Boeing Co. is creating a new unit that develops avionics for commercial and military aircraft, a move that potentially pits the plane maker against suppliers such as Rockwell Collins Inc. and Honeywell International Inc.
Boeing Avionics will focus on navigation, flight controls, information systems and other core technology with a goal of bringing the offerings to market next decade, the Chicago-based company told employees in an internal announcement. The new group will grow to about 600 employees by 2019 from the current workforce of 120 people.
The move is part of a strategic shift as Boeing tries to reap cash across the life span of a jetliner, even if it risks straining supplier ties. The manufacturer is bringing more work in-house as it studies whether to make or buy thousands of aircraft components. Boeing Global Services, a new division founded July 1, is expanding into higher-margin maintenance and spare parts sales — a traditional source of profit for its subcontractors.
“Our new avionics organization continues our strategy to build targeted vertical capability so that we can further drive cost down and value up for our customers, in all phases of a product’s life cycle,” CEO Dennis Muilenburg said in the statement.
Rockwell Collins, a Cedar Rapids, Iowa-based supplier of cabin equipment and avionics, fell 4.2% to $108.98 at 1:53 p.m. in New York, after falling as much as 4.3% for its biggest drop in nine months. Honeywell rose less than 1% to $136.94 while Boeing advanced 1.3% to $244.28.
Representatives from Honeywell and Rockwell Collins didn’t immediately respond to a request for comment. In an interview July 28, Rockwell CEO Kelly Ortberg said he wasn’t worried about Boeing’s foray into services, noting that it created an opportunity to sell new products such as his company’s aircraft data connections.
Outsourcing Shift
“Is Boeing pushing too hard? Our current answer is ‘no’ but this is something to watch in the months and years ahead,” Seth Seifman, an analyst at JPMorgan Chase & Co., said in a report Monday before Boeing’s announcement. “The company is seeking more of the value available in the aerospace industry, in part through the aftermarket, and this has the potential to disrupt supplier business models.”
Boeing has shifted away from the reliance on outsourcing that dominated its strategy for more than a decade after a 1997 merger with McDonnell Douglas Corp. Focused at the time on its return on net assets, Boeing shed its previous internal avionics group and a major manufacturing hub in Wichita, Kansas.
The strategy culminated in the global supplier network that designed and built much of the 787 Dreamliner, struggling to meet Boeing’s standards and deadlines. After the carbon-composite plane fell more than three years behind schedule, the world’s largest plane maker shifted course this decade to handle more factory work itself.
The company spent more than $1 billion on a new center to build composite wings for its 777X, while ramping up work on propulsion engineering, actuators and other components once handled by suppliers.
Boeing currently produces some avionics equipment, including vehicle-management systems, secure computing systems and signal intelligence for its commercial and government divisions, according to the announcement.
The new unit is led by Allan Brown, a 30-year veteran who most recently headed Boeing’s missile defense national team. He reports to Greg Hyslop, the chief technology officer and senior vice president for engineering test and technology.
By Julie Johnsson
