When Ted Colbert became chief executive of Boeing Global Services (BGS) in 2019, the business unit had been running at a sprint, seeking to expand through acquisitions while chasing a revenue target which, if you were being kind, was hugely ambitious, but was mostly seen by analysts as flatly unrealistic.
Those goals were being set even though Boeing was at the time dealing with the 737 Max grounding. When Covid hit, changing the entire aviation landscape – and further knocking the manufacturer – a rethink was required; Colbert has steered the unit through the resulting strategic course change.
Under his tenure, Boeing’s massive services arm has replaced lofty revenue targets with considerably more conservative goals: stabilisation, recovery, and moderate but sustained growth.
Colbert seems uniquely suited to oversee such a transition. A technology man by background, he comes across as humble and even-keeled, eager and excited. He fully concedes aftermarket services is far from the sexiest part of aviation – that title goes to “beautiful, liveried planes”, he says.
But Colbert views BGS as the oil that makes the business of aviation run smoothly: minimising delays, ensuring parts arrive on time and keeping customers – both airlines and passengers – happy.
In addition to steering BGS through recovery, Colbert has big plans for the business unit. He intends to significantly sharpen its digital capabilities, support Boeing’s development of a new commercial airliner, and expand its presence into the fast-growing market for air freighters.
“We have hard-pivoted [away] from a revenue target,” Colbert tells FlightGlobal. “I am looking at making sure that… BGS is postured for healthy and steady growth.”
Colbert also feels “uniquely qualified and uniquely situated” to help the aviation industry’s technological and digital capabilities “catch up with the consumer world”.
Prior to heading BGS, Colbert had been Boeing’s chief information officer and senior vice-president of information technology and data analytics. He joined the airframer in 2009 after working as senior vice-president of enterprise architecture at Citigroup and holding several information technology positions at automotive manufacturer Ford.
“He is extremely well suited to the BGS organisation,” aerospace analyst Michel Merluzeau says, describing the executive as a proven leader adept at bringing technological expertise to bear on organisation-wide issues.
“A services organisation is increasingly and fundamentally driven by information technologies,” Merluzeau notes.
In recent years, the aftermarket industry has touted the possibilities of somewhat amorphous concepts like “big data” and the “internet of things”. The bottom line, according to Colbert and other advocates, is that digital analytics and advanced aircraft health-monitoring systems can help airlines predict maintenance, better manage parts inventories and reduce operational disruptions.
Colbert views BGS as a “tech company”, and his digital ambitions for BGS extend far beyond the aftermarket realm. Specifically, Colbert’s team is helping develop the digital “DNA” for Boeing’s future products, including its next commercial jetliner.
Exactly what Boeing’s next civil programme will be remains unclear, as does the project’s timeline. Aerospace analysts generally expect Boeing will launch a new narrowbody jet soon, for service entry late this decade or in the early 2030s.
While Boeing has revealed few details, CEO David Calhoun has stressed that Boeing intends, with its next aircraft, to transform its design, development and production processes through increased adoption of digital tools.
Boeing aims to create a “digital thread” that connects all aspects of a programme, from an aircraft’s design to its aftermarket support, Colbert says.
Toward that goal, in September 2021 Boeing said it formed a “dedicated integrated product team with responsibility and enterprise authority for the digital preparation supporting BCA’s next development programme”.
Colbert says he is represented on that team. “The degree that we get that right from the beginning will drive massive amounts of efficiency,” he says.
Boeing already owned a massive services portfolio in 2016, when then-CEO Dennis Muilenburg revamped the company’s structure by combining its service offerings into the newly created BGS business unit. Prior to the move, Boeing’s services had been disparate, supporting its commercial and defence operations.
BGS’s products and services are a sprawling menu, running from crew training to cabin refurbishments, aircraft maintenance to parts distribution, operational support to freighter modifications, aircraft health management to data analysis. It provides engineering, prognostics and flight planning services, and assists with the transition of jets between operators.
While separate in name, BGS’s tentacles wrap around and support Boeing’s two other main business units: Boeing Commercial Airplanes and Boeing Defense, Space & Security.
In 2016, when forming BGS, Muilenburg rolled out a hugely ambitious goal for the services business: to achieve annual revenue of $50 billion within 10 years – more than triple the $13.9 billion in service revenue Boeing generated that year.
No amount of sales campaigns could be expected to achieve such growth alone.
So Boeing continued along a path of expansion through acquisition. It purchased Florida parts distributor KLX Aerospace Solutions in 2018, and Texas software provider ForeFlight in 2019. In 2018, Boeing also formed a joint auxiliary power unit business with Safran called Initium Aerospace (which has since been shuttered), and a joint aircraft seating business with Adient Aerospace.
The division’s revenue climbed respectably prior to the pandemic, hitting $18.5 billion in 2019, with a $2.7 billion profit.
Colbert landed at BGS in October that year, part of a management shake-up at the height of the 737 Max crisis. Following two crashes, aviation authorities had grounded the type in March 2019. Regulators, investigators, governments, lawmakers, lawyers, and customers were breathing down Boeing’s neck.
Amid the upheaval, the head of Boeing Commercial Airplanes Kevin McAllister left the company. Stan Deal, who had been in charge of BGS, succeeded McAllister, opening the position into which Colbert landed.
Months later the pandemic descended, temporarily erasing demand for air travel and pushing BGS’s revenue down 16% year on year in 2020 to $15.6 billion, albeit the division still generated a $450 million operating profit.
Colbert says the past two years have required him, as the division’s chief, to ”to redefine normality”.
The pandemic affected BGS across the board, though Colbert says its parts distribution business was particulary impacted; with so many jets not flying, carriers simply needed much less maintenance and therefore fewer spares.
Global Services responded to the downturn by restructuring its operation – it shuttered facilities, cut thousands of staff and shed hundreds of millions of dollars of inventory, Colbert says. “The numbers are tremendous.”
Boeing does not break out employee numbers by business divisions, but the company’s total headcount at the end of 2021 stood at 141,582 – 20% lower than at the end of 2019. BGS’s headcount declined in line with that drop, Boeing says.
The company has also halved its number of warehouses since 2018. “We are… running a much leaner operation, which takes a ton of cost out of the supply chain,” Colbert says.
Though BGS’s government business has remained strong, it too faces uncertainty. Governments worldwide spent untold billions on pandemic-related projects, potentially at the expense of future defence spending. Also, Colbert notes some nations are prioritising the purchase of new products rather than soldiering on with older equipment.
“That bill just keeps getting bigger and bigger and bigger,” Colbert says of pandemic spending. “Somehow, that’s going to have to get paid for.”
Boeing has since abandoned its lofty pre-pandemic $50 billion revenue goal for BGS. Now, Colbert’s focus is to achieve “healthy, top-line growth and healthy profitable growth”, he says.
Similarly, with Boeing’s financial position less solid than in pre-pandemic years, BGS has stepped away from its acquisition-heavy strategy.
“In the short term, we are looking to do more partnerships than anything else,” says Colbert.
But some sectors have benefited during the pandemic, notably the air cargo industry. Demand for freighter aircraft had been strong even before Covid-19, a result of the booming e-commerce market. But the pandemic accelerated that trend as people who were confined to their homes spent more money online. Airlines also grounded thousands of passenger jets that otherwise would have carried cargo in their belly holds. To make up for lost space, cargo airlines scrambled to acquire more freighters.
CAPITALISING ON FREIGHT
While Boeing Commercial Airplanes sells new freighters, BGS sells passenger-to-freighter conversions of 737-800s and 767-300s.
“The pandemic drove a tremendous amount of demand in international freight,” Colbert says. “Our converted freight business has had a tremendous amount of growth.”
In 2021, BGS landed orders for more than 100 Boeing Converted Freighters (BCFs) – “more than double” the order activity prior to the pandemic. Recent customers include DHL Express, Air Transport Services Group, Texel Air and lessors BBAM, Genesis and Icelease.
Boeing takes what Colbert describes as a limited-risk approach to conversions: it owns BCF supplemental type certificates and engineering data, but approved MRO shops perform most of the actual modification work.
“What I’m not doing is buying and building a bunch of heavy assets around the world to support this converted freighter work,” Colbert says. “If we have to turn it back, then it’s not like we have a bunch of assets that we’re writing off around the world, or tons and tons of people we are laying off.”
Boeing has ramped up its BCF operation as conversion orders came in. In 2021, the airframer disclosed plans to open several new 737-800BCF conversion lines: one at the company’s London Gatwick maintenance facility – where it will perform the work itself – two in Kelowna, Canada via a partnership with KF Aerospace, and two in Costa Rica through a deal with COOPESA.
Additionally, during February’s Singapore air show, Boeing said it would partner with ST Engineering to open a 767-300BCF conversion line at the latter’s facility in Guangzhou, China.
Like online retailers everywhere, Boeing’s e-commerce parts business also grew significantly during the pandemic: the company landed more than $2 billion in online sales last year.
Boeing Distribution – the company’s parts business – generated 15% more revenue from online sales in 2021 than in 2020, while order numbers jumped by 20%.
“This e-commerce channel is really an enabler to get the right part in the right place at the right time,” Colbert says.
Colbert also suspects 787-related work will account for more of BGS’s revenue in coming years. That programme has suffered no shortage of recent challenges, not least that deliveries remain halted due to quality issues. But many 787s are well into their service lives, and as they age – and as operating leases expire – the jets will likely transition to new owners, including those in different regions. When that happens, demand rises for modification, engineering and other work, Colbert says.
As the broader airline market began recovering in 2021, so too did BGS. The business logged revenue last year of $16.3 billion, up 5% year on year, and a profit of $2 billion. Slightly more than half of BGS’s 2021 revenue came from commercial customers, the balance from governments.
Although the recovery is happening, it will take time, Colbert says. He notes that broad geopolitical conflicts (which include sour US-China relations) could impact demand. Also, Boeing expects airlines globally will retire some 5,000 aircraft between 2020 and 2025. Of those, Boeing expects 43% – or 2,150 aircraft – will be Boeing jets.
“If the retirements happen, that means we will have a younger fleet, which changes the demand profile for our parts business significantly,” Colbert says.
In his estimate, BGS’s recovery will lag air traffic recovery by six to 12 months. Colbert predicts BGS will return to its 2019 baseline revenue level in 2023 or 2024.
As for his career trajectory, Colbert declines to speculate.
But Merluzeau views the executive as poised to climb higher at Boeing. True, Colbert is not a Boeing lifer; he joined the airframer mid-career after years working in other industries. But considering the upheaval Boeing has endured, such outside perspective “is more of an advantage” than in past years, Merluzeau says.
He can even envision Colbert rising to the very top of the company.
“He’s highly regarded,” Merluzeau says of Colbert. “He has the leadership attributes that I think are needed in a company like Boeing.”