New Boeing planes chief, unit may be tough on some suppliers

Boeing Commercial Airplanes’ new chief executive was raised in the same company as Spirit AeroSystems chief Tom Gentile.

And both held the post of president and CEO of GE Aviation Services.

Earlier this week, Boeing Co. announced Kevin McAllister’s immediate appointment as head of its commercial airplanes unit, replacing Ray Conner, who will remain as Boeing Co. vice chairman through 2017.

McAllister’s appointment was part of an announcement made after the markets closed on Monday that included the aerospace giant’s plans to create a new division combining its commercial and military aftermarket and services businesses.

Boeing thinks its strongest opportunity for growth lies in those businesses, which include sales of Boeing aircraft parts to its airline customers.

Some analysts think McAllister’s appointment and the creation of Boeing Global Services could mean further pain for suppliers as it continues to push them to reduce their costs on the parts they supply for Boeing aircraft through its “Partnering for Success” initiative.

But the cost-cutting may be deepest on the aftermarket parts side, they said, which could be to the benefit of Spirit, Wichita’s largest employer.

“The (Global) services move is consistent with a renewed Boeing effort to play a larger role in the commercial aftermarket, a change in the business that may — depending on how it is implemented — adversely impact Boeing suppliers that earn high margins on spares and support,” wrote J.P. Morgan Securities analyst Seth Seifman in a note to investors this week.

In April, Boeing Commercial Airplanes revealed that it had ended its practice of allowing some suppliers, including Spirit, to sell spare parts directly to its airline customers.

“We’re providing that support directly to customers instead of licensing suppliers to do it,” Boeing said in an e-mailed statement to The Eagle in April.

Even that action had little effect on Spirit’s business, according to Spirit, and the company said this week that it expects little effect from the new global services unit.

“Spirit’s role in the aftermarket business has changed,” Spirit said in an e-mailed statement Wednesday. “However, airlines will continue to need the parts that Spirit manufactures. Spirit will now sell the parts directly to our customers who will then deal with the airlines. This is a dynamic industry and we are constantly managing changes in work scope — this is a small adjustment.”

Teal Group analyst Richard Aboulafia said in an interview that he thinks Spirit will be largely unaffected by Boeing’s most recent moves, especially on the aftermarket side.

“Spirit does not have much of an aftermarket there,” Aboulafia said, adding he doesn’t think Spirit’s aftermarket revenue is more than 2 percent of its total revenue, which last year totaled $6.6 billion.

He said he doesn’t know what it means for the Boeing-Spirit relationship now that both companies are led by executives who grew up at GE — McAllister was there for 27 years while Gentile spent nearly 19 years with the company.

“You can never tell what’s going on in the background of executive relationships,” Aboulafia said.

A Spirit spokesman was unable to confirm whether Gentile and McAllister had worked with each other at GE.

Aboulafia said GE has a reputation of being a tough company to work with as a supplier.

“On the positive side, McAllister is really good at balancing output and profitability,” Aboulafia said. “He will probably take a more judicious approach” to cost-cutting initiatives.

This story was originally published November 23, 2016 at 3:33 PM with the headline "New Boeing planes chief, unit may be tough on some suppliers."