Boeing takes on Honeywell, UTX with new joint venture
Boeing is forming a joint venture with French engine manufacturer Safran.
The companies plan to make auxiliary power units for planes.
The market is dominated by United Technologies and Honeywell.
Boeing BA is taking on aerospace giants United Technologies UTX and Honeywell HON with a new joint venture that will build and service a critical component for all commercial airplanes.
The joint venture between Boeing and French engine manufacturer Safran SAF-FR will build auxiliary power units. APU engines are used primarily to start the main engines and power aircraft systems when planes are on the ground.
The APU market has long been dominated by Honeywell and United Technologies, which use the component as part of a suite of avionics and services sold to airlines and cargo operators. Boeing expects it can win some of that business by partnering with Safran.
"This strategic partnership will leverage Boeing's deep customer and airplane knowledge along with Safran's experience in designing and producing complex propulsion assemblies to deliver expanded, innovative services solutions to our customers," said Stan Deal, president and CEO of Boeing Global Services.
The move is the latest in Boeing's drive to grow its fledgling services business and comes one month after the company announced it will spend $3.2 billion to acquire aerospace parts distributor KLX.
At Boeing's annual meeting in early May, CEO Dennis Muilenburg said, "We continue to see global services as our biggest market growth opportunity."
The APU market is essentially a duopoly between Honeywell and United Technologies. In recent years, both companies have expanded the products and services they sell to airlines as a way to maintain strong margins and leverage with customers. For example, United Technologies acquired Rockwell Collins last year while Honeywell's CEO has indicated his company may spend as much as $21 billion over the next three years acquiring companies.
Boeing is not saying how much it is investing in the joint venture with Safran but it expects the deal to close this year. When the new entity will start manufacturing APUs has not yet been determined.
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