How Boeing Aircraft Trading placed more than 50 airplanes using its back-to-back strategy

BY KATHLEEN SPICER


Think about the last time you bought a vehicle. For many, the transaction is easiest when the dealership accepts your trade-in and applies its value toward your new investment. But can a buyer apply a similar sales strategy when buying airplanes?

According to Dinesh Keskar, president of Boeing Aircraft Trading (BAT), an organization within Boeing Commercial Airplanes, the answer is ''yes,'' but on a much grander scale.

''The strategy is similar, but understandably more complex and sophisticated,'' Keskar said. ''And, it involves a lot more zeros on the dollar amount.''

Amazingly, during a tumultuous year in the aviation industry and at a time when Boeing is striving to do everything possible to help its customers and the industry recover, Boeing Aircraft Trading is meeting its goal of maintaining the number of airplanes in its inventory from last year and placing the same number of airplanes coming in this year with new airline customers. In fact, the Boeing Aircraft Trading business has increased fivefold in the last two years.

''By year's end, BAT will have placed more than 55 airplanes and delivered 42 aircraft, while receiving only 50 airplanes as trade-in transactions,'' Keskar said.

Boeing Aircraft Trading worked recently with Algeria-based Khalifa Airways to place two 777-200s. Also this year, in conjunction with Boeing Capital Corporation and Commercial Airplanes Sales, BAT placed 22 717-200s from its inventory to low-fare carrier AirTran Airways.

''Overall, we've had tremendous success this year placing our inventory,'' said Steve Hill, Boeing Aircraft Trading business director. ''About a third of the airplanes we've taken in will be redelivered to their new owners in 2003, after they complete planned modifications.''

Helping customers succeed

In a nutshell, Boeing Aircraft Trading enables airlines to trade in airplanes in their current fleet, regardless of the make or model, as part of a deal for new Boeing airplanes. The organization then sells or places the airplanes to other operators  that need to expand their fleet immediately or would prefer not to purchase the airplanes.

''Boeing Aircraft Trading works sideby- side with the Commercial Airplanes Sales team to provide fleet solutions for airlines around the world,'' Keskar said. ''Our business is diverse in that we deal with large operators like Cathay Pacific Airways, to regional carriers such as Bangkok Airways, to startups like HMY Airways, a Canadian charter. We also work with any models of Boeing and Airbus airplanes.''

Boeing created Boeing Aircraft Trading five years ago at a time when airlines wanted to focus on what they do best— transporting passengers and cargo. The unwieldy task of removing older airplanes from their fleet or offloading airplanes that no longer met their requirements became highly desired. Because of this need and the strong reliability and trust in the Boeing brand, airlines began to turn more toward Boeing to provide this service, along with other solutions.

Hands on, hands off—a win-win

While the Sales team usually gets the spotlight for new airplane sales, Boeing Aircraft Trading is instrumental in setting the stage for trading airplanes and enabling new airplane sales.

''Our strategy from year to year is golden: place all airplanes coming into Boeing Aircraft Trading and avoid parking them in the desert,'' Keskar said. ''These airplanes are assets, and our main concern is to make them productive as soon as possible. Most often, the placement of an airplane is secured before it's even delivered to Boeing.

This is an ideal situation for every party involved.'' This is what Keskar refers to as BAT's back-to-back strategy.

''This approach has several benefits,'' Keskar said. ''First of all, customers and Boeing save money by taking an airplane out of service for a minimal amount of time. Boeing also saves other costs associated with owning an airplane, such as daily maintenance, insurance, security and storage fees.'' Furthermore, this process does not tie up capital as long, and the value of the airplane does not depreciate without producing any returns. This makes the asset-utilization ratio for the placed airplane much more favorable than that of a parked airplane.

Improving efficiency

Written into an acquisition agreement is usually a 12-month notice before Boeing receives an airplane from a customer. During this time, BAT aggressively works with internal organizations such as Sales, Contracts, Marketing, Commercial Aviation Services and Boeing Capital Corporation to market the airplane to a new customer.

''Every airplane acquired and sold by Boeing is fully inspected,'' Hill said. ''Inspections consist of checking maintenance records, engine runs, system checks and checks of other critical features, and includes test flights.''

This process can be time-intensive and expensive for all parties involved. To make the process more efficient, Boeing has developed a system to have both processes—the 'checking in' and 'checking out' of the airplane —occur simultaneously whenever practical and possible. It achieves this by arranging for both the current operator and the next customer to participate in a single evaluation and acceptance of the airplane.

''In a perfect scenario, the systems check on the airplane changing hands is completed only once, so that the customer buying the airplane from Boeing and the customer we're selling the airplane to sign their respective documents based on the same set of data,'' said Keskar. ''The process works ingeniously, as it did during a recent transaction between Boeing, Korean Air and Jetsgo.''

During that transaction, Korean Air traded in its MD-83 airplanes as part of a deal for new Next-Generation 737s. Boeing then placed the MD-83s with Jetsgo. As part of the arrangement, BAT coordinated transportation logistics for the Jetsgo team to the airplane evaluation site for the Korean Air transaction. All three parties participated in the evaluation and test flight. As a result, the organization was able to complete transactions with both parties within the same week. This was a ''win-win'' for everyone.

Turnkey deals

In many cases, before Boeing delivers the airplane to its new owner, the plane needs modification work such as reconfigurations, re-engineering or painting. Boeing Commercial Aviation Services (CAS), and other entities such as Lufthansa Technik or Hong Kong Aircraft Engineering Company (HAECO) conveniently do this work for customers.

For instance, CAS modified a 747-300 combi into a freighter for Dragonair, and has been converting MD-11s from passenger airplanes to freighters for United Parcel Service.

''To use Boeing as an original equipment manufacturer for modification work appeals to customers,'' Keskar said. ''We're able to provide one-stop shopping for the operator, and customers feel comfortable using Boeing because of our superior product knowledge, expertise and reputation.''

Modification work also extends to non- Boeing-manufactured products. For example, Cathay Pacific Airways used BAT to manage the reconfiguration of the A340s it leased from Boeing into new first-class and business-class seating, along with other modification requirements.

''Boeing managed the modification of the airplane per high Boeing standards and customer requirements at HAECO,'' Keskar said. ''At the time of delivery, the airplanes looked like new, and they entered revenue passenger service immediately after we delivered them to Cathay Pacific.'' 2003 challenges: need vs. resources

In spite of the current airplane industry downturn, Keskar remains committed to placing all inventories throughout 2003.

''As we enter the New Year, our biggest challenge will be sustaining a return on our assets amidst a recovering airplane market,'' Keskar said. ''However, I'm confident in our team and in the Boeing brand—that's what will see us through.''

kathleen.m.spicer@boeing.com