$HEI is talked about a lot in the financial community but still a “black box” company IMO.

Here’s a thread why I think it is one of the best setups in the world

👇 WHY HEICO IS THE BERKSHIRE OF HATHAWAY OF AEROSPACE 👇
1/ Our story starts in the 1980s when Larry and Eric Mendelson were at Columbia Business School. At the time, the LBO world was in full swing, and the Mendelsons thought they could do the same thing.

With a small loan of over a million dollars from their dad, they bought HEICO.
2/ At that time, HEICO was only making combustion chambers for Pratt and Whitney. After learning about the business some more, the Mendelsons scrapped their LBO roll-up plans...

Why? They had the biggest revelation in aerospace since the invention of the airplane...
3/ Here it was: after an airplane buys a product from an OEM like Pratt and Whitney, it needs to MAINTAIN that part for a few decades.

OEMs knew this and would enter into lucrative long-term contracts with airlines.
4/ If you’re the only one manufacturing a part, then you’re the only one who can provide these maintenance services MANDATED by the FAA.

If you’re the only provider, you can charge high prices...
5/ Airlines HATED the OEMs for abusing this power.

The Mendelsons asked, “hey, why don’t I just re-engineer the really basic replacement parts and just sell them cheap? We won’t make 40% margins but we can half prices and make 20%.”

They can have their cake and eat it, too.
6/ So HEICO started doing just that. They made replacement shafts, rods, fasteners - you know, slabs of metal

But while an OEM would sell a replacement brake for $3,000, HEI sold the same thing for $800!

“We don’t try to screw our customer.” - Larry Mendelson

This was GENIUS.
7/ Now it was the OEMs who started to hate HEICO. But they couldn’t do anything about it. The FAA was completely fine with it - even encouraged it b/c it saved airlines $$$.

So the OEM’s did the only thing they could do: they started a smear campaign.
8/ They used pictures of Elvis impersonators with the slogan: “LETS FACE IT, LOOKALIKES NEVER PERFORM QUITE LIKE THE ORIGINAL!”
9/ But then daddy FAA came to the rescue and basically told OEMs to stop whining.

“The industry will treat the approval with the respect that a decision of the FAA deserves... it is not up to the engine manufacturer to say the installation of a PMA part is wrong.” -FAA
10/ A PMA is a “Parts Manufacture Approval”. Basically a stamp from the FAA saying you’re allowed to sell that specific part to airlines.

But the FAA doesn’t give these out willy-nilly. You have to go through diagnostic testing, safety assessments... you get the jist.
11/ How long does it take to get a PMA? For you and me, like 2 years. For HEICO? Like 6 months.

Why? They’ve been doing this for 30 years. They know the FAA. The FAA knows them.

“Eric practically came to life in the hallways of the FAA’s Washington, D.C., headquarters.”
12/ How many PMAs does HEICO have? 12,000 AND they’re getting 300 more per year. How long will it take for me to get that many PMAs? Let’s do the math...

If I’m just as efficient as HEI, 12,000/300 PMA’s per year = 40 YEARS.

If I’m half as efficient... the rest of my life.
13/ And I would never even think of doing that. The market for each individual part is so small, it doesn’t make sense to split the market 50:50 with $HEI. Think of a grocery store in a rural town.

My good friend @933Fund calls this “rational competition”.
14/ So $HEI effectively has one competitor: the OEM. And HEI is the low cost producer. They’re just as reliable - none of their parts have ever messed up. They need little R&D to make these things.

“We have no material patents...” - 10-K

This is one of the best setups ever.
15/ And they’re one of the best capital allocators in the world.

The Mendelsons are the Buffett of Aerospace and HEICO is their Berkshire Hathaway.
16/ “HEICO operates in a very decentralized and entrepreneurial method... the operation is very much like a family.”

Berkshire of Aerospace.
17/ Victor Mendelson runs the company’s ETG group which is HEI’s acquisition machine. He doesn’t change mgmt. they have simple comp. structures. He doesn’t know how to run a spaceship company. All he does is capital allocation.

You guessed it. The Buffett of Aerospace.
18/ The ETG business - while complex - is a group of INDEPENDENT businesses operating in growth industries. They make radars, satellite antennas and spaceship parts.

Don’t miss the forest for the trees. It’s the SAME playbook they’ve been using for 30+ years...
19/ While already great businesses, they’re also an option on future growth markets, like the launch of a SpaceX rocket...
20/ In an upmarket, all companies do well and its difficult to see HEI’s sheer advantage. But downturns let you really appreciate the model...
21/ “We will continue to seek and make acquisitions... to ensure HEICO’s strength and growth.” - $HEI COVID update

“The company has adjusted its shipping levels accordingly and will reduce its workforce by up to 15%.” - $TDG COVID update
22/ $HEI.A has the same economic rights as $HEI but only 1/10 voting rights. Frankly, for a compny with such able management, voting rights mean nothing. Yet $HEI.A trades at a ~15% discount to $HEI
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