Manufacturer of commercial airplanes and defense, space and security systems Boeing announced this week it will acquire aerospace parts and services distributor KLX Inc. “to enhance its aircraft services business.” The move, say industry observers, may prompt further industry consolidation.

 

KLX’ capabilities include global parts distribution and supply chain services for aerospace and defense industries worldwide. It will become part of Boeing Global Services and fully integrate with Boeing subsidiary Aviall—a solutions provider of aftermarket supply-chain management services for the aerospace and defense industries.

 

“This acquisition is the next step in our services growth strategy, with a clear opportunity to profitably grow our business and better serve our customers,” says Stan Deal, president and CEO of Boeing Global Services. “By combining the talent and product offerings of Aviall and KLX, we will provide a one-stop-shop that will benefit our supply chain and our various customers.”

 

With approximately 2,000 employees, KLX’ Aerospace Solutions Group is headquartered in Miami, with customer service centers located in more than 15 countries. Providing new aviation parts and related aftermarket services, KLX markets and distributes products for approximately 2,400 manufacturers and offers approximately one million catalog items.

 

“Our customers have long desired a supplier who could offer essentially 100 percent of their requirements for fasteners, consumables and expendables,” says Amin Khoury, KLX Chairman and CEO. “The combination of Aviall and KLX Aerospace facilitates the broadest scope of parts and products to support all customer fleet types for the commercial, military and defense and business and general aviation markets.”

 

This acquisition furthers Boeing’s plans to grow its aircraft parts, repairs and services business, but it isn’t the first. Earlier this year, in a move to address the aviation industry’s requirement for more capacity in aircraft seating manufacturing, high product quality and reliable on-time performance, Boeing and global automotive seat manufacturer Adient announced plans to form Adient Aerospace. The joint venture will develop, manufacture and sell a portfolio of seats to airlines and aircraft leasing companies—both for new planes and as retrofit configurations for planes made by Boeing as well as other commercial airplane manufacturers.

 

The past few years also saw increasing consolidation among aerospace suppliers which depend on the aftermarket for the bulk of their profit. For instance, KLX itself was spun off from aircraft-seat maker B/E Aerospace Inc. in 2014. Last year, B/E Aerospace was acquired by Rockwell Collins Inc. in a deal that kicked off more consolidation in the sector. Rockwell Collins is now being acquired by United Technologies Corp.—one of the largest aerospace mergers.

 

Nonetheless, as the Wall Street Journal noted last week, the KLX deal stands to be the largest acquisition so far in Boeing Chief Executive Dennis Muilenburg’s ambitious plan to triple sales from services to as much as $50 billion within a decade. Boeing has a market share of just seven percent in the fragmented aircraft-services market Muilenburg said is worth $2.6 trillion over the next 10 years. Providing services such as maintenance, parts and training typically generates higher margins than making aircraft or weapons systems, the WSJ article notes.

 

“This deal marks another step forward in Boeing’s ambitious plans to expand its Global Services division, or as Boeing calls it ‘compete and win,’” Robert Stallard, an analyst with Vertical Research Partners, wrote in a note to clients. “For every winner there is a loser, and for aerospace suppliers there will probably be fresh concern that this further increases Boeing’s purchasing power, and awareness of the economics in the aero aftermarket.”

 

Whether you are in the aerospace supply chain or not, what are your thoughts on this industry consolidation? What impact do you think it will have on supply chains?