As the COVID-19 pandemic continues to devastate the aviation industry, Boeing has added one of its most trusted sources of revenue, its bulwark against falling demand and other problems, to the losses column.
Boeing’s division that provides aftermarket services for airlines and other customers reported a massive loss for the second quarter, demonstrating weakness in a division that previously appeared to be well positioned to serve as a bright spot during future turmoil for Boeing. .
Boeing Global Services posted a loss of $ 672 million for the quarter, a sharp reversal of profit of $ 687 million during the same quarter of 2019. That represents nearly a third of the total loss of $ 2.4 billion that Boeing reported for the trimester.
Offering maintenance, data analytics, supply chain resources, and other services to current and former customers, Global Services provides a continuous stream of income after an airline or lessor purchases an aircraft. The division may earn money through ongoing normal repair or maintenance, or larger projects such as converting passenger planes into freighters. Aftermarket work is particularly lucrative because it offers higher margins than new aircraft sales, CNBC reported in 2018.
Most of the years, it generates billions of dollars in revenue, serving as a kind of backup to any loss that results from falling sales of new aircraft. Despite the fact that Boeing saw demand for its commercial aircraft drop in 2019, in large part due to the continued worldwide grounding of the 737 Max and the trade dispute between the US and China, Global Services remained a bright spot. It produced nearly $ 2.7 billion in profit last year, with $ 18.5 billion in revenue.
“As the size of the commercial airline fleet worldwide continues to grow, so does after-sales demand.
services designed to increase efficiency and extend the economic life of aircraft, “Boeing wrote in its 2019 annual investor report.” Airlines are using data analytics to plan flight operations and predictive maintenance to improve their productivity and efficiency. Airlines continue to look for opportunities to reduce the size and cost of their parts inventory, and frequently outsource parts management to third parties. “
This analysis did not take into account the spread of the new coronavirus. As airlines have landed large portions of their fleets and cut flights from their schedules, the demand for global services has decreased. Airlines are putting less wear and tear on their planes, postponing capital spending and reducing operating expenses whenever possible. Last quarter, the division took on a $ 923 million charge related to “asset impairment and compensation costs,” Boeing said.
Global Services is still receiving some demand from government contracts, but not enough to compensate for the loss of commercial work. Boeing highlighted an order from DHL, which seeks to convert four newly purchased 767-300 passenger jets into freighters. In the pandemic era, that’s a terribly small bright spot.
