Heico Dominates in Independent Aircraft Parts and Is Exposed to Strong Segments of Defense Market

Heico exploits the switching costs created by aerospace manufacturers for their spare parts. Aerospace suppliers typically build the hefty research and development costs of developing their products into the prices they charge for servicing and/or replacing that part in the aftermarket. Heico reverse-engineers these complex parts at a fraction of the cost of their original development, gains critical regulatory approval to sell its functionally equivalent parts, and sells them around 30%-40% cheaper than the original. Known in the United States as parts manufacture authority under the FAA's jurisdiction, regulatory approval is critical as most buyers can only buy OEM or PMA certified parts to retain the airworthiness certification of their aircraft. Most operators of newer aircraft stick with OEM parts for a number of reasons (such as long-term service contracts with engine manufacturers or lease terms aimed at preserving the resale value of the aircraft), limiting Heico to make parts for aircraft and systems in later stages of their service life.