Opportunities abound for B/E as US airlines improve #PaxEx

B/E Aerospace today put some eye-opening figures against its aircraft interiors winnings with North American airlines, telling analysts it enjoyed a whopping 77% win rate in 2015 with these now highly profitable operators, and sees plenty more opportunities to score further business with them.

“I think it’s a positive that we have done so well with the North American carriers and I think very substantially improved our partnership relationships with the biggest airlines in North America,” B/E Aerospace executive chairman Amin Khoury said during an earnings conference call to report a 5% jump in full-year 2015 revenues, and 8% growth in operating earnings.

The company counts Air Canada, American Airlines, Delta Air Lines, JetBlue Airways, Southwest Airlines and United Airlines among its customers, “and all of them are now talking about improving the passenger experience [#PaxEx]”, said Khoury.

“This is pretty new; this had been pretty much an international – especially Asia, Middle East and to a lesser extent, European – phenomenon; it has become an American and North American phenomenon as well and they have done really well in terms of profitability and cash flow and I think the managements have done a good job and are speaking a lot about upgrading and improving the passenger experience so I think the outlook for refurbishment and retrofit as well as strong spares growth is pretty good for us right now.”

Kontron NOW - VIDEO Avionics_300x300_watchVideoIn the context of whether B/E Aerospace can secure substantial new business class seat orders with US carriers, Khoury said the firm sees opportunities for orders with “a lot more” than two carriers.

More broadly, B/E Aerospace secured 65% of all Super First Class seating wins in 2015; 50% of business class wins; and more than 50% of coach class, as well as more than 80% of food and beverage preparation and storage equipment awards across the globe. The awards are valued at about $3 billion. Selling directly to airlines and leasing companies under Buyer Furnished Equipment (BFE) programs represents 80% of the firm’s business, while the 20% balance is Supplier Furnish Equipment (SFE) sales to a broad range of OEMs.

On the BFE side, B/E Aerospace was selected by a major international airline to provide “proprietary and unprecedented Super First Class suites” in 2015. And, among its notable SFE wins, the company was selected to provide its ‘Pulse’ passenger oxygen system, as well as toilets, for the Boeing 777X program. It also sealed a long-term agreement to provide LED lighting for the Boeing Sky Interior on the re-engined Boeing 737 MAX, the latter featuring “a significant improvement in the development of the product technology which has enabled both we and Boeing to enter into basically a brand new long-term agreement covering the 737 MAX on an exclusive basis”, according to company president and CEO Werner Lieberherr.

B/E Aerospace’s main rival, Zodiac Aerospace, has been grappling with a variety of problems over the last two years – labor action in 2014 led to gross delays of seats to OEMs; a blast at its Newport, Washington-based Composite and Engineered Materials plant last year further strained the supply chain; and delays in delivering toilets and seats to the A350 XWB program recently prompted Airbus to remove Zodiac Aerospace from the Airbus A330neo catalogue (the company’s inflight entertainment and connectivity unit, Zii, has not been removed from the catalog, however).

Asked to address the impact of Zodiac’s woes on B/E Aerospace’s robust business, Khoury said, “… I would say that there has to be some impact on our orders and backlog from the troubles which our major competitor has openly discussed over the past year or more. So I can’t separate easily what we’ve won as a result of our innovation, as a result of our being the best company in the business in terms of on-time delivery, and from issues that our competitors have encountered, so I think we should basically leave it at that. We are doing really well in the marketplace and I think our opportunities in 2016 for awards and bookings may have been increased as a result of the well publicized issues which our major competitor is encountering.”

While B/E Aerospace’s business aviation business faces headwinds as a result of weak business jet demand in China, Russia and Brazil, the firm says it expects recovery in the segment in 2017. It has increased its overall 2016 guidance and reaffirmed its 2017 outlook.

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