HEICO: Parts for Planes - [Business Breakdowns, EP.150]

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Feb 21, 2024

Eric Rudin, an analyst at Ironvine Capital, discusses HEICO, a powerhouse in the aerospace parts industry. He shares intriguing insights into the Mendelson family's successful business strategies and operational philosophies. The conversation highlights how HEICO thrives as a cost-effective alternative in the aircraft supply chain amidst economic fluctuations. Additionally, Rudin delves into the dynamics of the aftermarket, the competitive PMA landscape, and the risks associated with aviation parts, emphasizing quality and accountability.

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INSIGHT

HEICO's Niche

HEICO focuses on niche components and cost-saving solutions, particularly in aircraft parts and repairs.
Their business model is similar to generic drugs, offering lower-cost alternatives to OEM parts.

INSIGHT

Aerospace Market Dynamics

The aerospace market has long product cycles (25-30 years for aircraft), high regulatory capture (FAA approval), and consistent growth.
Aftermarket parts and services offer higher profit margins than original equipment manufacturing.

ANECDOTE

PMA Process

HEICO's PMA (Parts Manufacturer Approval) process involves reverse-engineering OEM parts and undergoing rigorous FAA certification.
This process is even more stringent than the original certification, focusing on specific parts and quality.

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This is Matt Reustle. Today we are breaking down HEICO. HEICO is an aerospace business, most notably operating in the aircraft parts and repairs market. This is another case study of a very successful business in a nonobvious niche market.

To break down HEICO, I am joined by Eric Ruden, an analyst at Ironvine Capital. We cover the fascinating story of the Mendelson family and how they've built HEICO into what it is today. And if you haven't listened to the 50X Podcast on TransDigm, it makes for an excellent pairing with this HEICO breakdown. So please enjoy this breakdown on HEICO.

Pair with TransDigm on 50X.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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This episode is brought to you by 10 East. 10 East is a platform where qualified investors can co-invest on a deal-by-deal basis across private equity, private credit, real estate ventures, and other one-off opportunities typically unavailable through traditional channels. It's no surprise that founders, executives, and portfolio managers from leading investment firms are using 10 East to diversify their personal portfolios. Their level of sourcing and diligence is institutional grade. To learn more, check out 10east.com.

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Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes.

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Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com).

Show Notes

(00:00:00) Welcome to Business Breakdowns

(00:02:53) First Question - Understanding the Aerospace Market

(00:06:58) The Role of HEICO in the Aerospace Market

(00:15:03) The History and Evolution of HEICO

(00:20:23) Introduction to Mendelson Brothers and their Business Operations

(00:22:58) The PMA Business and its Growth Drivers

(00:28:49) The Role of HEICO’s Go-to-Market Strategy Against OEMs

(00:40:05) The Role of M&A in HEICO’s Growth Strategy

(00:43:46) Comparing HEICO and TransDigm

(00:48:35) HEICO’s Financial Model

(00:50:06) Potential Risks and Challenges for Heico

(00:57:55) Key Lessons from Heico’s Business Model