is core to Boeing's strategy as we enter our second century, and this move is a key enabler to accelerate our efforts and provide increasing value to our customers," Boeing CEO Dennis Muilenburg said in a statement.
Aftermarket sales currently represent about 12% of Boeing Commercial revenue.
Jefferies analyst Howard A. Rubel, in a note, called McAllister "a tough, analytic, and driven competitor" who thanks to his years at GE both has relationships with airline managements and has overseen massive product launches.
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But as Spirit has already found, Boeing's encroachment into the aftermarket could have ramifications to suppliers. Cowen & Co. analyst Gautam Khanna said the moves "underscore Boeing's initiative to penetrate the commercial aftermarket," which could be "an eventual" negative to pricing power at companies like TransDigm Group (TDG) .
TransDigm -- a maker of a broad range of systems and parts that go on airplanes -- has some advantages, including proprietary products supported by intellectual property as well as the high-cost of establishing a new production line to compete with an existing one. But Khanna notet that "historically Boeing has had success in transforming procurement despite long odds."
Cleveland-based TransDigm earlier this month provided an outlook for fiscal 2017 that was softer than what analysts had expected, putting its shares under pressure. The company also counts noted activist Third Point LLC as an investor with a 2% stake.