Heico Leads in Reverse Engineered Aircraft Parts and Is Benefiting From Missile Defense Spending

Heico exploits the switching costs created by aerospace original equipment manufacturers for their spare parts. OEMs typically build the hefty research and development costs of developing their products and certifying their design for airworthiness into the prices they charge for servicing and/or replacing them in the aftermarket. Heico reverse-engineers these complex parts at a fraction of the original development cost, gains regulatory approval to sell its functionally equivalent parts, and sells them for around 30%-40% less than the original. Known in the United States as parts manufacture authority, or PMA, 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 because of long-term service contracts with engine OEMs or lease terms aimed at preserving the resale value of the aircraft, generally limiting Heico to supply parts for aircraft and systems in later stages of their service life.