If any two companies ought to enjoy a close relationship, it is Boeing and United Technologies. From 1929 to 1934, Boeing and UTC even belonged to the same company: United Aircraft & Transport. Decades later, many of UTC's products – including the electric power and generation system for the 787 and 777X – seem intrinsic to new Boeing aircraft.
But the two companies are locked in a disagreement that extends far beyond UTC's decision to acquire avionics supplier Rockwell Collins. Indeed, the debate between UTC, as the propulsion and systems supplier, and Boeing, as the aircraft designer and assembler, is really driven by the forces now shaking up the entire aerospace industry supply chain.
It is tempting to pick sides, but also possible to appreciate that each has legitimate concerns.
From Boeing's perspective, the OEM spends a disproportionately large share of its capital on R&D to bring new aircraft to market, and it takes on the bulk of the risk of commercial failure – yet struggles to claim half the operating margins enjoyed by many of its own suppliers. That has driven a provocative new strategy, which calls for steep price concessions from suppliers and involves a push deep into an aftermarket sector dominated by those same companies.
UTC, on the other hand, is placed in the awkward position of competing against its biggest customer for service deals. At the same time, Boeing is asking suppliers to assume greater risk in development yet receive lower rewards in terms of pricing and aftermarket opportunity. Indeed, it is these pressures that many believe are the ultimate driver for the latest merger.
A business combining Collins' avionics and information systems with UTC's electronics and power equipment could wield enormous pricing influence. But it would also have more capital for innovation.
Self-interest, clearly, is driving Boeing's supply chain strategy, which is not unreasonable. But it has to expect a similarly selfish response from the tier-ones.
When Boeing complained that UTC and Collins should avoid becoming distracted from their production commitments, the suppliers could have – and perhaps should have – responded that the launch of Boeing Global Services was an equally needless distraction.
In the end, Boeing needs suppliers as much – if not more – than suppliers need Boeing, and company leaders would be wise to integrate that reality into strategic planning.
Source: Flight International