Ted Colbert, Boeing Global Services CEO, talks with Lee Ann Shay about how the aftermarket is changing and how the OEM is working with suppliers and customers to navigate this uncharted course.
AW&ST: What does the 737 MAX return to service look like from a services perspective? I stay very close to my commercial aviation partner, Stan Deal, on all things MAX. Together, and with the rest of the company, we work closely with the FAA and other regulators to make sure all of the requirements are addressed and we can ensure a safe return to service. Pilot training will only begin once the training requirements are established and our courses are evaluated and validated by the regulators. Boeing Global Services plays a significant role in that. We’ve recommended simulator and computer-based training for all MAX pilots prior to return to service. Beyond training, parts are critically important. We’re making sure parts are available both inside the company and to our customers. We’ve been working with them on any storage challenges and opportunities.
How is the COVID-19 pandemic changing the services landscape? We are in the middle of a confluence of unprecedented challenges. Who would have known a year ago that COVID-19 would be impacting every aspect of our industry, with huge cuts in commercial jet services over the next few years? We’re in the middle of a significant crisis that will affect us for a long time. We’re seeing direct impacts to supply chain, as you can imagine, including lower demand for parts and logistics. Customers are curtailing discretionary spending on mods and upgrades and instead are focusing on the required maintenance. COVID-19’s impact has hit every part of BGS, including digital. The reduction in flight hours has a direct impact, and we expect a long, delayed recovery period.
That said, we’re staying close to, and partnered with, our customers. We are all working together to help each other, but it’s going to take years to return our industry to what it was just a few months ago. We’ll make adjustments to meet market dynamics around the world and evolve our offerings to support them. We believe there is a role for BGS to play as customers optimize the efficiencies of their operations. That’s where the conversation settles. As you can imagine, within the company, a lot of changes are going on to step up our vigilance to protect our teammates. Every call that I have with my direct leadership team, our management team and our employees—the thing I keep repeating is: Our first priority is to protect our employees and customers and to keep our business running. They work together. That’s going beyond personal protective equipment, physical distancing and cleaning procedures.
How do you expect parts sales, including used serviceable material (USM), to change? Customers are looking now more than ever for solutions to help service airplanes while reducing inventory costs and streamlining operations. We’re doing the same thing, including optimizing what we have, reducing as much inventory as possible and being more efficient. We’ve seen a rise in the number of parked fleets, which has caused a huge increase in maintenance, storage and fleet support for the parked airplanes. We have a bunch of products that help with fleet storage and maintenance to support our aircraft.
In addition, we have consumables and expendables, and a program that supports that. We also have a program called the Boeing Tailored Parts Package, which is customizable and allows customers to save on inventory expenses. You can combine across offerings and transactional parts, so customers can focus on operations and not parts and inventory management. That’s a big chunk of parts.
We know USM will play a significant role as many of the aircraft will not return to service, which will create additional options of supply for airlines and MROs. We’re working across the enterprise to figure out what those offerings will look like from a competitive perspective—leveraging used, exchanged and leased offerings. We haven’t completely sewn that together yet, but we know an opportunity exists there. We’re engaging in sourcing parts off the USM market to offer to our customers for a really competitive solution. We have a ton of inventory we’re trying to manage well, and we have to make the right bets on USM.
Do you have any concerns about the Boeing aircraft that are parked? I wouldn’t say concerns. The first mission is to stay connected with our customers with regard to the parked fleet and make any treatment to the plane we can support, whether it’s cycling APUs [auxiliary power units] or the electronics, dealing with environmental challenges or using digital offerings to keep track of planes weathering the parked period. It’s a day-to-day opportunity for all of us to stay close. We are there as partners to make sure their parked planes stay healthy, and when it’s time to return to service, the aircraft are at the right maintenance levels.
Are you seeing any red flags that airlines or MROs are experiencing? Are there liquidity concerns? The MROs are all going through similar challenges that we are: reductions and reduced demand. It’s a tough environment right now, and we’re all weathering this confluence of challenges. As we get through it, we’ll figure out more of what the future looks like. Everyone is trying to reduce inventory, simplify offerings. We all have challenges of headcount and right-sizing because of the trough that we’re in from a demand perspective. But at some point, we will recover, and we want to be ready for that.
Will you still be making enhancements to your digital offerings? We are still committed to both enhancing and—hopefully, at some point—growing the sort of market saturation of our digital offerings and potentially even expanding at some point. Right now, we’re using this period to make sure we have the right structure and infrastructure, and capabilities within the organization. We can’t really overinvest in anything right now. But we’re making sure the infrastructure in the digital space is right, the offerings are right and we have a perspective on where to grow as we come out of COVID-19 when it happens.
Do you see any positives during this difficult time? When you are in the foxhole with your teammates, you build relationships that are sewn together more tightly and are ever sustaining. Since March, we’ve been on the phone with our team every single working day. Our focus on the business fundamentals has been a huge priority. We’ve built more clarity over time of where we need to focus as a service business, how we need to right-size ourself to really support our customers and how we compete going forward. This time has allowed us to dig into the diversity and complexity of some of our offerings and think about their suitability for the long term. Another positive is that our team, which was relatively new in working together, has been working jointly on a day-to-day basis, and we are all aligned on what we need to accomplish today and what the knobs and levers are for when recovery happens. That’s good.
Another bright spot is that we’ve been able to move some employees who focused on commercial jobs to our government work, which has seen some growth areas. That has helped us relieve some head-count issues.
Any predictions for rate of recovery? Services will lag flight hours in the commercial aviation business. Our customers all going through really rough periods, and we’re trying to stay close to them and provide whatever solutions they want to solve their challenges. On the government side of business, most of our business is deemed essential.
International traffic is predicted to come back last. Are you concerned about widebody aftermarket services? We’ll have to wait and see. There are so many diverse market dynamics—you could create a long equation of variables. And then you could break that down by world region. There’s a lot to watch right now for global economic dynamics. Let’s be honest: COVID-19 is going to be with us for some time. I think we’ll see more of a W than V recovery.
Given these unknowns, how is your supply chain? Any small business is challenged because they’re taking on secondary and tertiary effects of demand. We are working very closely with them to manage inventory and make sure we take care of both the supply chain and customers. The whole ecosystem is very strained—we’re trying to figure out how to help our customers, our supply chain and ourselves as much as we can. It’s a very dynamic environment.
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