NEW YORK  - Boeing continues to leave Airbus in its contrails. Its $4.25 billion acquisition, including debt, of parts provider KLX will boost the plane maker’s fast-growing services business. It’s the latest bolt-on enabling the $191 billion aerospace company to bring more manufacturing in-house and maintain aircraft long after they have been delivered.

With a seven-year backlog of orders for commercial aircraft and defense revenue growing at a double-digit pace, Chief Executive Dennis Muilenburg has the Chicago-based group’s engines at full throttle. But he knows those businesses will eventually hit an air pocket or two, so he’s targeting services as the next big growth area.

Boeing expects services to generate a third of the global aerospace industry’s $7.6 trillion in revenue over the next 10 years. The company had $3.9 billion in revenue from providing parts, maintenance, analytics and training to airlines and military customers in the first quarter, and operating margins were more than 16 percent compared with roughly 11 percent for its commercial-aircraft and defense divisions.

KLX is not transformative but would boost Boeing’s services division by nearly a third. It stocks over a million fasteners, chemicals and the like, packages them in kits and provides inventory-management services to airlines and air forces. The unit generated $238 million of operating profit in the financial year ended in January, on revenue of $1.4 billion.

Boeing expects to generate $70 million in cost savings over three years by merging KLX into its Aviall services subsidiary. Taxed at Boeing’s 13 percent rate and capitalized, those have a present value of around $600 million, or close to 20 percent of the $3.25 billion in cash Boeing is paying for KLX’s equity.

Longer term, the deal may also help entrench Boeing’s dominance. While engine problems have slowed Airbus’s ability to deliver new planes, Boeing is ramping up production of its new 737 Max model. It’s also bringing more production in-house by creating an internal division to develop avionics and forming a joint venture to make seats. The Wall Street Journal reported recently that Boeing was in talks to acquire thrust-reverser maker Woodward. It’s all blue skies ahead for Muilenburg.

On Twitter https://twitter.com/tombuerkle

CONTEXT NEWS

- Boeing on May 1 said it agreed to acquire KLX for $4.25 billion, including the assumption of about $1 billion in debt. Boeing will pay $63 a share in cash for KLX, below the company’s closing stock price of $78.23 on April 30. The deal is conditional on KLX selling its energy-services group.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(Editing by Rob Cox and Martin Langfield)

© Reuters News 2018