Air transport Nigel Howarth

Honeywell Sees Consistent Aftermarket Returns

Fixed-price contracts helping stabilize financial performance.

Honeywell's commercial aftermarket sales were up 4% in the first quarter—a figure that lags behind many big-picture MRO market projections, but one that the company says is reflective of its shift to fixed-price service contracts that eliminate some cyclicality.

"We're driving much more service contracts rather than break/fix events," says Honeywell President Darius Adamczyk. "So we probably will have a little bit less cyclicality than some of the others because we want to drive a much more consistent revenue stream."

Honeywell says demand was particularly strong for repair-and-overhaul services, while its JetWave satellite communications hardware delivered double-digit growth.

"Overall, the level of activity has been robust," says Thomas A. Szlosek, the company's CFO. "You are seeing a different mix in the installed base of newer aircraft that are under warranty and have less maintenance. You see older aircraft coming out. But beyond that, the level of both repair and overhaul activity on spares has been solid."

Honeywell's original equipment sales were up 8% organically last quarter—a figure that is both boosted by rising production rates and more in line with what many see the air transport aftermarket reaching.

Jefferies analysts see 6.5% aftermarket growth this year, with an average of 6% annually through 2020.

Honeywell says its commercial aftermarket revenues are getting a boost from a slow turnaround on the business-aviation side, as well as continued progress toward meeting several major mandates, such as ADS-B, in the U.S. and elsewhere. The company is projecting full-year growth in the low- to mid-single-digits for its commercial aftermarket business.

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