HEICO & the Value of Vertical Integration
Former President at Wencor
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Former President at Wencor
Interview Transcript
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Why did HEICO move into repair? When did this happen?
They acquired Northwings, I believe, in the late 90s, around 1998. At that time, they were small enough to seek a sector where they could exert more influence, particularly in implementing their PMAs. Owning a repair shop meant they could potentially increase the incorporation of PMA into more units. However, it turned out that the airlines still have to approve the use of PMA; a repair shop can't unilaterally decide to use it. Some do, especially with expendable parts, because there's no real record of it. They continue until they get caught.
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Returning to the philosophy of HEICO purchasing a repair shop. The idea was that if they owned the customer touchpoint and the product, they could install their PMAs. How did that plan work out?
The shop was expected to generate about a 45% gross margin, roughly a 21% net margin. They were profitable businesses. After the success of the first acquisition, they purchased another, thus embarking on a path of accretive growth. At that time, that level of EBITDA was significant. They could acquire a shop with three or four million dollars in EBITDA, and it would make a difference. However, the model has since changed with the acquisition of Wencor. It's unclear what their next move will be.
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