Increased Flight Activity Benefits Heico

Heico breaks the rules that define most aerospace and defense suppliers. Typically, commercial aerospace suppliers face significant research and development costs and capitalize the costs over a decadeslong monopoly over the product and its aftermarket. In Heico’s commercial aerospace exposure, it reverse-engineers complex spare parts at a fraction of the cost of product development, gains regulatory approval to sell replacement parts, and then sells the part at a discount to the original equipment manufacturers’ spares. The business model works on two critical assumptions: no new entrants and rational competition with OEMs. New entrants are limited by stiff regulatory hurdles and the difficulty of reverse-engineering commercial aerospace products. The company has largely avoided irrational competition with OEMs by limiting market share on any part to about 30% with just a few customers.