TransDigm, AdelWiggins, & The Aerospace Aftermarket

TransDigm's Product Innovation, Howley, & TDG 10-year equity returns

Safran: CFM56 & LEAP MRO 

Safran & CFM56 Engine Overhaul

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:05:36} Starting with MRO, could you define a little better what that entails for you? Then maybe you can talk a little bit about how the competitive landscape for that business looks?

{audio:0:06:19} I always find it to be an incredibly broad topic. When you think nose to tail about aircraft, we typically break it down in this industry by ATA chapter. Are we talking about aircraft heavy maintenance MROs, engine heavy maintenance MROs – which we do here over here at IAG – down even to the component level MRO, which we did at Wencor where you're getting into power generation and hydraulics fuel pneumatic, APU and landing gears. You can start really breaking it down by section of the aircraft, ATA chapter. My expertise is primarily the engine MRO as well as the component level, whether it be accessories or land maintenance type units, all the way to engine parts and components. I also do have quite a bit of exposure, especially from my time AAR and working at Wencor, on aircraft heavy maintenance well as line check activity and then a bit of a landing gear at APU side. It would really just depend on what sector you guys are most interested in talking about as it's pretty broad. I'm happy to break it down based on what part of the aircraft you are trying to focus on.

{audio:0:08:05} As we mentioned, our interest is from HEICO’s angle; primarily asset-related activities around HEICO on the PMA and on the MRO side.

{audio:0:08:20} From a PMA perspective, HEICO took a little bit of a different route from Wencor. Wencor is much more non-critical type components; non-rotating, a lot of interior, a lot of galley, non-static components even on what I would consider critical components, like a power regeneration unit or pneumatic or any type of hydraulic units. HEICO has taken the approach of playing in the PMA side of things much more, so non-static and non-critical, but also getting deeper into the engine side of things as well. Not to the extent of a PMA provider, where they’re going fully into hot section, rotating parts, blades and life-limited components.

{audio:0:09:38} I think from an engine content perspective. HEICO definitely did put a little bit more emphasis on some engine type parts so that's the first part of it. The second part is – and this is pretty typical of a lot of PMA companies that also had a lot of capabilities to repair components – you’ll try to see a lot of focus on PMA development and content components that the company can also repair. That bolsters your value proposition to the customer to say, not only can I repair this drive shaft or this hydraulic pump, I can fix your cost on labor, help you get a good price on repair or offer rotable exchanges but I can also go ahead and develop PMA. Over the course of a program, your contents and your reliance on OEM material within that NHA, next higher assembly, starts to get reduced with PMA developments. I definitely see HEICO very active in that. I also saw one Wencor very active in that, and again, it bolsters your value proposition in that not only can you repair, but you can reduce reliance on OEM content in that unit.

{audio:0:11:20} The last thing I would say that you are probably coming across is the maturation and lifecycle of where specific aircraft engines are in their maturation cycle really determines where PMA focus starts to come next. As you can imagine, there's a ton of PMA that HEICO has on older Airbus product, whether that be older A319s or A320s. There's a lot of content on 737 classic and widebodies, like 76s or 75s. It’s the same thing from an engine perspective; they have a lot of content on B2500s, older CFM56 model. Where those aircrafts and engines are in their life cycle dictates how much content they have but also what's the next shoe that's going to drop; what's the next aircraft engine that's going to become available to hit the after-market to go attack next? Those are some of the areas that I think about when I start thinking about HEICO. Where and who they want to go after, as far as the next PMA development projects.

{audio:0:12:39} If I may step back a little bit, for a long stretch of time, there’s been this tug-of-war between aircraft leasing companies versus these PMA companies, particularly as it relates to engine. Leasing companies have been forced to accept PMA products, to a certain extent, more recently, but there is still this love-hate relationship. I’m talking about AerCap, Air Lease and all those other types of leasing companies that want just the OEM products in their lease aircraft as opposed to PMA parts. Is there any color that you can shed on that aspect of how PMA producers are affected or are benefiting?

{audio:0:13:44} It’s always been problematic in getting lessors to accept PMA. I'm talking about when I first started really getting into the PMA side of things, even when I was at AAR. We actually held a distribution agreement that I managed for B-LAC. We were the exclusive distributor for B-LAC HBT turbine blades for three or four different engines, such as the B-2500 CF6-80C2, the KOB-4000. The value proposition was very clear to us when we were taking it to customers. You know you can buy a blade for $10,000 from GE but you can get if for 60 cents in the dollar if you went to a PMA. It was dang near impossible to get an audience with some of those folks you mentioned; the AerCaps, the GCAS, which is all one big happy family. The BOCs, the BOAs of the world; that's a very difficult conversation. Fast forward to today, in my opinion, it's still going to be a very difficult nut to crack the major lessors. Their fleets are too big, they have too many bigger fish to fry. Their agreements are structured in a way, with their lessees, that they take the path of least resistance of, I am going to give you my engine and I expect it to be returned that way. They flex too much muscle, the AerCaps and Bank of Chinas of the world.

{audio:0:15:44} What you are seeing – and there actually a lessor in the States that has become very active in this – is some of the smaller lessors becoming very open to that. There’s one in the United States that has become very bullish for their PMA, especially for their CFM56-5B and 7B fleets which are powering the A320s and A730s, so a lot of demand for those engines in the market. They simply look at it from a value proposition of, the least amount of money I can get my engine repaired for, then the more flexible and more attractive I can take that cost savings and, potentially, have greater access to lessee customers because I’ve controlled my shop costs much better somebody else would. That’s one example, and I think you're going to see a copycat model of lessors saying, wait a second, I’m asking engines to be scrubbed and cleaned with OEM components, and I'm not able to control my costs as effectively as someone that's open to putting in PMAs and DER and even used material to a certain extent and their lease rates aren’t nearly as competitive. It’s a long way of saying that I see it loosening up again, just given this one leasing company, and I foresee others following suit but I think it's still definitely going to be a tough putt to get some of the larger players in the market to take that approach.

{audio:0:17:46} Just on that point you mentioned earlier about the value proposition among the PMA companies, how do they compete amongst each other? I'm wondering if you have the PMA in a specific part, is there other providers that also have that? Is it more than you were the only one? Typically, how does that work?

{audio:0:18:08} Yes, it's more of, if you have it, somebody else has it as well. There rarely is an instance where it's a good idea to go ahead and be the only PMA in town. That means you’ve probably PMA’d something that doesn't really have that great of a demand. Even going back to my industrial power back-up days, one of the batteries that we put into uninterrupted power supply providers like the Eatons and Schneiders of the world, it was an agnostic size battery and probably five or six other competitors made the exact same thing. The reality is, you have to be able to sell on your quality, on your price and all the other things that come with it. You don't want to be somewhere where nobody else is because there's just not a demand for it.

{audio:0:19:13} If HEICO has got a PMA then, typically, Wencor or somebody else has got the same PMA. You're competing with the what the OEM is providing and you're competing against the USM providers. Competition is healthy and just because somebody else has a PMA doesn't deter the HEICOs or the Wencors of the world going away from it. How fast can you get the product to market? How much can you bring it to market for? What's the quality aspect or the reliability? All of those things are levers that you pull on from a commercial perspective are definitely more important than just being the only person there. If you're the only person there, you've probably PMA’d something that nobody cares too much about.

{audio:0:20:08} From both AAR and Wencor, when you were there and as you looked that landscape, both from the PMA and the MRO side, were there specific companies that you appreciated? I know it's a very broad question given that both PMA and MRO are sort of a large ocean from the way you described it. I'm just wondering about the bigger picture question of whether if any one or two or three companies jumped out at you and made you think, hey this would be a fantastic company to work for or what they're doing is phenomenal or, on the other side of the spectrum, I would hate to be a part of this group?

{audio:0:21:13} When I look at companies that have grown and have become strong players in the market, I see companies that have the ability to effectively bolster their value proposition the most where they can, not only be able to funnel work internally feed work and utilize their service offerings as a way to feed themselves but also, they become what I would consider a solutions provider or an integrator. They are the ones that are the most attractive. I think with a company like AAR, they had the opportunity to become a solutions provider because they could go to a customer and say, if you send us your aircraft in here for 737 heavy maintenance, here's what we also have as part of our network. You can send your landing gear to get repaired at our facility in Miami; you can have our asset trading group. We can go ahead and provide you with component exchanges. We have access to our distribution partners that can feed you Eaton products or whatever the case may be. I think when you look at HEICO or when you look at one Wencor, those companies are trying to do something similar. They’re being more of an integrator that says, you’re not just selling a commodity; you're selling a solution. 

{audio:0:22:52} Another company that comes to mind, in terms of being able to feed assets into one another's company, like GA Telesis. They have grown incredibly over the last 20 years because they started off as a company that was leasing their own aircrafts and engines. Then they went ahead and said, we need to buy an engine MRO because we're going to have an asset come off lease that we own. We’re going to put that engine into one of her own shops. We can control the material flow ourselves, we can control the waiver, now that we have an asset we control. Under their network, they can go ahead and go to the markets and say, we own this engine; we also have this landing gear shop; we also can do x, y, and z for you. We can provide parts; we can send you an engine to lease, you could even take your engine that’s coming off and put it into our shop, we can help you out with the material costs.

{audio:0:23:52} I think I think offering those end-to-end, more integrated solutions are the companies are going to be the more dominant players in the market versus your commodity type supplier or somebody that only focuses on MRO or PMA. When you think about HEICO I think the reason they made so many acquisitions from a component repair standpoint is they knew, the more we can bring a solution to the customer, and not just a PMA, the better. It’s not good if you have a PMA but somebody else controls whether or not that PMA goes into the unit. If you have connectivity to the end-user and you're capable of saying, I can repair this unit; but allow me to put my PMA in there, now you have a solution, rather than going to somebody else and saying, I know you're repairing this unit for so-and-so, we have this PMA. They’re less likely to talk to you if you’re not the one in control. I think having more of that integrated solution to the market, those are the companies that will be the most successful, especially coming out of the last two years.

{audio:0:25:09} It doesn't really sound like it’s that difficult to get your parts approved from the FAA. That’s not really a hurdle of any kind, or is it? 

{audio:0:25:19} No, truth be told, these companies have it down to a T. They have somebody that has direct connectivity to the FAA, they have engineering and all of these things. They know how to bring a product for approval to FAA. I don’t think that’s barrier at all. Especially when you have a robust process and you have relationships in place. Some of these guys that approved the FAA PMAs, it’s the same guys that have been doing it for 20 or 30 years and they're talking to the same engineers. It really becomes not even so much the process or all the requirements that are needed to bring a PMA to market; a lot of it is just a relationship. I know exactly what this FAA inspector is looking for, what documentation he needs. 

{audio:0:26:23} To answer your question no, it's not that difficult to take a product to the FAA, I will say that. I think where the gap and timeline is in bringing a PMA to market is to do with the maturation of the aircraft. I think more the OEM is the barrier to getting PMA to market. Does the OEM have the market locked up for an aftermarket support standpoint? Have they boxed out the PMA providers? Does the OEM try to flex their muscle to a potential launch customer? CFMI tried to do this. They said, to all CFM operators, if you try to put a PMA in your engine, we won't warranty it. Eventually, they had to back off that statement because too many operators started pushing back on them, so the OEM have got some muscle they can play there. 

{audio:0:27:23} The ability to get access to new parts that we reverse engineer, that's a hurdle. The upfront development, as far as getting access to the parts, what’s the OEM doing, are they trying to box out the competition? I think that's more of the barrier to entry versus the FAA, as long as you've gone through the reverse engineering and you have all your proper documentation. The FAA have looked at dozens, if not hundreds of these, on a yearly basis from HEICO and Wencor and everybody else, so they know exactly what they need to go to the FAA. It's more in the upfront part of it that’s more of a barrier to market.

{audio:0:28:14} I'm curious to take it to the MRO side. We heard you have some interesting views on that. What do you think are some of the challenges from Covid-19 on the MRO side? I think we heard that you may think the MROs are in some slight bubble there, so I’d be curious to know your views?

{audio:0:28:41} Going back to where on the aircraft we’re thinking about. I'll take it to some of the heavier maintenance side of things. I’ll start with the engine side of things because it's more in the near-dear to my heart because I’ve been with engines most of my career. I saw in 2008 and 2009 and I’ve definitely seen it the last two years; everyone was trying to defer maintenance as long as they possibly could. Definitely, the practice was to take green-time engines and try to burn off as much green-time as you possibly can. If you're going to park a bunch of aircraft anyway, find two good engines. Maybe one engine had a good fan and LPT, another engine had a good core and you make one engine out of two. You do a lot of those Band-Aid hospital-type visits, just to squeeze as much life as you possibly can out of the engine. 

{audio:0:29:49} We saw even on the landing gear side of things, folks that are trying to run out as much time as they could for maintenance as long as they can, even on the heavy-check airframe side. What’s our best aircraft that's not up for a C Check; maybe put it through for a D Check, a bit lighter, just to keep that aircraft moving and park the C Check aircraft for later. We saw it in 2008, 2009, the bubble is going to burst; you can only defer for so long and then the floodgates are going to open. That's what we're starting to see you little bit. MTU actually issued a release the other day that their shop capacity is completely booked for all 2022.

{audio:0:30:41} Revima, the landing gear APU facility, they're probably about 85% or 90% of 2019 levels. HEICO landing gear did a lot of work with Wencor; they're full capacity. You're actually starting to see an issue on capacity become problematic, especially as fleets continue to get reactivated. You're definitely going to see capacity becoming issue of, there's not enough MROs. whether it be engine MROs or landing gear or airframe heavy maintenance MROs. There may not be enough slots available the handle demand over the next six to 24 months as the shop visits start to ramp up. Now of course, we have these macro global factors, the capacity could start to be eliminated even further because people could be potentially utilizing MROs in Russia and what does that do to capacity? There’s a lot of factors that are taking place. That's for macro heavy maintenance landing gear, engines and airframe. 

{audio:0:32:01} Specifically on a component side as it pertains to some of the Wencor and HEICO component MROs, that's going to be an interesting one because the USM unserviceable market is going to start continuing to ramp up to the point where there might be an influx of line maintenance accessory, QEC-type components hitting the market and, potentially, not nearly as much demand. If you don't have to spend $150,000 for an IDG and you can just continue for it to be serviceable with an IDG off-wing or swap one out with an aircraft you have parked in the desert, there’s a lot of that activity. That's going to be a little bit slower than an engine maintenance-heavy event because you can only defer maintenance so long for an engine. You can defer maintenance for quite a while on doing a full overhaul on a power generation unit or a hydraulic pump. There’s a lot more surplus from the component standpoints. You can go ahead and rod or grab or do a bench test or whatever the case may be to carry it through. I think the component MRO side might be a little bit slower go back to the levels pre-Covid than on an engine MRO or landing gear facility.

{audio:0:33:41} On its earnings call, HEICO said, on the MRO side, with more aircraft in the air picking up, that part of business is a little slow compared to the last few quarters. Your statement about development of an MRO, is that US-centric or are you taking both Europe and Asia into account?

{audio:0:34:27} I’m taking Europe and Asia into account, as well. Obviously, the US was one of the quicker ones to rebalance as far as bringing aircraft back into service. Domestic travel has spiked up a little bit. One comment as far as HEICO and their earnings is that it's not like for like. Some companies – I think Wencor even struggle with this – they equate it to capacity and available passenger miles and things of that nature to correlate, to increase the activity from a revenue perspective. It doesn't work that way. There’s going to be a lag in certain sectors of activity. Just because you brought aircraft back to service doesn't mean you're going to see an uptick in demand. 

{audio:0:35:09} Just to quickly answer your question we definitely saw a little bit quicker recovery in America, but taking Europe and Asia into account, I’m seeing that as well. I think the other factor to consider is the fact you had some aircraft – I'm talking specifically the 737 MAX – that is now starting to get reactivated in the US, it’s starting to get worked into the fleets in Asia, especially in China. Now it becomes an issue of, okay, so what happens with the balance of the aircraft that those are replacing?

{audio:0:35:50} With those 737 new jet aircraft, maybe somebody in China is saying, one is going out, one 737 MAX is going in. Those NG aren’t going anywhere, but they've got to go somewhere. Whether they go to Latin America, South America, that's a strong possibility. That's always a market that's in a higher appetite for older – I say older, I mean more mature – good aircraft like a 737NG. Where does those aircraft start to go as the MAXs start to get worked in and what does that do to the maintenance events? I go back to my comment; you could have a bunch of NGs getting reactivated, not necessarily by the operator that originally flew them, but by somebody else and they may need maintenance events. I see that capacity just continuing to be a struggle for folks over the next six to 12 to 18 months because you're going to continue to see more aircraft either get reactivated by the operator that had them or the aircraft goes somewhere else as new aircraft. The A220s are going to replace something. If A220s replace A320s then where do those A320s go? The natural developments of deferred aircraft deliveries, new aircraft deliveries, those are all going to start hitting roughly around the same time. Where do those more mature aircraft go or what does that do to the maintenance activity on those older aircraft?

{audio:0:37:50} Slightly bigger picture question; we've seen a few transactions in the space, for example, Frontier and Spirit Air and this sort of consolidation has been ongoing. It goes through waves and cycles, I guess. What’s your take on how both PMA and MRO would be impacted as this consolidation progresses? Is that a positive for someone like HEICO, a neutral or is it even a negative?

{audio:0:38:18} I could see it as a positive depending on what practises the majority stakeholder acquire company takes. Take someone like Frontier; Frontier is the major stakeholder in that deal. They are a PMA-friendly company. I see they're most likely going to adopt maintenance strategies that are more in line with their historical maintenance strategies. That could be a positive. I could see where it would be a negative if these acquisitions are looking purely from a synergy, critical mass perspective, especially if they've been a little bit more OEM centric. I’m thinking specifically to this example; Frontier and Spirit are an airbus-heavy fleet and a lot of CFM engines. They may not look from a critical mass perspective to say, our fleet has gotten so much bigger that we can go ahead and start leveraging the critical mass that we have and be able to get more favorable maintenance contracts from somebody that didn’t treat us the same way as they treated United. It could definitely go either way. 

{audio:0:39:51} I think adopting maintenance practises that are more focused on PMA from a majority stakeholder company can be a good thing but if someone wants to say, let's take our fleet size which has just doubled and then we could go to CFM and say, CFM, I want you guys to cut me a bigger deal and a better deal. That could then just box out a PMA provider. Are they doing this as a critical mass synergy play, which you can do and still adopt your current maintenance practices, or are they just going to say, no, we're going to continue what we've been doing over here in Frontier and Spirit’s going to adopt our maintenance practises? It could go either way; it could be a positive or a negative.

{audio:0:40:45} So, flipping that around a little bit, you have all these players on the PMA side or MRO side; do you see more consolidation happening there? HEICO is an acquisitive company and I'm wondering if there's some incentive for the smaller players to sell out to someone like HEICO or Wencor or some of the larger players? How does that work?

{audio:0:41:36} It's a great question. I think the biggest thing for PMA companies and where they draw the most out of their evaluation is how much IP they effectively hold. Especially for a company that is private-equity held, like Wencor, the valuation is going to be driven by how much IP you really have. The distribution side of the business is great. It keeps the lights on, it's high turns and cash generation. Really, where the valuation from that company is extracted is in the IP. That’s from a valuation perspective in a multiplier company. When you start to think about your actual EBITDA and the gross margins, the PMA side of things is what generates the most gross margins. It's not the component MROs, it's not the distribution side; it's purely the margin side of things. I think there's definitely an appetite for someone like HEICO to try and absorb some PMA companies and Wencor recently did. The name escapes me who they acquired but it was a smaller PMA company, so definitely the appetite is there from purely an access to additional IP, as well as gaining higher gross margin producing product. I think though, from a sellers’ perspective, it's difficult.

{audio:0:43:23} I see the hesitancy see on some of the bigger PMA players trying to sell to another PMA player because of the fact that IP will, ultimately, just get absorbed by that bigger player. For some of these bigger PMA providers, if they are looking to sell their company, I could see them going more towards somebody that doesn't have a PMA division whatsoever. That again bolsters their overall value proposition on a market vertical that they don't necessarily tap into. Some of the bigger companies I just mentioned such as an AAR or GA Telesis, they fix engines, they fix aircraft, they do distribution, engine teardowns and USM, but they don't play on the PMA side. If they're going to go out to the market and want to attract a bigger opportunity with a United, Delta or American, they want to be able to say, not only can I fix your aircraft but I can fix your landing gear. I can send your engine to the shop; I can provide all these used materials. But now I also have a PMA arm that I can tap into as well, to bolster my value proposition. I can see more of these PMA companies looking at somebody that doesn't have PMA to say, you guys need me; I can cover a blind spot that you have when you go out to the market.

{audio:0:35:04} Wencor acquired ASC International; that's the more recent one. We’ve seen, more recently, across the entire spectrum because of Covid-related travel restrictions, the entire travel industry has been impacted. If you set that aside from a PMA or an MRO standpoint, what else can actually impact their business negatively?

{audio:0:45:36} Yes, it's a good question. It really comes down to how much muscle and how aggressive the OEMs are going to get. I go back to 2008 or 2009, the OEMS really screwed up back then. They were a little bit arrogant. They thought that was just some of their business that was just theirs to be had and that the airlines that had their own MRO capability were never even going to consider leaving them. Not even going to go to a competitive, independent MRO but that they would pull work in-house. United did that and said, we’re going to pull some of our engine work into our facility in San Francisco. The OEMs really weren't that aggressive; they just thought that that part of business was just naturally going to come back to them. I think they're actually starting to take a little bit more of an aggressive position because they don't want to lose the Southwests of the world that they've had locked in for the last 15 years. I don't think they're going to have the same levers that I mentioned earlier, in terms of being able to box out the aftermarket. I think they've tried that and there's too much push back in the market. 

{audio:0:47:08} There's too many big airlines and too many big companies that are just saying, no; Delta being one of them. Delta is a big PMA proponent. I don't just think trying to put SBs in place to say, you’ll lose your warranty, is going to fly anymore. I definitely think it’s about how aggressive they want to get with their contracts, how bad do they want to keep that business, whether through their pricing or offering, guaranteed power or lift, or offering a spare landing gear pool or engine pool. The OEM behaviors has always been the wild card as far as keeping out the competition. 

{audio:0:48:02} On the flip side of that, a lot of the OEMs have screwed up so badly with how they interact with their customers, it's left a massive opening to PMA companies and I'll give you a prime example. Honeywell is like the company that every operator hates dealing with. They’re a pain, they're not flexible, their customer service is terrible. They are just awful to deal with. Them getting in their own way has opened the door even more so to the HEICOs and the Wencors of the world. They've just completely disconnected with their behavior and what their customers are looking for. Yes, I think if these OEMs continue to trip over themselves and treat the market like second-rate citizens, they're going to leave themselves exposed to greater competition, especially in the PMA spaces.

{audio:0:47:07} Yes, that's an excellent point. HEICO, historically, had this great relationship with Lufthansa. Lufthansa owns a piece of the actual company itself but they have reduced it back to the PMA side of things. Through that, they've been able to expand their business. Maybe this is a little bit difficult for you to answer, but if you were actually on the PMA side of things or even the MRO side of things – it can be with respect to engines or the non-engine part – how would you address this issue with OEMs? Is it a better approach going through a Lufthansa or going through a United? How would you address this issue using a PMA?

{audio:0:50:15} I think there is two ways. Most of the time you have a PMA, they just want to bring it to market, ideally with a launch customer in mind. The partner would work with the Deltas or the Lufthansas of the world and really form a closer alliance with those types of companies. There are creative ways that you can partner with those folks, especially as it pertains to bringing a PMA to market. It sounds like a bad term but it's actually not but there’s a lot of ‘pay to play to stay’. We'll put up some money to go out and develop all these PMAs and then effectively ‘Mr Whoever customer’ once they start buying from you, you kind of burn down the money that they gave you and then eventually agree on some type of royalty structure and then go ahead and sell those PMAs to the rest of the market. There's a lot of creative ways, financially, that you can align yourselves with an airline on how you can bring a PMA to market.

{audio:0:51:29} I think the other way you could do it – which is not nearly as exploited or explored – is partnering with OEM’s that are effectively the ‘subcons’ for the bigger OEMs. Take Boeing for example, they’ve partnered with many people to make everything and anything that goes into their brand new 777X. So you have all these folks that are going ahead and they're using goodness knows who for the interior lighting, for switches, all of these different type of things. I think there is a bigger opportunity to approach the smaller OEMs, like the Moogs of the world and say, you are the new provider; it’s all new production Boeing 777Xs or what have you. Why don’t we work out some type of agreement that, down the road, if we agreed to not PMA your product, then there's a way for us to partner together when it comes time to go into the aftermarkets.

{audio:0:53:01} I think partnering with some of the smaller OEMs is going to be a good way to work around the larger Boeing, Airbus, Honeywell, GEs of the world flexing their muscle. If you can align with the smaller guys and they don't violate any of their bigger agreements with Boeing, there's a way for you guys to capture market share by going jointly together. I think that, potentially, could be an avenue that could be explored a little more.

{audio:0:53:37} I think that's an excellent point. We're getting close to the end of our time but I had one question I wanted to ask you. It’s a little bit of a far-out question but it's something that I've read some things about and I'm curious about. You hear about the electrification of aircraft and maybe hybrids, and I know this is a little way out but do people in the industry talk about it? Is it an opportunity or a threat? What do you think?

{audio:0:54:10} I think people talk about it but the reality is, it’s just so far out. I think coming out of these last two years, everybody is still very much cautiously optimistic that we're turning our way out of this. A lot of companies are still just trying to survive and figure out what the hell is going to happen next, especially as I mentioned with a lot of these macro global things that are going over in Eastern Europe. I think it's a great talking point, truth be told, I just think it's so far away on a lot of people's priority list, especially coming out of these last two years.

{audio:0:54:57} How about more broadly, regarding whole clean fuel factor? Do you see any trends or changes or opportunities from that? Any pushes on the environmental side to clean up aircraft and how do you think about that?

{audio:0:55:05} I think you'll continue to see more cutting-edge technology coming to the forefront. I just think a lot about the way that new engines have been made over the past 15 years, like the Jet-x that goes on a 787. The whole concept of going with composites was just unheard of. Going from a technology perspective, I think you'll continue to see more investment on the next technology that is used to make these engines. At the end of the day, these new production engines have become, ultimately, a lot cleaner and I think that trend is going to continue. The fuel burn ratio continues to lower, as do the carbon emissions. I think you'll continue to see a focus on technology development and advancement, specifically on the engine side of things. I think that's something that's going to be very high on people's radar. It’s still going to take a lot of time.

{audio:0:56:35} How does that affect the aftermarket? This is why I'm kind of nonchalant on this topic is that, at the end of the day, those older aircraft that I mentioned, they’ve still got to go somewhere. Even 15 years from now, if they come out with the cutting-edge, absolutely hybrid composite, the most fuel-efficient engine that has ever created in the world, that's great. That aircraft is going to come to the market but what it’s replacing is still going to the operating. That's where I just scratch my head. We thought the MB80 was going to be gone 15 years ago; Delta is finally retiring it. We thought 747 Classics were going to be gone; those are still out there. DC10s are still out there. 

{audio:0:57:29} Some of the really high fuel-burn engines, really legacy airplanes, are going to start making their way out. The 737 Classics are still going to be there. The 757s the 76s are going to be out there. You still have these aircraft that are not going anywhere for the next 15 or 20 years. There is no way to cycle out all of those over the next 20 years, to effectively make some of the dent that people want to see.

HEICO vs Wencor: PMA and MRO

Former VP at Wencor

inpractise.com/articles/heico-vs-wencor-pma-and-mro

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Former VP at Wencor

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