Boeing to broaden its services portfolio

World’s largest aerospace company to acquire leading aerospace parts distributor KLX Inc.
June 2017 marked the launch of Boeing’s third major business unit Boeing Global Services. The new unit, which combined aspects of Boeing’s previous Commercial Aviation Services and Global Services & Support groups, was formed to fill the service needs of government, space, and commercial customers with a “customer-focused” approach.

Last month, Boeing announced that it had entered a definitive agreement to acquire major independent aerospace parts provider KLX Inc. The $4.25 billion, all-cash deal includes KLX's Aerospace Solutions Group and is conditional upon the successful divestment and separation of KLX's Energy Services Group.

KLX’s capabilities—which strengthen Boeing’s growth into the spare components, services, and MRO (maintenance, operations, and repair) sector—include global parts distribution and supply chain services for aerospace and defense industries worldwide. The company focuses in aerospace fasteners, bearings, seals, and chemicals.

According to the agreement, KLX, which was spun out of B/E Aerospace in 2014, will be fully integrated with Boeing subsidiary Aviall.

"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 in a $2.6 trillion, 10-year services market," said Stan Deal, president and CEO of Boeing Global Services. "By combining the talent and product offerings of Aviall and KLX, Inc., we will provide a one-stop-shop that will benefit our supply chain and our various customers in a meaningful way."

Aviall, which was acquired by Boeing over a decade ago, is a leading provider of aircraft parts, supplies, chemicals, tools, and materials. (Boeing Global Services’ six other subsidiaries include AerData, which provides lease, records, engine fleet, and inspection management software for operators and MRO organizations; CDG, an engineering and certification firm; ILS, which provides business-to-business aerospace and defense marketplace services; Jeppesen, an air navigation solutions provider; and Tapestry Solutions, which provides enterprise asset management and end-to-end logistics services.)

"Our customers have long desired a supplier who could offer essentially 100 percent of their requirements for fasteners, consumables and expendables. 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," said Amin Khoury, KLX Chairman and CEO. "This business combination will enable us to deliver industry-leading value-added service solutions for our customers, and outstanding growth opportunities for our suppliers."

KLX's Aerospace Solutions Group FY2017 revenue was $1.4 billion. Boeing expects the acquisition to have a neutral earnings impact through 2019 and accretion thereafter, with annual cost savings growing to approximately $70 million by 2021 and further improvements realized over time. The transaction will be financed primarily with cash on hand, supplemented with debt.

While Boeing has openly emphasized an organic growth strategy to meet it’s $50-billion annual revenue target for services, industry analysts predict that Boeing’s goal will only be achieved by including multiple acquisitions.

The completion of the transaction, which is so far the largest acquisition for Boeing Global Services, is subject to customary conditions, including regulatory clearance and the approval by a majority of KLX shareholders and is expected to close by Q3 2018.
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