HEICO FY 4Q15 Earnings Call Notes

Eric Mendelson

Airlines are focusing on cutting costs in aftermarket parts

“There has been a lot of talk in the marketplace about sort of the changing landscape of the aftermarket with airlines focusing on keeping less inventory and really driving down their cost, and I think that the OEM purchases have become really the purchases of last resort, airlines are trying to figure how can they buy the parts as PMA or surplus rather than spend the big prices and get them from the OEM.”

We were originally more of an engine supplier but as engine has become more competitive we’ve shifted to the non engine side

“we’ve had a larger emphasis over on the non-engine part of our business, HEICO started out originally as a supplier of one particular part for one particular engine that was made by one particular OEM and then we got into other parts for that engine and then other OEMs and then the airlines helped us to get into the component area so, a majority of our sales are for non-engine applications. I think everybody is aware that the engines have become more competitive, the OEMs have become very aggressive in that area. We continue to develop engine parts, we continue to do very well, airlines want to continue to procure those parts, they want us to develop other ones, but we’ve had a big diversification focus for the last 15 years on the non-engine side and now that represents a majority of our sales.”

Airlines are a lot more careful about the amounts of inventory that they’re holding

“with regard to buying behavior yes, a number of airlines have really started focusing on the amounts of inventory that they take in and are holding very little inventory currently. So when they place an order they need to make sure that they get the part because otherwise they don’t have it. They used to give buyers sort of more autonomy to purchase parts and now they have become very, very careful about spending money.”

Larry Mendelson

We are a preferred buyer compared to Private Equity

“No, I think that the right kind of company that we like to acquire does view us as the preferred acquirer because of the way we run the companies when we compete with a private equity firm that buys and sells buy the pound every three to five years, managements really find that very stressful. So when they have a say as some input we are always preferred buyer. When a seller who wants to have a liquidity event wants to protect his employees continue running the – very often continue in the position of presidency of his company, we are definitely the preferred buyer.”