HEICO Corporation

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HEICO Corporation

300 Taft Street
Hollywood, Florida 33021
U.S.A.
(954) 987-6101
Fax: (954) 987-8228
Web site: http://www.stockprofile.com/hei

Public Company
Incorporated: 1957 as Heinicke Instruments Co.
Employees: 650
Sales: $95.35 million (1998)
Stock Exchanges: New York
Ticker Symbols: HEI; HEI.A
NAIC: 336412 Aircraft Engine & Engine Parts Manufacturing; 336413 Other Aircraft Parts & Auxiliary Equipment Manufacturing

HEICO Corporation is a leading supplier of replacement jet engine parts. As such it competes against giant jet engine manufacturers United Technologies Corporation (Pratt & Whitney) and General Electric. The company also manufactures a variety of auxiliary equipment for airlines.

Origins

HEICO was founded in 1957 as Heinicke Instruments Co. The company got its start making products for medical laboratories. In 1974 Heinicke entered the aviation business with its purchase of Jet Avion, which manufactured jet engine parts. Five years later the Securities and Exchange Commission sued the company for misrepresenting its engineering expertise. Heinicke settled the suit and agreed to include more outside representation on its board.

In the early 1980s, Heinicke came under the control of Tyco Laboratories, a New Hampshire-based company that accumulated 46 percent of the company’s stock. Tyco, aiming to use Heinicke to expand into the medical supplies market, installed Chester Warner as its CEO. Warner, who replaced previous president Rolf Franz, was an experienced laboratory products executive who reorganized the company and revitalized its offerings. Heinicke eventually bought back Tyco’s shares.

Increasingly stringent FAA safety regulations, and deregulated fares, boosted business in the mid-1980s. Earnings were $7.6 million in 1986 on sales of $46 million. Jet Avion accounted for two-thirds of sales. Florida Trend reported that investors who had held the company’s stock for the previous ten years could have seen a return of more than 1,000 percent.

The company changed its name from Heinicke Instruments Co. to HEICO Corporation in 1986. This prompted a 1989 lawsuit from Heico Inc., a manufacturing holding company based in Addison, Illinois, which asserted that the change caused “unnecessary confusion in the trade and financial communities.” HEICO succeeded in holding on to its new namesake.

HEICO completed a stock offering on the American Stock Exchange in January 1987. Earnings rose to $7.6 million in the fiscal year ending October 31, 1987. However, the company forecast a decline for the next year due to a slow market for jet engine parts.

In October 1987 the company announced that plans to buy All Fab Corp. for $11 million fell through. All Fab, based in Everett, Washington, was an aerospace machining operation. At the same time, HEICO stated it was buying Germfree Laboratories Inc. of Miami. It also authorized a stock buyback.

Ownership Struggles in the 1980s

In 1988 HEICO was a takeover target for H Acquisition Corp., led by Chicago investor George Fox, who offered $75 million, or $30 a share for the company. The investor group led by Laurans Mendelson of Miami subsequently raised its shareholding from 9.9 percent to 13.6 percent of the company.

In 1989 the Mendelson group offered $42 million ($21 per share) for the rest of the company. In February the group planned a proxy fight to gain representation on the HEICO board. By December the group controlled four board seats, one vacated by resigning Chairman and CEO Robert Surtees. HEICO simultaneously sold its laboratory business to Naperville, Illinois-based Varlen Corp. for $17 million.

United Technologies Corporation sued HEICO in 1989, claiming its Jet Avion subsidiary infringed on patents for the heat and corrosion resistant coatings used in the combustion chambers of its Pratt & Whitney gas turbine engines. These profitable coated products accounted for about a tenth of HEICO’s sales.

In September 1992, Herbert Wertheim of Coral Gables, Florida, raised his stake in the company to 10.2 percent and requested two board seats. By this time, his friend Laurans Mendelson had been made chairman and chief executive officer.

As the global aviation industry stalled in the early 1990s, HEICO branched out, forming MediTek Health Corp. to enter the medical imaging field. The venture was short-lived. In June 1996, HEICO sold MediTek to U.S. Diagnostic Labs Inc. of West Palm Beach for $23 million.

Acquisitive in the 1990s

Sales and profits soared in the mid-1990s, buoyed by a recovering aerospace industry. Analysts praised the company’s lean operation which allowed HEICO to undersell the big engine manufacturers and earn loyalty among its airline clientele.

HEICO bought Trilectron Industries Inc. in August 1996. The Palmetto, Florida-based company made aircraft ground support equipment such as ground power units and air conditioning units and had sales of about $15 million a year.

HEICO offered $276 million for Figgie International, which made respirators, in 1997, but was unsuccessful. In October 1997, Lufthansa Technik, a subsidiary of Lufthansa German Airlines AG, invested $26 million in Heico Aerospace, buying a 20 percent share in the HEICO Corporation subsidiary.

HEICO continued its acquisitive bent in 1998. It tried to obtain a controlling interest in Teleflex Lionel-Dupont, a French manufacturer of aircraft and aircraft engine components, for stock worth $63 million (FFr 370 million). The French company had annual sales of about FFr 384 million. TLD owned Albret Industrie, ERMA, and Tracma in France; and Devtec and Lands in the United States. Devtec in turn had subsidiaries in China and Taiwan. However, in September 1998 HEICO announced it would not be able to acquire TLD due to a competing bid.

HEICO paid $15 million for PTM International, a jet engine parts maker based in Miami. McClain International, a private maker of jet engine parts based in Atlanta, was bought for $41 million. HEICO added another $2.5 million for McClain’s headquarters building. Lufthansa provided $9 million to fund the purchase. McClain’s annual sales were $11 million. The company was founded in 1962 by a World War II veteran pilot and had 60 employees.

HEICO’s revenues rose from $63.7 million in fiscal 1997 to $95.4 million in 1998. South Florida’s aviation industry, populated by such firms as GE, B/E Aerospace, and BF Goodrich, soared in the late 1990s. In fact, the region led the nation in the number of aircraft parts suppliers. The industry had been established by companies including Pan Am and Pratt and Whitney; proximity to Latin America had now become an anchor to its success. A slowdown was anticipated, however, based on Boeing’s announcement it was cutting aircraft deliveries.

In spite of the pending downturn in commercial aircraft, HEICO continued to buy, trying to dominate more of the supplier chain. In late 1998, the company sold PTM International for £8.8 million and bought Associated Composite Inc. of Miami, which repaired exterior aircraft parts. In December, HEICO bought Washington state-based competitor Rogers-Dierks Inc. in a deal worth at least $15 million. HEICO’s Trilectron subsidiary opened its own 113,000-square-foot factory in Palmetto, Florida.

Hitting the Big Board in 1999

Early in 1999, Lufthansa invested an additional $3 million in HEICO’s Flight Support Group, bringing its commitment to $38 million. HEICO’s Ground Support Group bought Radiant Power from Santa Ana-based Derlan, Inc., a subsidiary of Derlan Industries, Ltd. of Toronto. U.S. Radiant Energy Corporation had sales of about $4 million in 1998, which included backup power supplies and batteries for a variety of on-board applications. The unit was to be incorporated into the Ground Support Group’s new Palmetto facility. Radiant was known for its propane- or natural gas-based InfraTek aircraft deicing system, which produced specific wavelengths of radiant heat to remove snow and ice.

After years on the American Stock Exchange, HEICO shares began trading on the New York Stock Exchange in January 1999. A secondary stock offering in February 1999 raised $64 million. Sales were up 43 percent and the company posted record profits in the first quarter of fiscal 1999. Its revenues had grown more than 50 percent annually in the previous five years. Management aimed to attain $1 billion in annual revenues within five years.

Company Perspectives:

HEICO Corporation is a rapidly growing company and for more than 38 years has been engaged in niche segments of the aerospace and aviation industries. The Company focuses on growing markets which it perceives are underserved or where it can bring other value to the marketplace.

HEICO continued its growth by acquisition strategy, announcing in May that its Flight Support Group had bought Miami-based Air Radio and Instruments Corp. The firm was founded in 1983 and employed 30 people. The purchase cost $3.5 million and complemented HEICO’s expertise in repairing and overhauling aircraft components. In June 1999 HEICO bought Turbine Kinetics, Inc. and AeroKinetics, Inc. of Glastonbury, Connecticut. Both manufactured jet engine replacement parts. This brought HEICO’s product line to 1,200 jet engine parts.

The company also bought a 40 percent interest in privately held R.H. Phillips and Sons Engineers, Ltd., a British firm involved in ground support equipment manufacture. The Chichester, England-based company had been in existence since 1964 and employed 27 people. At the same time, HEICO’s Electronics and Ground Support Group created a U.K. subsidiary, Trilectron Europe Ltd. It also opened sales offices in Singapore and India. International sales accounted for nearly half the group’s total revenues.

Soon after, HEICO, through its Electronics and Ground Support Group, bought privately held Leader Tech, based in Tampa. Leader Tech was a 20-year-old company that employed 100 people manufacturing circuit board shielding. The purchase enhanced HEICO’s own circuit board operations and expanded its high profit electronics offerings.

HEICO’s Flight Support Group accounted for 73 percent of revenues in 1998; Ground Support, the remainder. With net sales increasing at a rate of about 50 percent a year, HEICO had validated its investment decisions and secured its role in the future of commercial aviation.

Principal Subsidiaries

HEICO Aerospace Holdings Corp.; HEICO Aerospace Corporation; Jet Avion Corporation; LPI Industries Corporation; Aircraft Technology, Inc.; Northwings Accessories Corp.; McClain International, Inc.; Associated Composite, Inc.; Rogers-Dierks, Inc.; HEICO Aviation Products Corp.; Trilectron Industries, Inc.