Deep Dive: HEICO (HEI / HEI.A)

With the recent passing of Larry Mendelson, I've decided to resend my original April 2025 deep dive on HEICO and remove the paywall. Larry exuded integrity in all of his communications and the Mendelson's built a business with a flywheel where shareholders, employees, and customers all win.

Eric Mendelson, Q1 2025 Call

We clearly have left a lot of money on the table. Our philosophy always has been that we've got to cover our cost increases. And we exist because our customers need reasonable prices, coupled with the shortest turn times and the highest quality. And that's really what we've done. So the answer is no. We have not squeezed the orange in order to deliver these numbers. We could – frankly, I think our prices could be a lot higher, but we don't do that. And our prices have been, as you know, sort of the increases have been sort of low single digits, maybe the high end of low single digits, but really sufficient in order to cover our cost increases.

HEICO is a serial acquirer of niche aerospace and electronic components businesses run by exceptional owner/operators. While the face P/E multiple is high, if you hone-in on FCF and the future organic and inorganic runway, the valuation today is fair to even slightly cheap depending on your M&A assumptions. With all the noise around tariffs, there may be an opportunity to buy shares at an attractive price. Berkshire Hathaway initiated on HEI.A in Q2 2024 around $150 to $180, which by my math is a mid-teens IRR. If you are going to punch a hole in that 20 hole punch card, HEICO is not a bad bet.

Overview

HEICO is a serial acquirer of aerospace MRO and niche electronics sub-components businesses. HEICO is led by Larry Mendelson (86) and his two sons Eric (59) and Victor (57) who collectively have a 16% stake. Since the Mendelson's took over in 1990, HEICO's Revenue, EBIT and Net Income have compounded at 16%, 19%, and 17% cagr, respectively, of-which approximately half has come from M&A. Shares have followed suit compounding 23% cagr over 34 years, dividends reinvested. While HEICO's businesses are exceptional on a standalone basis (25% EBITA margins, 43% returns on tangible capital), an investment in HEICO is ultimately a bet on the capital allocation abilities of the Mendelson family. Over the last 15 years, HEICO has redeployed 140% of FCF back into M&A whilst sustaining a 15% return on total capital.

HEICO has a decentralized organizational structure but is organized into two segments. HEICO's Flight Support Group (FSG) develops, manufactures and sells aftermarket aerospace components, known as PMA parts, into the commercial aerospace industry. FSG also has aerospace component repair, parts manufacturing and parts distribution businesses. HEICO's Electronic Technologies Group (ETG) develops, manufactures, and sells niche electrical sub-components into the defense, space, medical, and industrial end-markets.

HEICO has two share classes: The Common Shares ($HEI - 55m outstanding) and the A-Shares ($HEI.A - 84m outstanding). Class A shares have 1/10th the voting rights of Common and have historically traded at a 10% to 30% discount.

History

HEICO was founded in 1957 as Heinicke Instruments in Hollywood Florida and until 1974, was focused on manufacturing precision instruments for clinical labs. In 1974, HEICO expanded into jet engine replacement parts via the acquisition of Jet Avion. In 1989, HEICO sold its precision instruments business to focus exclusively on aerospace with specific expertise in engine combustion chambers.

In 1985, as a British Airtours flight began to take off, one of the Boeing 737 engines caught on fire. The pilot aborted and ordered an immediate evacuation, but by then the engine was spewing smoke into the passenger cabin. Ultimately, 55 of the 137 passengers died. Investigators later learned that a combustor on the engine had ruptured. Regulators subsequently mandated that combustors be changed at regular intervals, which previously wasn't required. Airlines were compelled to replace so many combustors that the part’s manufacturer, Pratt & Whitney (P&W), couldn’t keep up. More than half the world’s narrowbody fleet was grounded as a result. Airlines pressed P&W for a solution and P&W ultimately sent them to HEICO, which had acquired some of P&W's combustor drawings, and was authorized to make a generic combustor under a FAA program called Parts Manufacturer Approval (PMA).

In the 1960's, aftermarket or PMA parts were limited to simple components by the FAA like bolts, gaskets, and interior fittings, typically produced by small firms serving customers unable to source OEM parts for older aircrafts. The US Airline Deregulation Act in 1978 increased airline competition, pushing airlines to reduce costs, putting scrutiny on maintenance budgets. By the 1980s, PMA parts included more complex components like turbine blades and avionics. FAA's willingness to approve PMA parts was helped by the British Airtours incident along with concerns that older defence programs were facing parts shortages (miliary aircrafts stay in service longer than commercial aircrafts). Cash strapped airlines, especially those operating older fleets, began adopting PMA parts.

In the late-80's/early-90’s, Eric (recent graduate from Columbia) and Victor Mendelson (student at Columbia), were looking for inefficiently run publicly traded businesses that could be potential LBO targets using their family’s wealth. Their father Larry was a former accountant and Florida's largest condo developers who, as a side note, also went to Columbia and studied under David Dodd. When they analysed HEICO, they reasoned if they could get a PMA for a critical piece of the engine like a combustor, they could get it for other less critical pieces. The Mendelson's bought 15% of HEICO ($25m market cap at the time), secured four board seats after a proxy fight, and in 1990, Larry was installed as Chairman and CEO.

HEICO got approval for their second PMA part in 1991 and continued to focus on securing more PMAs and more business from the airlines, but the early days were hard. The FAA was deliberate in reviewing each new part HEICO developed, and P&W sued the company over the combustor IP. The suit was settled after a decade with minimal damage to HEICO. Over-time, the FAA grew comfortable with HEICO's replacement parts, as did customers, who realized HEICO could produce parts at a 30% to 50% discount to OEMs with no reduction in quality.

In 1997, to both ensure a supply of cheaper components and signal to OEMs that it didn’t like their high prices, Lufthansa Technik, one of the largest MRO companies wholly owned by Lufthansa, took a 20% stake in HEICO's PMA subsidiary. The seal of approval from Lufthansa allowed HEICO to gradually acquire new customers such as American, United, and Delta. Today, HEICO sells 20,000 parts (up from 2,500 in 2005) and holds approx. 50% share of the PMA market. Large customers buy $40m in parts annually.

While the original PMA business was and is an exceptional business, HEICO has proven itself to be an outstanding serial acquirer having done 103 deals since 1990 including expanding into electrical components for defence.

HEICO is run by Larry Mendelson (86, Chairman & CEO) and his two sons, Eric (59) and Victor (57). Eric runs the Flight Support Group (FSG) and Victor runs the Electronic Technology Group (ETG), but the Mendelson's run the entire company together. One of Larry's grandsons, David Mendelson, is also involved as VP of Acquisitions in FSG (c. 7 years working in various roles at HEICO, also went to Columbia). Larry is more finance orientated while Victor and Eric spend Mondays and Tuesdays travelling to visit subsidiaries and are more operationally orientated.

Larry Mendelson in 2020 Forbes Article

“All major decisions have to be unanimous. We will get together and one of us might not agree, but when we’re all done, it’s all worked fine.”

HEICO has pursued a decentralized model meaning HEICO leaves businesses alone as long as they are delivering to plan and only pursues light integrations case-by-case. HEICO believes decentralized business units, operated autonomously, ideally operated by original founders, are more entrepreneurial and more customer focused. Retaining management is a core part of HEICO's M&A strategy. About 80% of HEICO's acquired subsidiaries still have the original owner or management team running the business, often with a retained minority stake. While HEICO centralizes some corporate functions, enforces financial reporting standards across the organization, and facilitates collaboration where it makes sense, HEICO leaves the businesses to operate as independent entities. They are an "accumulator" under Scott Management's framework.

There is a good Business Breakdowns podcast with some more background.

Flight Support Group (68% of Revenue, 66% of EBITA)

HEICO's Flight Support Group (FSG) reports under three divisions but operates as c.50 autonomous businesses.

Aftermarket Replacement Parts (74% of FSG Revenue)

Background. When Boeing or Airbus design a plane, each individual part typically has one or two specified OEMs. A 737 can have 600k parts. Because a plane can have a 10 to 20 year production run then fly for 25 years, getting specified can lead to 25+ years of recurring parts revenue, with the parts supplier often having a monopolistic position as sole supplier (Boeing by this point doesn't care, it's the airline that pays the consequences). Therefore, OEMs often sell their initial component to Boeing or Airbus at a loss, knowing they have a multi-decade stream of captive high-margin aftermarket revenue from the airlines as components wear out or get replaced per regular schedules mandated by regulators. Engine OEMs for example can generate 5x the value of the original engine in parts revenue over the life of that engine as turbine blades, airfoils, seals, and bearings require regular replacement based on flight hours or cycles. For example, a CFM56, the workhorse of the global narrowbody fleet, needs an engine overhaul every 10 to 15 years and the cost of the first two overhauls can be comparable to the cost of the original engine. This slide from FTAI Aviation's investor presentation illustrate the business model, which assumes 7% pricing cagr which is a common long-term list price increase for MRO parts (large customers will get discounts). The illustrative part gets sold for $1 at production then eventually sells for $25.7 dollars at maturity.

Division Overview. HEICO’s Aftermarket Replacement Parts division designs, manufactures, and sells PMA parts. This business is organized into 8 separate subsidiaries and has grown 18% cagr since 2014 which includes the 2023 $2.1bn acquisition of Wencor, the #2 PMA company and the largest acquisition in HEICO's history (more details later).

What are PMA parts? PMA parts are FAA-approved so by definition either meet or exceed the specifications of the OEM part and can range from highly technical components used in engines or landing gear to basic products such as seats, cupholders, and trolley latches. PMA Companies (PMACs) are not burdened by the upfront R&D costs and operating loss from the original part so can price their part 30% to 50% cheaper whilst still earning outstanding economics. Discounts are lower on complex metallic or composite parts but higher on parts like plastic interior components where engineering work is lower. For context, maintenance is 5% to 15% of revenue for an airline, which typically operates at LSD EBIT margins, so a 30% savings is significant. As the chart from Bloomberg shows, United spends upwards of $500m/quarter on maintenance.

Ivan Vallejo, Director of Supply Chain at Iberia Maintenance

Vallejo cited several advantages of PMAs. Since they are FAA-approved, he says they are safe and “as good as” OEM parts. According to Vallejo, cost savings range from 60-70% on fast-moving consumables, 20-30% on the total costs of a major repair of a component and 30-40% on engine airfoils, the most costly parts in engine overhauls.

Reverse engineering and manufacturing PMA parts is not easy as the part needs to mirror every single aspect of the original OEM part, including tolerance and metallurgical structure, which can be influenced by the materials used, manufacturing technique and chemical coatings. More importantly, it takes years for PMAC's to earn the trust of the FAA and airline maintenance departments. HEICO currently has 20,000 approved PMA parts and develops 500 to 650 parts every year. While cheaper PMA parts seem like a no-brainer for airlines, they only represent anywhere from 1% to 4% of the MRO market depending on your definition (HEICO cites 1% to 2%, TransDigm cites 1.5% to 2.5%, others cite 4%+).

Why is adoption low? There are several reasons.

1. First is conservatism from airline maintenance departments. You never get fired for buying an OEM part and there is often IT work (updating the part code) and training (perhaps a different installation manual) associated with PMA adoption. If it were up to the CFO, PMA's would be no brainers but it is often up to the Head of Maintenance.
2. Second is barriers from leasing companies. 40% to 50% of the aircraft fleet is leased and some leasing companies worry that having PMA parts will reduce the resale value of the plane as airlines, especially in Asia and MEA, don't accept PMA parts.
3. Third, OEMs threaten to void warranties (illegal) or enter into 5 or potentially 10-year service agreements, sometimes called power-by-the-hour (PBH) contracts to lock-in maintenance revenue for the first 5 to 10 years of service. A PMAC's sweet spot is years 10 through 25 of a plane's life.

Given PMA parts are FAA approved, like-kind-like-quality and 30% to 50% cheaper, many of these barriers are fading as illustrated by the fact that the top 19/20 airlines are HEICO customers (Singapore Airlines is the straggler). In fact, within airlines with high PMA familiarity, PMA penetration can be as high as 12% and moving higher. COVID (and other crisis like the GFC and 9/11) was a major catalyst to PMA adoption as, in addition to lower prices, the lack of available parts in 2020-22 due to supply chain issues meant airlines and in some cases, OEMs, had to turn to PMA parts as they could not get access to the OEM equivalents.

COVID illustrated another significant advantage of PMA parts aside from price. In order to gain traction, HEICO has historically held a significant amount of inventory and sold parts to airlines and MRO shops on a just-in-time basis. OEMs have leverage so often don't do this and/or simply stop carrying parts for lower-volume parts using a patchwork of distributors instead. Delays in finding necessary parts can lead to expensive groundings. Below is a quote from Jet Parts engineering, a small PMAC competitor (c.$10m of revenue).

John Benscheidt, President, Jet Parts Engineering

“Right now, part availability is a major factor driving PMA purchasing and new part acceptance. Historically, part cost was the driving factor for PMA, but with the continued supply chain delays from the OEMs, turn times are being negatively affected at the MROs. It’s hard to pass up a PMA part that’s available now, allowing someone to complete an overhaul and bill the airline or get the plane flying again, when the alternative is to wait an additional 60 days for the OEM part to be in stock.”

While there is room for PMA penetration to go from <4% to 10%+ which is an attractive penetration opportunity in a secularly growing market, OEMs can tackle PMA competition by lowering parts prices. As a result, HEICO is deliberate in keeping penetration for the parts it sells to less than 30% share. While HEICO does enter into the odd price skirmish, an engine, landing gear, or avionics OEM will hurt pricing on the majority of their parts revenue and therefore ruin their economics, whereas HEICO's PMA portfolio is diversified (no part is a meaningful part of revenue) so HEICO is better positioned to defend against price competition, so this risk is overblown.

Development. HEICO currently has 20,000 PMA parts and develops 500 to 650 new parts each year. There is no revenue concentration. HEICO does have some centralized capabilities that study the market for new parts to develop as well as some centralized R&D capabilities for complex parts like engine fan blades which may require detailed engineering studies, but parts are otherwise developed at one of HEICO's 8 PMA subsidiaries. The upfront R&D on PMA parts is less cumbersome than an OEM part as HEICO is reverse engineering something that already exists, which is why HEICO can charge 30% to 50% less and still earn outstanding economics. Development still requires in-house R&D capabilities and an investment of c.2% of revenue or $37m annually.

There is no shortage of parts to develop as a 737 might have 600k which includes 50k to 100k MRO parts and each version of the 737 (there are c.10) requires a separate FAA approval. Lufthansa Technik might use 400k different parts. HEICO does not disclose the breakdown of their portfolio, but has suggested their portfolio is in-line with the broader MRO industry with limited concentration risk to specific plane models. HEICO's partnership with Lufthansa Technik in 1997 also means HEICO can get data on the most expensive/profitable parts that are regularly getting replaced to inform their R&D investments. Below are some examples provided by Heico of parts it develops.

Below are some specific aircraft programs HEICO sells into. It is important to note that parts on each series of the A320 or 737 will require different FAA authorizations.

Manufacturing. HEICO's manufacturing is 50% in-house and 50% outsourced. HEICO is the only PMAC with enough scale to do meaningful manufacturing in-house, which gives them a greater ability to develop complex parts like engine parts and composite parts. Most competing PMACs are 90%+ reliant on external manufacturers (Wencor, the #2 player primarily outsourced). Howmet Aerospace and Precision Cast Parts (Berkshire Hathaway subsidiary) are examples of third party manufacturers, but the manufacturing landscape is fragmented. Manufacturing is mostly domestic so there should not be any meaningful impact from tariffs (2018 tariffs on China had minimal impact for example) and in fact, there could be some benefits to the extent OEMs face disruptions in their supply chains. HEICO avoids manufacturing in China due to IP concerns. Interestingly, PMACs sometimes use the same manufacturer as the OEM, further illustrating the point that the parts are exactly the same. Raw materials are a small part of overall costs as a small ziplock sized bag of washers or fasteners can be thousands or in some cases tens of thousands of dollars so tariff impact from input costs are de-minimis. Credit to Brasada Capital for posting this bag of HEICO spring seals that cost friggin $70,000, similar price to some BMWs!

While HEICO's scale gives it an R&D and manufacturing advantage, HEICO's real value-add is in approvals.

FAA Approval. PMA parts need to demonstrate equivalency to the OEM part for FAA approval. However, developing equivalent parts is not enough. It takes years for PMACs to establish the trust required to receive a regular cadence of FAA approvals. HEICO receives 350 to 500 approvals per year with an additional 150 from Wencor, collectively by far the most in the industry. Smaller competitors like Jet Parts Engineering may get 5 to 10 parts approved per year, and it is not something you can easily scale to 100 parts in a short period of time, so it will be difficult for a competitor to scale-up quickly meaning HEICO's 50%+ share is sustainable. In addition, HEICO has Organizational Design Authorization (ODA) allowing it to approve some parts in-house. HEICO's relationship with the FAA is underpinned by its 35-year safety record where it has delivered 85m parts with zero service bulletins, airworthiness directives or in-flight shutdowns. For context, an engine like the CFM56 will have thousands of service bulletins throughout its lifetimes.

HEICO's safety track record is exceptional but there are also structural reasons why PMA parts can have less safety issues. PMACs can observe parts in action for 5 years and avoid parts with inherent issues and in many cases, by the time a PMAC reverse engineers a part, there are more advanced manufacturing techniques available to improve upon the part.

Yusu Muhammad, President of ADPMa, a small PMA manufacture from InPractise

"We haven't seen any OEMs respond technically to us because most aircrafts you fly on were designed 30 to 50 years ago and the manufacturing technology is no longer the same. A realistic example would be a housing used in a landing gear actuator module. In the past, that housing had to come from a casting house and sometimes go through multiple processes and vendors, and there is a legacy cost to keeping that supply chain around. [We] gets parts machined from a billet plate with a 5 axis machining company, and those machines didn't exist back then. The OEM cannot overcome that differential unless they are willing to redesign."

Jason Dickstein, President of the Modification and Replacement Parts Association

“Today, there are a lot of PMA parts that are being designed to improve upon flaws that have been identified. Typically, the flaws are being identified by operators and they have had problems getting those flaws corrected. So, they’ve reached out to the PMA community and they’ve partnered with the PMA community to design a better part. So, while economics might’ve been the driving force 25 years ago, reliability has been a driving force for at least a decade."

In addition to these reasons, another reason is that HEICO has invested heavily into testing and inspection. HEICO knew early in its history that having minor safety issues would derail the FAA’s trust and subsequent approval of PMA parts and as a result, HEICO went well beyond industry practices to ensure safety. While most OEMs may rely on a material supplier's testing certificate and then test a sample batch of their manufactured parts, often via third parties, HEICO tests each individual batch of outgoing parts in-house. While this hurt margins, especially in the early part of HEICO's history, it allowed HEICO to develop the FAA relationship it has today, and importantly, avoid any service bulletins or safety issues.

Eric Mendelson, 2020 Forbes Article

“We do full a metallurgical inspection on every single lot of parts we produce. That includes material hardness, grain size, grain-flow structure, coatings. The reason we do it is because we can’t afford to have a failure.”

Eric Mendelson, Q4 2023 Call

"In order to get PMA, the part has got to be the same in terms of form, fit and function. Therefore, the way that we are able to differentiate ourselves with respect to quality is we typically have tighter tolerances, so we produce more consistent parts. And we also have an extremely robust quality inspection program. So, when parts come in from vendors, whether they are HEICO vendors or outside vendors, there's a very robust material analysis, whether the part is metal or not metal, to confirm grain size, microstructure, hardness, coatings, all of those various constituents to ensure that the part that we ship out is exactly what was designed. Likewise, we have a very robust inspection process to review the dimensions. So, I would say that with regard to basically shipping the part according to the design intent, HEICO score is incredibly high in that area. So, the parts are more consistent. Airlines are able to basically use them and install them right away. And the fallout or rejection rate with HEICO parts, we believe is significantly lower than with other companies' parts. So, they are improved in that regard."

Airline Approval and Pricing. The process of airlines approving a PMA part can also be complex. Airlines need engineers to evaluate the part, they need to invest in inventory systems to track PMA vs. OEM parts in their fleet, and airlines need to get comfortable with the supplier’s safety record. Airline maintenance departments are not always commercially orientated. HEICO implied that it once took a year to get a PMA cupholder approved. An airline might lease 50% of their planes and have different rules on PMA parts usage on leased versus owned. The quote below from a small PMA manufacturer illustrates the complexity.

Yusu Muhammad, President of ADPma, a PMA manufacture from InPractise

"The biggest challenge is the amount of work it takes to get it done. The OEM is the easy one because it's in the manual with the instructions. The cage code of the OEM is on the part they remove, so every piece of information makes it simple for them to go back to the OEM and get that part. Changing the coding within that system to procure from us involves a huge level of inertia, which is why you need to be mindful about which parts you choose to consider for PMA."

One important point is that once airlines approve a PMA part, it is unlikely another PMAC will emerge with a comparable part. There are hundreds of thousands of potential parts to develop so it does not make sense for a PMAC to intentionally compete against another PMAC. HEICO and Wencor are the two largest players but HEICO cited minimal overlap when they acquired Wencor. Moreover, airlines need to invest resources to get a PMA part approved so if an existing PMA part is already 30% cheaper, it doesn't make sense to dedicate more resources for an additional 5% or 10% savings. This means that once a PMA part is approved, the PMAC can in theory raise prices as long as they price below the umbrella of OEM pricing, which may increase 5% to 10%. However, it is short sighted as this dissuades an airline to make the upfront investments to engage that PMAC for subsequent parts.

HEICO does not raise prices aggressively. HEICO has always had a long-sighted pricing and inventory strategy and takes pride in being customer centric. HEICO keeps prices flat for the duration of the contract (typically 5 years) and only raises price by inflation thereafter meaning part prices might start at 30% cheaper to the OEM equivalent but become 50%+ cheaper by the end of the contract given OEMs often raise prices HSD.

HEICO does get pricing benefit but from incremental customers, meaning as the OEM parts price increases by HSD, the new incremental customer will pay a 30% discount off that higher price. Price increases on existing customers are limited to cost inflation. Moreover, HEICO has always carried JIT inventory (FSG holds c.120 days) for all parts including parts for retiring plane models. HEICO's reputation for fair pricing and inventory, which was built over 35 years, means airlines can be confident that when they approve a HEICO part that they can count on the costs savings for the entire life of their planes, which might be 25 years. Reputation is difficult for new and existing entrants to replicate, especially those that are short-sighted on pricing.

Eric Mendelson, Q1 2025 Call

We clearly have left a lot of money on the table. Our philosophy always has been that we've got to cover our cost increases. And we exist because our customers need reasonable prices, coupled with the shortest turn times and the highest quality. And that's really what we've done. So the answer is no. We have not squeezed the orange in order to deliver these numbers. We could – frankly, I think our prices could be a lot higher, but we don't do that. And our prices have been, as you know, sort of the increases have been sort of low single digits, maybe the high end of low single digits, but really sufficient in order to cover our cost increases.

Having a long history with the FAA, a long history with airlines, and a 35 year history of treating customers fairly gives HEICO a significant advantage.

Customers. FSG's geographic mix is roughly 40/40/20 Americas/Europe/ROW. As a rule of thumb, HEICO tends to do well with large sophisticated airlines like Delta, America, United, British Airways, Lufthansa, etc. who have sophisticated in-house maintenance departments who can approve and manage PMA parts. HEICO also tends to do well with cost-focused airlines in Latam or India. Conversely, HEICO does less well with smaller less-sophisticated airlines who might outsource all maintenance. Low-cost carriers tend to view maintenance as non-core so outsource more maintenance. Finally, airlines with newer fleets in Asia and MEA tends to have lower PMA penetration.

Leasing companies account for 40% to 50% of the owned fleet and have historically been reluctant to approve PMA parts for several reasons. First, anticompetitive practices mean that use of PMA parts may disadvantage them when trying to get allocations for new aircrafts. Second, they may be worried that it will lower the residual value given some airlines are unwilling to buy planes with PMA parts. Interviews of various PMA industry insiders in trade magazines all imply that leasing companies approach to PMAs is changing, with COVID being a catalyst. For example, many leasing companies are going full-steam-ahead using PMA for interior components as they see the benefits to their returns given it lowers their maintenance reserves. Moreover, sophisticated airlines either 1) refuse to sign leasing contracts that do not allow PMA or 2) use PMA parts anyways but swap-them out for OEM parts when the lease expires. The sale of GE’s captive aircraft leasing unit (2019) also marks a shift as the leasing arm was pushing against PMA, something they are now less incentivized to do. If you consider that 40%+ of the fleet is leased, this development could meaningfully accelerate growth.

Sales & Distribution. HEICO is selling direct to airline maintenance departments and independent MROs rather than to distributors. While not disclosed, the majority (perhaps 75%) is direct to airlines. Sales to customers are typically done under 5-year contracts where pricing is either flat (0% to 1%) with provisions allowing HEICO to pass on cost inflation. When HEICO develops a new PMA part, it typically has an anchor customer for that part under contract.

HEICO also has an in-house HEICO Distribution Group (4 different subsidiaries including Seal Dynamics). These distribution businesses are very similar to Diploma's fasteners and interconnect businesses. Seal Dynamics distributes HEICO PMA parts as well as the PMA parts of other PMACs and selective OEM parts via offices in New York, Florida, UK, Singapore, and Dubai. Various online sources suggest Seal Dynamics distributes 100k parts and is c.$25m revenue implying it is <5% of HEICO's PMA revenue. The acquisition of Wencor has likely doubled the size of HEICO's distribution businesses.

HEICO's distribution businesses help amplify the advantages of scale. When HEICO approaches an airline, it has a massive catalogue of PMA parts. What this means is that if an airline needs a component like an actuator repaired with 40 parts, HEICO can sell 10/40 as PMAs whereas a small PMA may only have 1 or 2 parts available, which is a hassle as the airline then needs to source the other 8 to 9 parts with other PMACs, hence HEICO has a scale advantage. Having some distribution means HEICO can bundle some of the 10 PMAs with additional OEM parts to make it even more convenient. It is not a huge part of HEICO's revenue (perhaps 10% of FSG revenue after the Wencor acquisition).

Wencor. HEICO acquired Wencor in August 2023 for $2.1bn, which made it the largest deal ever after the 2022 acquisition of Exxelia for €460m. At the time of deal, Wencor was expected to do $724m in revenue with $153m in EBITDA (21% EBITDA margins) in calendar 2023 implying HEICO paid c. 13.7x EBITDA, also the highest ever multiple. Founded in 1955, Wencor is the #2 PMAC behind HEICO (but about half the size). Wencor originally focused on distributing kits, seals, and bearings to military customers. In 1985, Wencor received its first PMA approval from the FAA. Over time, Wencor, like HEICO, grew its PMA portfolio as well as expand into component repair.

In 2010, Odyssey Investment Partners acquired Wencor. At the time, Wencor had 3,000 PMA parts, 300 staff, and approx. $150m in revenue. Wencor brought on a new CEO (Greg Beason) from Danaher/Honeywell who led Wencor until 2015. In 2014, Warburg Pincus acquired Wencor from Odyssey. Chris Curtis (formerly Schneider Electric) become CEO in 2016 until 2020. Chris retired in 2020 and was succeeded by Shawn Trogdon, Wencor's CFO who had risen up through Wencor starting off as Global Controller.

Today, Wencor has 953 employees and offers 6,000 PMA parts and produces c.150 new PMA parts annually. In addition, Wencor has distribution business which supplies MRO parts to the aerospace industry and consumables and materials to defence primes and the military, which is directly comparable to HEICO's Seal Dynamics business. Finally, Wencor has a maintenance and repair business (c. 30% of revenue) with the ability to do Designated Engineering Representative (DER) repairs.

Eric Mendelson said in an interview that Warburg Pincus had studied HEICO and tried to operate with a similar model meaning they pursued M&A (7 tuck-in deals under Warburg Pincus) but organized the subsidiaries into a decentralized operating structure, which has meant Wencor had a similar culture to HEICO.

HEICO has kept Wencor as its own autonomous subsidiary, but there should be some natural synergies as HEICO can sell a broader catalogue of parts to end-customers including PMAs and OEM parts via Wencor's distribution arm. Moreover, there may be opportunities for Wencor to leverage some HEICO manufacturing.

Competition. HEICO has, by various estimates, 50% share of the PMA industry. I should point out that the FAA can approve 30k parts annually (whereas HEICO develops 650) but that number includes a long tail of low-volume SKUs where OEMs may intentionally get others to manufacture the part so the "real" number of approvals is much lower. While there isn't hard data, after Chromalloy, there are no other PMA players of-note that claim more than a handful of PMA authorizations.

Chromalloy is owned by PE-firm Veritas and reportedly generates $750m of revenue across PMA Parts and Repairs which would make them in the same ballpark as Wencor. What Chromalloy has done is impressive. Chromalloy specializes in "hot section" parts in the airfoils, i.e. vanes and turbine blades, for major engine programs including CFM56. These are mission critical parts that undergo tremendous pressure and heat and therefore form a significant c.58% of the cost of repair on a major engine overhaul. Chromalloy has done this via in-house manufacturing expertise and partnerships with independent MROs that are trying to directly compete against (versus partner-with) engine OEMs.

Chromalloy has multi-year agreements with FTAI and AAR, two large independent repair companies. In the case of AAR, it is specifically for P&W's PW4000 engine. In the case of FTAI, it is specifically for the CFM56, the largest engine program today. While Chromalloy is a competitor to HEICO, they are not a direct competitor as they are focused exclusively on turbine blades (they are targeting a handful of PMA approvals, i.e. 5 with FTAI for CFM56, albeit of highly valuable parts). The table below from a Chromalloy presentation summarizes their focus which is much more targeted.

Chromalloy based on what is publicly available, looks to be a formidable player but with limited overlap with HEICO and a strategy focused on depth of expertise on specific high volume engine parts versus the breadth of expertise that HEICO has.

RBC Capital Markets analyst Ken Herbert

“Chromalloy is the only company not affiliated with a large OEM with the capability and expertise to make hot-section aircraft engine PMA parts, one of the most expensive parts in aircraft engines”

After Chromalloy, there is a long tail of mom-and-pops. Jet Parts Engineering also looks to be an up and coming player, but online sources suggest <$25m revenue with only a handful of authorizations. Smaller PMACs do not represent a big threat to HEICO. You cannot go from a pace of getting 5 FAA approvals to getting 50 approvals overnight, but rather, PMACs can slowly scale up the number of approvals they get, and given HEICO is at a scale, especially with Wencor, where it can get 650 approvals annually, HEICO's lead is widening. Moreover, to the extent smaller PMACs have success, they will develop parts that don't get in the way of an existing HEICO part.

The bigger threat comes from OEMs themselves. As previously mentioned, OEMs have historically threatened to void warranties but recent rulings by IATA (the airline industry body) against OEMs should help mitigate this practise which many view as illegal. In any case, HEICO tends to offer more generous warranty coverage on their parts (i.e. warranty the part and all negative effects) versus OEMs (which may only warranty the part itself). OEMs have also increased power-by-the-hour contracts but it should be noted these contracts are concentrated to engine OEMs. Most larger airlines sign-up for PBH for the first 5 years to hedge against teething issues on an engine, of which there are many (P&W's GTF and CFM LEAP), after-which they switch to doing MRO in-house or using third parties.

Even factoring in service agreements 1) there is plenty of room for HEICO to grow in areas where there are no service agreements 2) they can avoid OEMs that have stronger power-by-the-hour contracts such as Rolls Royce and 3) power-by-the-hour contracts have high adoption in the early years but airlines shift into doing their own maintenance in later years to drive savings. The sweet spot for PMA parts has always been planes in the 10+ year range where planes may be entering their first major overhaul.

Competitive Advantage. Conceptually, HEICO is selling an equivalent (or better) product at a 30% to 50% cheaper price, which gets even cheaper on a relative basis over time, and HEICO is doing this whilst carrying reliable amounts of inventory, even for low-volume parts. The value proposition is compelling which is why I expect PMA penetration to inevitably creep forward. I don’t want to diminish the importance of having scale, technical expertise, in-house manufacturing, testing and inspection capabilities, a strategic relationship with Lufthansa Technik, a global sales and distribution footprint, and adjacent distribution capabilities, but the major source of moat comes down to trust. In order to be successful in the PMA industry, you need the trust of both the FAA and Airlines. HEICO has earned that trust over 35 years. Moreover, HEICO has earned the trust of Airlines (19 of top 20) by having fair pricing and adequate inventory, even for slower volume parts. HEICO's stable family ownership is a key factor in this very long-sighted strategy as it is relatively easy for HEICO to maximize near-term or even medium-term earnings by raising prices under the umbrella of OEM price increases. HEICO is playing the long-game given the enormous runway to increase PMA penetration. This advantage has manifested itself in HEICO having 50% share of the PMA industry. This share is sustainable as a new PMAC cannot scale overnight and most don't have the same long-term mindset to HEICO.

Repair & Overhaul (22% of FSG Revenue)

In order to repair an OEM part, the repair facility needs an authorization from the OEM. An engine OEM like GE cannot do all of the repairs in-house so will develop preferred relationships and provide repair manuals to repair shops like Standard Aero and these agreements often specify that the repair shop will only use OEM parts. In aggregate, the workhorse CFM56 will be maintained 40% by GE/Safran and 60% by airline maintenance departments and independent MROs.

HEICO focuses on DER repairs. Designated Engineering Representative or DER is an authorization by the FAA to do repairs outside of the OEM's manual. DER is like a PMA-repair. HEICO tries to figure out a repair without having access to the OEM manual, and get FAA approval for that repair. DER repairs are often done on newer plane models <10 years old where an ecosystem of aftermarket parts and repairs has not yet been developed or conversely on very old plane models where it is difficult or expensive finding spare components.

HEICO provides these repairs on 32k aircraft components. These repairs are done by 20 independent companies across the US. Components overhauled include fuel pumps, generators, fuel controls, pneumatic valves, turbo compressors constant speed drives, hydraulic pumps, valves and actuators, wheels, brakes, composite flight controls, electro-mechanical equipment, auxiliary power unit accessories and thrust reverse actuation systems.

HEICO's focus on sub-systems whereas large independent MROs tend to focus on engines. In some cases, an independent MRO may even outsource the repair of a specific component to HEICO. Unlike a car repair where labor is the primary cost, in aerospace, the majority of repair costs relates to the parts (80% in the case of engines per FTAI) so the Repair & Overhaul business is a way for HEICO to sell more PMA parts as well as generate revenue for HEICO's distribution businesses.

Having access to a broad catalogue of PMA parts gives the Repair & Overhaul business a significant cost advantage. In order to drive higher PMA penetration, HEICO can quote a repair job with and without PMA parts (the repair with PMA will be substantially cheaper) with the customer often choosing the PMA option after seeing the price differential.

Specialty Products (15% of FSG Revenue)

HEICO is a Tier 2 supplier to aerospace OEMs. The Specialty Products business manufactures thermal insulation products, complex composite assemblies, and other niche components primarily for aerospace and defence. HEICO also has some manufacturing capabilities within the specialty products area including the ability to manufacture advanced niche components and complex composite assemblies. HEICO's CFO said margins are broadly in-line with the PMA business, suggesting the components are high value-add. HEICO was rumoured to be interested in Esterline which would have been a significant expansion of the Specialty Products business (was acquired by TransDigm for $4bn in 2018).

Growth of FSG

HEICO has historically said they target HSD organic growth in FSG. Over the last 10 years, total FSG growth has been 13% cagr while organic FSG growth has been 6% cagr. HEICO is growing about 1% faster than the MRO industry driven by higher PMA penetration. This is primarily being driven by volume, not price, with optionality longer-term for HEICO to accelerate pricing when PMA penetration matures. Near-term, there are some nice tailwinds which should accelerate organic growth into the 7% to 11% range. I break this down step-by-step.

Total Addressable Market. The MRO TAM is $105bn broken roughly a quarter each into Americas, Europe, APAC, and ROW. There is no definitive TAM estimate for PMA but it is likely between 1% to 4%. The PMA TAM is also global. PMA use is widely accepted in major countries including Germany, Japan, and China. The table below gives you a sense of the TAM by components: engines being by far the largest component at 45% of the MRO TAM.

Growth in TAM. Historically, MRO has grown 4% to 5%, typically above RPK growth as volumes increase with mileage (and even faster if the fleet ages) and MRO companies have pricing power on top.

Air Traffic + MRO Outgrowth. Air traffic grows at GDP+1% over the long-term driven by an emerging middle class. ICF estimates call for 3% MRO cagr, but off of a 2019 base. We only started hitting air traffic 5% to 15% above 2019 levels in 2023 so if you take these estimates using 2023 as a base year, the projected MRO industry growth from 2023-33 is c.5% cagr which sounds right to me and is consistent with historical growth. However, HEICO is not constrained by MRO industry growth in the near-term given HEICO is small enough that they can try to pick and choose more attractive sub-segments that are growing faster.

Aging Fleet. Under the backdrop of 5% long-term growth, there are fluctuations in any 3 to 5 year period and this has mostly been driven by the average age of the fleet. As new planes ramp up like they did in the early-90s, early-2000's and more recently during the 2016-17 period, MRO growth tends to slow down as the sweet spot of 10+ year old planes shrinks. That is because the major overhaul events on a plane tend to come in latter years like years 10, 15, 20, and 25 with a large period from years 0-10 where there is fewer maintenance requirements and to the extent there are, they are done by OEMs. With elevated retirements, not only does the sweet spot for PMAs shrink, but this can be exacerbated by MRO departments using used serviceable material (USM) parts, basically recycled parts from retiring planes. Conversely, as the fleet begins to age, MRO growth accelerates as more planes hit the sweet spot.

This table from TransDigm's 2018 Analyst Day shows you the dynamic of slowing MRO growth from 2014 to 2018 when the fleet was getting younger and where we saw HEICO's FSG organic growth decelerate to 3% to 4% from 2015-17.

During COVID, most analysts forecasted elevated retirements. However, the 737 MAX groundings and teething issues from P&W's GTF engine meant older aircrafts were never retired. In fact, the percentage of planes in the 0 to 5 years old range is near an all-time low and the mix of aircrafts 25+ is trending higher.

This table gives you a sense of the interruptions to new deliveries.

This table in return shows you the relatively low rates of aircraft retirement.

Because of these dynamics, we will likely be in a sweet-spot until Boeing can catch-up on deliveries which most analysts expect will take at least 5 years, if not longer. As a result, we are entering an extended sweet spot period. Despite organic growth being 25%/21%/13% in 2022/23/24, the 5-year organic cagr from 2019-24 is only 5% due to the huge drop we saw during COVID. As air traffic continues to normalize, we can see growth naturally accelerate into the 6% to 7% range. When you add the aging fleet on-top, you could see organic growth being more like 7% to 11%, albeit any negative macro headwinds from the trade war will be a headwind.

PMA will Increase Penetration of MRO. PMA's are still a tiny part of MRO spending with significant runway for growth. It is reported that penetration within high volume users like Delta and Lufthansa can be 8% to 12% meaning the addressable TAM could increase 3x to 4x over-time if everyone else uses as much PMA as Delta. Events that force airlines to look for cost savings, i.e. recessions, oil prices, 9/11, COVID, inflation, supply chain issues, tariff wars etc. all tend to accelerate PMA adoption, which should act as an additional near-term tailwind.

Leasing Market is Cracking. Leasing is 40% to 50% of the market and historically accepted very little PMA parts but as this changes, the TAM can double again. In my view, there is a flywheel effect where broader PMA adoption by airlines lowers the residual value risk of leasing companies, who in turn allow for PMA adoption, which in turn drives greater PMA adoption by airlines, creating a flywheel.

AAR CEO - Q3 F2025 Call

I mean lessors in particular, we do see increasing openness to adopt PMA. I mean obviously, what FTAI's been able to achieve is a big part of that kind of change in mindset out there. So we do see that as a market. But more than that, we see many end users that own the engines, and they'll lease them, as open to these particular PMAs. And the BELAC PMA is on the CF6 ADC2 and the Pratt & Whitney 4000 engines, these PMAs have been in existence for many years. They're well-established technology. 

IATA/CFM Agreement. This is another idiosyncratic factor that should drive growth. In July 2018, IATA, which represents 290 airlines and CFM (50/50 JV between GE & Safran), signed an agreement that established a set of policies to promote fair competition in CFM’s aftermarket for engine parts & services. For context, CFM engines are 2/3rds of the global narrow body fleet. In the past, CFM used tactics such as threatening to void warranties, refusing to license engine repair manuals to third-party repair shops or refusing to sell CFM spare parts to distributors that also carried PMA parts. The new agreement puts an end to these anti-competitive practices. The agreement came two years after IATA filed a complaint with the European Commission that accused CFM of abusing its dominant market position. HEICO will directly benefit from the agreement since PMA parts were unable to penetrate certain portions of the CFM engine spare parts market. The agreement also discourages other OEMs from trying to abuse their power given the success IATA has had against CFM. The agreement took effect in Q2 F2019, right before COVID, so we have not seen the positive impact on the PMA industry yet. This boost is difficult to model as it will take several years for HEICO to develop a portfolio of CFM parts and introduce them to customers, but HEICO has implied that this development is significant.

Q1 2019 Earnings Call – Larry Mendelson,

“The resolution is very clear in what's expected in both parties. And I can tell you that we've had a lot of very positive discussion with a number of our customers, our customers have certainly taken note of this and I think are hopeful and I'm hopeful that it will end up to really everybody's benefit. When you look at the PMA potential out there for the engines, this is not going to significantly impact the OEMs. The OEMs will continue to have a majority of the business and I think are going to do extremely well. We refer to it more as sort of nibbling around the edges, and their customers want competition and I think that we're providing it in a way that's meaningful for us, but not that significant for the OEMs and really won't hurt their business model. So to answer your question, I think it first starts with discussions and then we need to see where it goes from there. But the airlines are very aware of it and they are very intent upon using it to their benefit, I know that we are also having discussions with airlines about how they view these changes in the marketplace and how that could open up certain other markets.”

7% to 11% near-term growth and 6% long-term growth. When you put it all together, the MRO industry should grow around 5% longer-term. There are tailwinds in the next 3 years due to the aging fleet. The PMA industry should in-turn grow even faster aided by a focus post-COVID on profitability and generally broader acceptance of PMA parts driven by factors like IATA/CFM and more acceptance amongst leasing companies, which would then imply growth in the higher-end of 7% to 11% near-term and 6%+ longer-term. Within this context, while I believe HEICO will likely be a share gainer in terms of volume, HEICO's reluctance to raise price means that in value-terms, HEICO's share gains are likely modest. This does create an interesting situation where HEICO is building up significant latent pricing power, but this will likely only be a consideration when the PMA industry is truly mature, which is likely at least 20+ years away.

Electronic Technology Group (32% of Revenue, 34% of EBITA)

The ETG business is harder to analyse because rather than having a single business (the PMA business) be the bulk of revenue, ETG is a collection of dozens of small subsidiaries that all do similar, but different things. HEICO started expanding beyond commercial aerospace into ETG in the late-90s/early-00's due to some natural adjacencies as well as a desire to diversify.

Business Overview. HEICO's Electronic Technology Group (ETG) designs and develops niche electrical subcomponents for the defense, industrial, healthcare and space end-markets. ETG is not involved in large high-volume defense programs. The majority of what they do relates to supplying niche components into something that flies (military aircrafts, missiles, drones, helicopters) or something related to black-ops (surveillance, tracking, shielding, etc.). In these end-markets, performance and reliability in rugged environments are more important to price. HEICO estimates they are the sole source for 80% of applications allowing HEICO to earn close to 30% EBITDA margins. For the most part, these components do not fail and do not require regular replacement so unlike the FSG business, there is no MRO type demand. ETG has historically been resilient to recessions and partially immune to defense spending cuts.

An example of the type of niche ETG plays in (Victor at Gabelli 2024 conference)

"We are the leading maker of laser rangefinder receivers. So we don't make a rangefinder, we don't make a laser system for military purposes. We just make the receiver chip that picks up the reflected light in the atmosphere and then helps the system calibrate where the weapon needs to go."

Similar to FSG, ETG operates under a decentralized organizational structure comprised of 31 autonomous subsidiaries. While FSG can have some integration like sharing of R&D, sales and manufacturing, ETG subsidiaries operate more independently and are a lot smaller to FSG on (<$50m revenue average). ETG has also accounted for the bulk of M&A in terms of deal volume. HEICO has done 48 deals since 2015 of-which 2/3rds have been within the ETG business.

What are the end-markets? The end-market exposure is Defense & Space (50%), Commercial Aerospace (20%) and Industrials and Healthcare (30%). Some of the key areas of focus include:

• Antennas. HEICO's subsidiaries design and manufacture high-performance antennas for commercial aerospace, military aircraft, precision guided munitions, and marine vessels. For example, HEICO's Aero Antenna subsidiary (3rd largest acquisition at $331m in 2017) manufactures high-performance GPS, navigation, and communications antenna systems for aerospace applications as well as missiles.
• Connectors. HEICO's subsidiaries design, manufacture, and distribute connectors, cables, and other interconnect components for niche uses such as high-voltage, high-current, military-spec, commercial aerospace and other rugged environments. For example, HEICO's Essex X-Ray subsidiary makes cable assembles and connectors for extremely high voltage medical, scientific, and industrial applications. These businesses are similar to Diploma's interconnect businesses although it is more vertically integrated into manufacturing.
• EMI / RFI Shielding. HEICO's subsidiaries design and manufacture a wide variety of shielding products to prevent electromagnetic interference and radio-frequency interference. Reading between the lines, HEICO makes military products to avoid radar detection (think Zero Dark Thirty). For example, HEICO's SSP subsidiary makes particle-filled shielding silicones and conductive materials for EMI extrusion and shielding gaskets, to military specifications.
• Human Machine Interface. HEICO's subsidiaries design, manufacture and repair a wide variety of HMI components for both OEM and aftermarket use for commercial and military aerospace applications. There are elements of FSG Repair & Overhaul here. For example, HEICO's Sunshine Avionics subsidiary repairs avionic components including Human Machine Interface components.
• RF & Microwave. HEICO's subsidiaries design and manufacture an extensive range of RF and microwave components and systems used in mission critical applications. For example, HEICO's RH Labs subsidiary makes custom RF and microwave controllers, receivers, and microwave assemblies used primarily for electronic warfare, radar, and missile systems.
• Security & Detection. HEICO's subsidiaries develops, manufactures, and sustains detection devices and systems that support the security requirements of government, military, law enforcement and private sector customers. For example, HEICO's REI subsidiary makes surveillance countermeasure equipment that detects eavesdropping devices. HEICO's STE subsidiary manufactures highly sensitive hand held nuclear radiation detectors.
• Space. HEICO designs and manufactures a wide variety of space-qualified components for satellites and spacecraft used for deep space exploration. For example, HEICO's VPT subsidiary supplied the power converters on the latest generation of GPS satellites as well as components used in UASs (i.e., drones) used by the U.S. military. HEICO's 3D Plus subsidiary supplied cameras and communications equipment into the Curiosity Mars Rover.

Customers. The table below gives you a sense of ETG's end-customers. HEICO does not make products on-spec. It focuses on niche products that are specified by the OEM with clear lead times. As a result, this is not as inventory intensive as FSG. HEICO is typically making a highly engineered sale where the relationship is at the engineering level, with price a secondary factor. HEICO's main customers are Tier 1 OEMs such as Rockwell Collins, Honeywell, UTX and defense contractors such as Raytheon, Northrop, and BAE. HEICO also has a wide range of industrial customers.

The table below gives you a sense of the defence programs where HEICO has content. HEICO does not have meaningful content on high volume programs, which is why it can sustain near 30% EBITDA margins. Customer and program concentration are low with no individual program >5% of sales.

R&D and Manufacturing. ETG’s weapons and surveillance products need to constantly evolve resulting in 3- to 5-year product lifecycles and constant upgrades. While most products are evolution vs. revolution, to the extent that products are revolution, R&D is de-novo rather than government-funded meaning HEICO retains the IP. HEICO estimates that it outsources 60% to 70% of manufacturing. The manufacturing it does in-house relates to assembly and testing and does not require heavy capex. Capex has averaged 2% of sales. This also means ETG is more exposed to tariffs and/or supply chain issues as it is reliant on overseas electronics and semi components like FPGAs.

Competition and Competitive Advantage. HEICO competes against niche players who also supply into Tier 1 OEMs. There can be instances when OEM customers for some components are competitors to HEICO on others. HEICO will typically have only 0 to 3 competitors for any given product globally, which is reflected in the fact that in 80% of products, HEICO is sole sourced. Once HEICO gets specified, they typically get all of the subsequent sales from the modifications and evolutions of that product lineup leading to sticky revenue and strong pricing. While it is difficult to drill down on the competitive advantages of each subsidiary, at a high level, HEICO can sustain near 30% EBITDA margins given it focuses on niche, specialty, low-volume/high-value areas which are too small for big-OEMs to go after. This is a very similar setup to Judges Scientific.

Exxelia. In July 2022, HEICO announced the €467m ($600) acquisition of a 95% stake in Exxelia, a French manufacturer of electronic components and subcomponents used in aerospace and defense to primarily non-US customers. This acquisition was the second largest in HEICO's history and marked a significant expansion of HEICO's business into Europe. Exxelia's product portfolio includes capacitors, magnetics, resistors, bus bars, filters, position sensors, slip rings and high-precision mechanical parts. HEICO described Exxelia as a mini-ETG. This was HEICO's largest ever acquisition at the time. HEICO has not disclosed margins, but based on commentary that Exxelia accounted for a 200bps margin contraction, you can deduce EBITDA margins were around 18% to 20%. Exxelia was doing €190m in revenue which was growing HSD/LDD so using a 18% to 20% EBITDA margin assumption, HEICO paid 10x to 14x EBITDA for a HSD/LDD growth business, which is reasonable in light of the growth.

Exxelia does have characteristics that are different from the typical acquisition. First, Exxelia was a merger of 5 different companies in 2009 and was owned by private equity since 2015 rather than founder owned/led. Second, Exxelia was historically acquisitive but integrated their acquisitions rather than pursue a decentralized model. When I look at Exxelia's management, most have been there for c.9 years, lining up with the CEO's tenure, with many including the CEO, having come from French A&D company Thales. For larger deals like Wencor or Exxelia, HEICO likely has to broaden its aperture when it comes to M&A targets and look at PE-owned businesses, which is a concern longer-term.

Growth of ETG

Starting at a high level, HEICO has historically guided to LSD to MSD organic growth longer-term in ETG, supplemented with M&A. If you look at the forest from the trees, M&A is what has and will drive ETG, not the defence budget.

Defence Budgets. Within ETG, defense and space are the main exposures at 50% of ETG revenue (16% of consolidated revenue). This revenue is primarily tied to the US defense budget, although subsidiaries like Exxelia are tied more to European defense budgets.

The very long-term trend has been a declining defence budget relative to GDP with arguments both for and against this percentage increasing or decreasing over the next 10 years. Any hot war or major escalation in tensions with China would significantly increase the defence budget but pressure to cut the deficit will pressure defence budgets.

The last negative defence period happened from 2010-16 where due to sequestration and a major 30% contraction to the defence budget, HEICO's organic growth slowed from 5%-6% cagr on a rolling 5-year basis down to 3% cagr for the periods ending 2016 and 2017. Within the context of a 30% decline in defence spending, this performance is resilient and reflects the fact that HEICO's budget is selling mission critical components.

HEICO is primarily tied to the Research, Development, Testing and Evaluation (RDT&E) side of the defence budget. RDT&E is a component of the budget that develops new military technologies. It is more focused on R&D. When you hear terms like "modernize the military", it generally means higher RDT&E funding. RDT&E has been growing faster than defence and has gone from c.10% to c.17% of the budget over the last 10 years. HEICO is not supplying tanks, bombs, guns, which are highly correlated to soldier deployments. HEICO's resilience also reflects the fact that 50% of ETG's exposure is related to commercial aero, healthcare, and industrial.

It is also worth pointing out the forest from the trees. Despite a relative weak defence budget from 2010-16, HEICO's total growth was 11% to 12% cagr as HEICO benefited from M&A.

The table below shows the 3-year cagr for the defence budget, the RDT&E component of the budget, and ETG's organic growth. HEICO has historically outgrown defence spending, but not always RDT&E. RDT&E started accelerating around 2018 to 2019, which in turn drove an acceleration in ETG. The accelerating RDT&E was attributed to a renewed focus on cyber, AI, microelectronics, and space, in response to Russia/China threats.

Starting F2022, HEICO's ETG revenue began diverging from the defence and RDT&E budgets. Part of the reason was a deceleration in the defence budgets. This, however, was exacerbated by supply chain issues and chips shortages which meant the backlog was reasonably strong during the 2022-24 periods despite decelerating revenue growth.

Today, we are at a similar juncture to the 2010 period where we may see a period of defence cuts with initiatives like DOGE. However, many of the DOGE initiatives as we understand it today relate to driving efficiency and modernizing weapons rather than across the board cuts, which would likely benefit ETG (with HEICO sounding optimistic on calls) but it is too early to tell.

Conversely, there are several ways HEICO could benefit from these initiatives. First, HEICO could supply more PMA parts to military aircrafts. Second, HEICO has meaningful content in programs that are growing, specifically missile defence. Third, while ETG does have meaningful sole-sourced position, the overarching philosophy has been to price products attractively to end-customers including the DoD so HEICO has cited opportunities for share gains.

3% to 4% term growth. Off of a relatively low base in F2024, I model 3% to 4% long-term growth, which would imply slower than historical growth. It is important to note that 50%of ETG is diversified across commercial aero, industrial and healthcare. We should have near-term tailwinds from commercial aerospace but potentially headwinds from industrial and healthcare. Given this business is more exposed to imported materials, we may see some noise in both growth and margins as the supply chains work through the implications of tariffs.

Management

HEICO is run by Larry Mendelson (86, Chairman) and his two sons, Eric (59) and Victor (57). In April 2025, HEICO formally announced that Eric and Victor would become co-CEOs (promoted from co-Presidents) whilst Larry would retire as CEO and become Executive Chair of the Board.

Eric runs the Flight Support Group (FSG) and Victor runs the Electronic Technology Group (ETG), but the Mendelson's run the entire company together as a family. One of Larry's grandsons, David Mendelson, is also involved as VP of Acquisitions in FSG (c.7 years working in various roles at HEICO). Larry is more finance orientated while Victor and Eric typically spend Mondays and Tuesdays travelling to visit subsidiaries and are more operationally orientated.

Larry Mendelson in 2020 Forbes Article

“All major decisions have to be unanimous. We will get together and one of us might not agree, but when we’re all done, it’s all worked fine.”

The Mendelson's collectively own 16.5% of Common and 1% of the Class A broken down as roughly 7.5% Larry and 4.75% each for Eric and Victor. Herbert Wertheim, a family friend and original investor in the 1990s owns a further 15% (you can read an interesting article about him here). HEICO employees own a further c.2% of shares outstanding. Early-on in HEICO's history, HEICO contributed 10% of the company's stock into the 401k plan as a gift. These original shares are worth upwards of $3bn. Today, HEICO's 401k plan contributes 5% of an employee's salary in HEICO stock, which together with the original contribution has reportedly led to at least 400 millionaires (in many cases, multi-millionaires) amongst HEICO's staff including floor-level factory workers.

One of the key reasons to own HEICO is the Mendelson family.

• Strong Capital Allocators. I will deep dive their capital allocation track record below, but at a high level, they are disciplined and opportunistic and have a strong long-term record. An investment in HEICO is ultimately a bet that they can continue redeploying large amounts of capital into high-ROIC M&A.
• Long-Term Orientation. If you listen to interviews, read transcripts, observe their actions, and consider their ownership stake, they are running HEICO with a 10+ year view. This is one of the reasons why they are so dominant in PMA.
• Conservative Accounting. They are one of the few management teams that don’t do any add-backs or adjustments. They leave it to the analysts to add things back themselves and don’t nudge them one way or the other. Their FCF has averaged 105% of net income over time.
• True Owners. The Mendelsons own 17.5% of the company (c.$5bn) and their compensation programs incentive ownership going up. Over the last 10 years, the Mendelsons have sold about $80m of stock via open market sales of-which half was Larry, which in the grand scheme of things, is minimal.

This quote from Larry on the Q4 F2018 call summarizes the ownership mentality.

“We are very disciplined in what we buy and we want to make sure that it makes sense. We don't want to grow for the sake of growing and saying that we are a bigger company and we don't grow because the CEO and the executive office gets its compensation based on gross revenue, which so many corporate players do. We own, as you know, Sheila, we own equity, probably the largest shareholders individually and so, our compensation, our benefit is on the bottom line cash flow, earnings per share, and growth. So to grow the top line so we gain a couple of million dollars in compensation is not what motivates us. So we're going to focus on something that comes down to the bottom line. We have been shown many opportunities to acquire, merge whatever you want to call it with other entities, but unfortunately corporate America generally runs on a 7% to 11% operating margin. To us, that's not very tempting because our all-in operating margin before amortization or eliminating amortization is around 25%. So we're not going to go for that kind of thing just to get bigger for the sake of getting bigger. So we have to be careful on what we buy.

Compensation Metrics. HEICO's compensation dollars are low relative to their performance. All-in compensation is ballpark $10m for Larry and $4m to $6m for the Eric, Victor and the CFO. Bonuses are tied to Net Income, EBITDA and CFO growth. The metrics are ok. I would have preferred a total-ROIC governor but their significant ownership stake is that governor. HEICO offers executives an additional "Leadership Compensation Plan" where executives can defer up to 6% of total compensation with a 4-year vest of-which HEICO will match 50%, which further encourages share ownership. While I criticize the compensation slightly, the overall thought process behind compensation is sound.

From the F2024 proxy. 

What the Committee Believes

• Compensation policies should be simple and clear for the Company, its shareholders and our executives
• Complicated compensation methods designed to encourage or discourage specific actions are more likely to lead to unintended adverse consequences than they are to yield successful overall results
• A fair and transparent compensation policy builds trust between the Company and its executives, which, in turn, fosters an ethical and honest business culture

Compensation Approach Details

• Follow a “common sense” approach to compensating our executives
• Not based on theory or ornate concepts derived from academic study
• Derived from the Committee members’ many years of actual business and practical experience in which they had to design compensation for their own employees

Capital Allocation Philosophy and Organizational Model

Since 1990, HEICO has done 103 acquisitions. They are a permanent home to businesses and have only divested 2 in their history. HEICO is best described as an "Accumulator" where HEICO is relatively hands off as compared to "Platforms" like Halma or Diploma that retain decentralization but pursue more formal oversight and collaborative initiatives via Sector CEOs. Eric and Victor are the only "Sector CEO's" but their role isn't necessarily formal oversight.

This quote from Eric Mendelson gives you a sense of how they think about the "Accumulator" approach (lightly edited).

"We were very comfortable with other like-minded entrepreneurs who were used to taking small resources, figuring out what you can do with it, and end up doing it better and satisfying a need for the customer and we became pretty good at that and pretty good at identifying other businesses that had similar attributes. Just as we wouldn't like people sitting on top of us telling us what to do and micromanaging us, when we found these successful businesses, we do a lot of homework upfront get to know them really well and then we let them go do their thing and we want to make sure that they're motivated and they really enjoy what they're doing."

Given HEICO is an accumulator, it has to be pickier with M&A. There are no synergies, playbook, business systems or structured oversight to drive results. Rather, HEICO is ultimately putting trust into the founders and their management team to continue to have success. This narrows the range of targets but makes HEICO a better home to entrepreneurs that want to continue running their business autonomously.

Per that same interview with Eric Mendelson.

"The first thing that we look for is good people because we fundamentally believe there's no such thing as good business with bad people. You can only do good business with good people period and if it's not somebody who we would invite to our house for Thanksgiving dinner as the saying goes we don't want to buy their business because invariably they will cut corners they will do things that are not for the long-term health of the business. Number one good people. Number two, they have to be good businesses and we define a good business as something typically with 20% margin or higher. That's not a definite rule but the thought is if somebody can earn 20% on sales consistently they must be doing something unique."

As HEICO scales to perhaps another 50 acquisitions, there is a question mark on whether they will put in more structure. For example, they've already grouped their distribution subsidiaries in FSG (there are 4 subsidiaries) into the HEICO Distribution Group which looks to have a dedicated CEO. There may be more informal groupings I am unaware of, and this will likely continue but I don't believe HEICO's style is to ever become structured like a TransDigm or Constellation Software (see TransDigm's model below). Rather, HEICO will likely evolve in an unstructured case-by-case way. While this is arguably harder to scale and creates more succession risk as HEICO is more dependent on individual founders, it gets offset by HEICO being pickier when they acquire a business. HEICO's model is closer to Berkshire Hathaway than a TransDigm or Halma who regularly replace management teams if they don't meet performance targets.

M&A Targets. Within FSG, HEICO may acquire the odd PMA manufacturer but after Wencor, there are likely no more targets that can move the needle. There are opportunities to acquire more DER repair shops but more likely, they will buy more specialty components companies. HEICO for example was rumoured to be interested in Esterline which was a $4bn deal. Within ETG, there is huge fragmentation of niche electrical components manufacturers and distributors. HEICO's accumulator platform means HEICO is generally trying to buy companies where specialization and agility is the advantage rather than scale, which normally means companies focused on a niche with high margins, generally 20%+. This is a similar playbook to Judges Scientific.

In all cases, HEICO wants the existing management, who are ideally also the founders, to stay-on. HEICO has never rigidly defined a box in terms of deal size, deal multiple, or target, but if you look at the track record, the typical deal is in the US, averages around $40m to $80m, HEICO is typically paying around 8x EBITA, and they try to keep leverage at 2x or below. The average retained minority stake is 10%. Rather than box themselves in, Larry always gives an open-ended answer saying they will do whatever makes sense in order to maximize shareholder value.

Larry on the Q4 2016 Call

“I said it earlier, HEICO is a cash cow - a vehicle to generate strong cash flow and then, after that, earnings per share, and that's just what we do. If we don't think it's going to be strong cash flow, we're not interested, and it can be defense or it can be widgets or it could be anything within those two spheres, aerospace and electronic technologies. And of course, all the other things have to fit in. We have to have great managements. We have to have consistency and honest people, hardworking, smart people. All those things go into the formula. We've been very successful. As you know, we've done 62 acquisitions. And we've never had a bust. We've had some do better. We have some do a little worse. But we've never had a disaster scenario as, oh my god! This thing blew up on us and so forth. And we're very picky, we do a lot of due diligence and we reject a lot of things that we see.”

Larry again on the Q4 2016 Call

“Let me comment on that Sheila, the target and leverage. I would go six times EBITDA. I go seven times, I go, but let me finish before you laugh, the key to the turns of EBITDA is how quickly we pay it down. It's not the level of EBITDA. I don't want to hang out there. I would go six times if I knew that in two years, it would be down to three or two-and-a-half. And so that's really the answer. I don't want to – I don't want to be more than two-and-a-half or three times. But if there was a sensational acquisition that had met all the ingredients that we look for, I would stretch and do it. It would have to have the margin, it would have to have the cash flow, it would have to have all the things, the outlook and everything else. But if we could do it and get the multiple down to two-and-a-half to three within two years, I would go six. I don't know if that helps you.”

HEICO has said they have looked for a third leg of the stool, but have yet to find the right opportunity. To me, expanding into distribution businesses like Diploma (Diploma's Peerless subsidiary looks like a natural fit) or something more industrial or healthcare focused makes sense. This could open up significantly more runway for capital allocation, similar to Diploma having 3 unrelated verticals.

M&A Team. M&A is largely done by the Mendelsons. It is top-down. While they don't have the M&A machine of a Constellation Software, based on LinkedIn, they have at least 4 corporate development staff with banking/PE-backgrounds tasked with sourcing deals, which includes David Mendelson. Their style is not to delegate M&A, but they will reach a point, perhaps if they're doing 10+ deals on average versus 2 to 7 currently, where the centralization of M&A decision making will start to become a bottle neck. HEICO does have an active outreach program.

Former VP at Proponent, a Competitor to Heico's Distribution Businesses in FSG

"HEICO maintains an active dialogue with 30 to 40 companies at any given time. These companies may be looking to sell in a year or five years, but the relationship is always kept alive. When they're ready to sell, it's as simple as flipping a switch. The fact that HEICO doesn't integrate the companies they acquire is preferred by many. When companies are integrated, a lot of the know-how disappears as people leave or long-established relationships are discarded"

Victor recently they had a $2bn pipeline at the 2024 Gabelli Conference

"If we buy everything we're looking at and history tells us, we won't, but everything we're looking at sort of seriously now, we could spend $2 billion in fairly short order. I can't imagine that will happen because if history is a guide, we get into diligence and things don't always pan out. But anyway, it's very active for us, a little too active right now."

This is a job posting I happened to see in 2021. About a quarter of their deals are also tuck-in deals from existing subsidiaries which may be sourced by the subsidiaries themselves

Capital Allocation Record

Over the last 15 years, HEICO has generated $3.5bn of FCF of-which $330m (9%) was paid as dividends and $200m returned as buybacks (6%). HEICO spent $5.1bn (143%) on M&A funded mainly by internal FCF and debt ($2bn) and a modest amount of equity (<1% dilution). While there is an opportunistic bent, they are fairly consistent in redeploying 100%+ of FCF in any rolling 3-year period with redeployment higher as debt comes down. Redeployment fell during COVID as sellers were reluctant to sell near the lows and HEICO couldn’t do in-person due diligence due to lockdowns but subsequently reached all-time highs with the acquisitions of Wencor and Exxelia.

When you look at the volume of deals, they've typically done anywhere from 2 to 7 deals every year. 2016 was the only year where they only did one as a result of the acquisition of Robertson Fuel, a relatively larger deal at $260. In terms of volume, 35% have been in FSG and 65% ETG but in terms of value, Wencor alone was 50% of total spend over the last 10 years. If you exclude Wencor, HEICO has averaged 5 deals a year at an average deal size of $80m. The bigger deals were Wencor in F2023 ($2.1bn), Exxelia in F2023 (EUR487), Aero Antenna in F2017 ($331m) and Robertson in F2016 ($253m).

HEICO is still small enough that they can sustain inorganic growth. Their average deal sizes are still at a small enough scale where multiples can stay low, especially if HEICO is opportunistic. To frame the problem, HEICO is doing around $600m in FCF so staying in that $400m/year range with the occasional $300m to $1bn deal gets can comfortably allow you to redeploy 50%+ of FCF.

In terms of multiple, HEICO has historically targeted 5x to 8x but larger deals have come in at 10x to 13x EBITDA. Outside of disclosures around Wencor, HEICO does not disclose detailed financials of acquired subsidiaries so it is hard to evaluate the multiples paid. However, given the vast majority of incremental capital is for M&A, ROIC is a reasonable estimate of the returns HEICO is generating on M&A.

Over the last 15 years, ROIC has averaged 15% and generally fluctuated around a band of 14% to 16% with ROE averaging 18%. I should point out that HEICO does not make any accounting adjustments so this is fully expensed for all acquisition costs, restructuring, etc. Also, the ROIC is depressed as I am not using pro-forma EBITA so the denominator includes 100% of goodwill whereas in any given year, I may only be including half of the EBITA of the acquired subsidiaries. You get to a 15% ROIC on a deal if you pay roughly 8x EBIT (12% yield) and organically grow 7% which nets out to 15% after tax, assuming a 20% tax rate.

What is impressive is that as M&A has scaled from c.$50/year from 2007-2011 to $150m/year from 2012-16 to more recently $250m/year from 2017-22, whilst ROIC has consistently been high. The average deal sizes increase substantially in F2023/F2024 (I'm using 3-year averages) because of Wencor but if the current trend continues, HEICO should scale into $300m to $400m a year, comfortably in the 50%+ of FCF range excluding large deals.

While ROIC will inevitably come down as HEICO starts having to do large deals to move the needle, Wencor, the largest deal by far, looks to be a strong return.

Wencor Deal. Wencor was the largest deal by far and 3x+ larger than Exxelia. At the time of deal, Wencor was expected to do $724m in revenue with $153m in EBITDA (21% EBITDA margins) in calendar 2023 implying HEICO paid c. 13.7x EBITDA, also the highest ever multiple. At the time of the deal, I was concerned HEICO overpaid, especially as there was significant interest amongst P/E bidders and potentially TransDigm. Following the deal, HEICO implied Wencor was delivering above plan with organic growth likely at or above the FSG average of 13% in F2024 (deal closed near the end of F2023) which brings the EBITDA multiple down to 12x in the first full year of ownership with double digit organic growth likely to continue near-term. If you combine a 12x multiple with LDD near-term and HSD long-term growth, you can comfortably hit a 15% ROIC.

Investment Thesis

20+ year MSD+ organic growth runway. HEICO is taking market share within the PMA industry, which itself is taking market share within the MRO industry, which itself can sustainably grow 5%. The PMA industry has every reason to continue taking share and given its just <4% of MRO spending, the runway is very long, potentially 20+ years. Moreover, the MRO industry has historically had strong pricing power giving the PMA industry a pricing umbrella, which at this current juncture can be used to take share, but in the future can be used to push pricing. To put things in context, if FSG grew 6% organically for 20 years, they'd still just be an $8.5bn business which is less than 10% penetration of the MRO industry using today's TAM, so growth runway is likely longer than 20 years.

Compelling Value Proposition = Resilient Business Model. At the end of the day, HEICO is selling the exact same or better products at a 30% to 50% discount whilst offering better inventory availability to competitors. Outside of the "trust factor", PMA parts are better in most respects. This compelling customer value proposition insulates HEICO from tariff wars, pandemics, and recessions and drives structural growth in the business. As the pandemic illustrated, the ETG provides a nice defensive buffer to FSG's more cyclical cash flows. While HEICO's advantages in FSG are a function of its scale, distribution, manufacturing, etc. they ultimately stem from a long-sighted strategy and customer-centric approach stemming from HEICO's significantly family ownership.

Significant capital allocation runway. The Mendelson's have an exceptional record, have skin in the game, and the two brothers have worked together since inception. While you are betting on the Mendelsons rather than betting on an organizational platform or operating system, it doesn't get better than the Mendelsons. They've created broad ownership amongst HEICO employees and created a hard-driving entrepreneurial culture that founders want to join. HEICO is still at a size where they can very realistically deploy 50% of next 10-years cumulative FCF at comparable returns, which would imply $5.5bn in redeployment versus $4.5bn over the last 10 years. There is significant upside to the extent they can execute on larger deals.

Key Assumption

Organic Growth.

• In FSG, I assume 11% F2025 growth declining to 6% by 2030. The near-term growth is driven by a continuing rebound in commercial air travel, delayed aircraft retirements and an aging fleet whereas the long-term growth is supported by the MRO industry growing faster than air travel along with increased PMA penetration. Note that 6% does not imply significant price increases. Someone could in theory acquire HEICO in the 2030s and drive 5% to 6% pricing growth for a long time and still be price competitive relative to OEMs.
• In ETG, I assume 4% long-term growth. The growth outlook in the near-term is muddied by the potential impact of DOGE along with the impact of tariffs. While cyclical, HEICO has historically grown in the 3% to 6% cagr range on a rolling 5-year basis.

M&A Growth

• HEICO has deployed $4.5bn into M&A over the last 10 years. I believe HEICO will deploy more in the next 10 years, but M&A will become harder, especially as M&A decision making is centralized near the top, making it harder to scale the volume of deals. Assuming they redeploy 50% of FCF back into M&A and pay roughly 8x to 9x EBITA, this drives 4% additional revenue growth. For context, this implies $5.5bn in M&A over the next 10 years at a roughly 19% pre-tax and 15% ROIC, which is roughly in the middle of the 14% to 16% ROIC HEICO has historically achieved.

Margins

• FSG is running at 26% EBITDA margins. Their incremental margins have been high-20%s/low-30%s historically. FSG should continue to see operating leverage from scale over time and modest benefit from pricing. I assume EBITDA margins improve very modestly from 26.2% to 28.2% over the next 10 years, implying a high-20's incremental margin.
• ETG is running at a 29% EBITDA margin, lower than history due to a soft defence environment and the absorption of lower-margin Exxelia. Incremental margins have historically been high-30%'s/low-40%'s. ETG has more opportunities for price increases. I assume EBITDA margins expand from 28.6% to 31.5% by 2034, which assumes low-30's incremental margins.

Inventory and Capex

• I do not see any reasons why capex or working capital will change. Capex has historically been <2% of revenue and working capital around 22%. To the extent ETG grows faster from more M&A, working capital may come down as ETG is less inventory intensive but otherwise, I expect levels consistent with history.

Valuation

I don't see a meaningful advantage to owning Common over Class A so I would just buy the cheaper share class, which is Class A. While HEICO has always traded at an optically expensive P/E multiple, estimates generally don't price-in future M&A and this is the primary driver of growth seeing as 140%+ of FCF was redeployed into M&A over the last 10 years.

Assuming zero M&A, HEICO grows top-line 6%, EBITA 7% and Adj. EPS 8% (I add back Amortization). FCF mirrors Adj. EPS so grows 8%. I estimate FCF/share over the next 12 months to be roughly $5.25 so HEICO's Class A shares at $198/share are trading at 38x FCF or 2.6% FCF yield. I think HEICO's 8% FCF growth is sustainable well beyond 2030 so if you assume a healthy 25x exit multiple, HEICO Class A is roughly a 7% IRR which is simplistically 3% FCF yield plus 8% FCF growth less 4% multiple compression ($150/share intrinsic value assuming a 10% discount rate). A so-so return with no margin of safety.

Assuming 50% of FCF is redeployed at a 15% ROIC, HEICO can grow FCF an additional 8% as 50% of FCF is redeployed at a 15% ROIC which in turn drives 16% growth in FCF. The FCF yield is then only 1% because of M&A spend but the FCF growth is 16% offset by a 4% headwind from multiple compression implying a 13% IRR ($244/share intrinsic value assuming a 10% discount rate). A reasonable return, especially after considering the quality of the business and management.

What is the market assuming? If you do a reverse DCF and assume 8% organic FCF growth, a 15% ROIC on M&A, and a 25x exit multiple, the market is pricing in that HEICO will redeploy 25% of excess FCF. This seems very low.

What should you pay? If you assume a reasonable 50% redeployment, then you arrive at a low-teens 13% IRR. While deploying $5.5bn is not easy, it is not far from the $4.5bn deployed over the last 10 years. If you want a 15% IRR off my assumptions, you can pay $165/share, which is ballpark what Berkshire paid. In YTD 2025, shares have gone as low as $176 which would imply approximately a 14% IRR.

There is upside if they end up redeploying 75% to 100% of FCF. While difficult, is not impossible.  In a scenario where 100% of FCF is redeployed, HEICO would have to deploy $15bn over the next 10 years so they would have to close on a very big deal or potentially execute on a third-stool.

Historical Financials

Projected Financials