HEICO / Wencor: PMA & Alternative Bill of Materials (ABOM)

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By approximately how much would you decrease the price?

Usually, if a part costs $100, the PMA would most likely sell for around $60. A repair would sell for $30 or $40. The price of used serviceable parts was always unpredictable. Depending on the market availability, sometimes you could get used serviceable or used parts for pennies or dimes on the dollar. However, the key was to be more aware of the competitive intensity at a part level basis. You might reduce the price on the piece part, but then you would compensate for it by increasing the prices on the non-PMA parts within the next higher assembly or component. This way, you'd end up with the same or better profit.

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By approximately how much would you decrease the price?

The third strategy would be to use your leverage, not necessarily with a large company like Delta, but with smaller, lesser airlines and MROs. You would make them sign agreements that essentially banned them from using PMAs. You would also reserve audit rights so you could conduct an inventory review. If they had PMAs in their inventory, you had strong clauses in your contract to take action against them. This was the strategy that Honeywell and GE adopted. There are other nuances to it, but those are the main points.

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Returning to the Honeywell situation, how do you manage the relationship when you're distributing Honeywell's products or TransDigm's OEM products, while also making PMAs?

Honeywell was unlikely to allow Wencor or Heico to become a distributor for them due to various reasons. However, we did have some PMAs on their products. The relationship was essentially a mathematical equation. If we, as a distributor, could make more profit by getting, let's say, 12% 14% margin on selling $50 million, as opposed to getting 60% to 70% on the two million PMAs that I was selling, it was just a matter of calculation.

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