Opinion: Why Boeing Global Services Should Be Phased Out
Boeing’s long-overdue leadership transition to Kelly Ortberg as the new CEO provides the rare opportunity to take a fresh look at its business portfolio and organization. The new leadership team has a long to-do list, including exiting noncore businesses, improving its deteriorating balance sheet and increasing its responsiveness and accountability. Phasing out Boeing Global Services—one of the three major business units reporting to the corporate CEO—would contribute to all these goals.
Boeing’s long-overdue leadership transition to Kelly Ortberg as the new CEO provides the rare opportunity to take a fresh look at its business portfolio and organization. The new leadership team has a long to-do list, including exiting noncore businesses, improving its deteriorating balance sheet and increasing its responsiveness and accountability. Phasing out Boeing Global Services—one of the three major business units reporting to the corporate CEO—would contribute to all these goals.
Boeing Global Services (BGS) was created in 2016 by then-CEO Dennis Muilenberg with the goal of tripling Boeing’s services revenue to $50 billion from $15 billion. Following in the footsteps of companies such as IBM and GE, it sought to diversify beyond manufacturing and strengthen its services. A separate services business would place a greater emphasis on the value of its aftermarket products and services, which were too often bartered away to win fleet campaigns. The new BGS business took over myriad services and aftermarket activities—military sustainment contracts, parts distribution, modifications, training, digital services and its lucrative proprietary parts—the most profitable part of Boeing. In 2023, it earned $3.3 billion on more than $19 billion in revenue.
With these results, why phase out BGS? Recent history has shown that Boeing needs to return to its core work of developing and producing world-class aircraft. Boeing is not a services company and generally does not create value when stretching beyond its core—especially when providing services for non-Boeing aircraft. Its 2006 acquisition of Aviall, the largest independent parts distributor at the time, is a prime example. Known as BDI today, it is losing market share to more nimble competitors. The same argument can be made for Boeing’s acquisition of KLX (now called BDSI), an independent inbound logistics supplier to manufacturers, or ForeFlight, a flight-planning software supplier to business and general aviation pilots.
Some of these activities are not accretive to shareholders. Parts distribution, for example, typically has a mid-to-high-single-digit profit margin. Adding BGS’ considerable overhead (it has some 20 vice presidents and associated staff) means that distributing other OEMs’ parts is not creating shareholder value. In full disclosure, I am a board member at Proponent, a distributor and competitor to BDI. Boeing also misstepped in the belief it could offer cost-per-hour maintenance and logistics services for its commercial aircraft; after many years of investment under a team of 600, it abandoned the money-losing initiative. It learned a similar lesson with aircraft financing and so recently closed Boeing Capital, whose activities were absorbed into the Commercial Airplanes unit.
A second argument for eliminating BGS is business focus. Every minute its leadership is not focused on fixing its well-documented quality issues, ramping up production, certifying the MAX 7/10 and 777X, turning around its money-losing military programs and planning its next commercial aircraft is a huge opportunity cost. The BGS CEO post has been a revolving door, appearing to be a “finishing school” for more important roles elsewhere in the company. Customers recognize this.
A third argument is financial. Slimming down its top-heavy organization and selling noncore services will allow Boeing to shore up its balance sheet and pay down its net debt of $45 billion. What could be sold? BDI would attract interest as the industry’s largest aftermarket parts distributor; freed of Boeing’s overhead and bureaucracy, it could thrive. KLX would attract considerable interest as a well-positioned inbound logistics specialist. Other disposal candidates are ForeFlight and navigation software and services specialist Jeppesen. Selling noncore service assets could raise $10 billion or more.
After slimming down to two divisions, where would the BGS businesses move? Boeing’s defense services—Contractor Logistics Support and Performance-Based Logistics programs (including the C-17, AH-64 and F-15), modifications and military proprietary parts—would move back to their natural home in Defense, Space and Security. Passenger-to-freighter conversions, interior products and modifications, training and commercial proprietary parts would shift back to Boeing Commercial Airplanes. These reintegrated businesses would need strong leaders to ensure outstanding product support, a historical strength for the company.
Bold decisions will be required to reboot Boeing. Phasing out BGS would simplify the organization, raise cash and, above all, signal that Boeing is returning to its roots of aircraft development and manufacturing.
