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Higher Fuel Not Triggering Retirements, Heico Says

Increasing jet fuel prices are making carriers re-examine capacity plans but so far Heico hasn't seen effects.

The recent jump in fuel prices is not driving older aircraft into retirement, executives at parts supplier Heico Corp. report.

"We've really seen just consistent growth, similar with the last many quarters in terms of aftermarket demand," Eric Mendelson, president of the company's Flight Support Group (FSG), said May 30. "I've met with our salespeople and reviewed our customers' retirement plans. And I can tell you that as of now, we are not aware of any increased retirements due to the fluctuation in fuel prices."

Heico, which specializes in Parts Manufacturer Approval parts as well as distribution, touches aircraft in every lifecycle stage. The company's fiscal 2018 second quarter (Q2), which wrapped up April 30, including 5% organic growth--and 16% total growth--in FSG, which delivered revenues of $267.8 million. "We believe this was largely driven by its commercial [aftermarket] business benefiting from the increased usage of and spending on older aircraft," said Canaccord Genuity analyst Ken Herbert.

Heico's overall Q2 revenues were up 17%, to $430.6 million, while net income was up 30% to $59.6 million.

Nearly four years of lower fuel prices have helped keep demand for traffic high by putting more money in travelers' pockets and making low fares possible. International Air Transport Association (IATA) figures showed revenue passenger kilometers were up 7.2% in the first three months of 2018. But fuel's recent climb has carriers re-examining capacity plans with an eye on trimming loss-making routes and potentially parking unneeded aircraft. Jet fuel prices tracked by IATA have risen 44% in the last year. While still historically low at around $2.20/gallon, the price increase will add about $40 billion to global airline fuel bills this year, IATA projects.

"Demand for air travel remains strong, supported by the comparatively healthy economic backdrop and business confidence levels," said Alexandre de Juniac, IATA's director general and CEO. "But rising cost inputs—particularly fuel prices—suggest that any demand boosts from lower fares will moderate going into the second quarter."

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