TOP CONTRIBUTORS

Jonathan Sheets

John Simon

www.zacks.com

BEAV AT A GLANCE

P/E ► -14.0   EV/EBITDA ► -31K   ROA ► -1.7% AVG ROE ► -9.4% AVG Debt to Equity ► 1.18 AVG Current Ratio ► 3.68 HIGH Interest Coverage Ratio ► -0.534 AVG

 

 

 

 

 

 

BE Aerospace (NASDAQ: BEAV) is the largest manufacturer of cabin interior products for commercial aircraft and business jets as well as an aftermarket distributor of aerospace fasteners.^[1] BE recorded 2007 total revenues of almost $1.7 billion.^[2] It sells its manufactured products directly to nearly all of the world's airlines and airframe manufacturers as well as other aviation customers.^[1] Due to the company's efforts to increase manufacturing efficiency, BE's operating margin has increased from 11% in 2005 to nearly 15% in 2007.^[2]

In 2007, shipments of commercial jets increased 8%.^[3] Additionally, 22% of the commercial jets sold were wide-body aircraft that use more seats than standard aircraft.^[4] As a result of these two trends, BE's Seating and Interior Systems revenue increased by 63% and 27% respectively in 2007.^[5] Likewise, shipments of business jets increased 24% during 2007. This resulted in a 30% increase in BE's sales of products for business jets.^[5] BE competes with other interior products companies like Astronics (ATRO), Zodiac S.A. and Premium Aircraft Interiors Group.

Business Overview

BE manufactures seats, oxygen storage and delivery systems, other interior components and food preparation products for commercial and business jets.^[1] The company sells all of its products directly to airplane manufacturers and airlines.^[6] The company also distributes a range of aerospace grade fasteners.^[1] BE's revenues grew nearly 49% in 2007, 34% in 2006 and 13% in 2005.^[2] As a result of the company's efforts to increase manufacturing efficiency, BE's operating margin has increased from 11% in 2005 to nearly 15% in 2007.^[2]

Segment Information

BEAV 2007 Revenue by Segment^[5]

• Seating (37% of revenue) manufactures first, business and coach class seats. The segment's first and business class seats are generally more expensive than their coach class seats because of added features such as laptop power sockets, adjustable lumbar supports and leg rests.^[7] In addition to manufacturing and selling new airplane seats, Seating supplies spares and replacements to its customers.^[7] Seating competes with companies like Zodiac S.A. and Premium Aircraft Interiors Group.
• Interior Systems (21% of revenue) is the worlds largest manufacturer of oxygen delivery systems, coffee makers and water boilers, ovens and refrigeration equipment for narrow and wide body aircraft.^[8] The company's oxygen delivery systems can be used on all Boeing and Airbus aircraft.^[8] In fact, Boeing Company (BA) selected BE's Pulse Oxygen system for use in its new 787 wide body airplanes.^[8] Interior Systems competes with companies like Zodiac S.A. and Premium Aircraft Interiors Group.
• Distribution (23% of revenue) manufactures aerospace fasteners.^[9] Roughly 60% of the segment's orders are for the aftermarket.^[9] Distribution stocks over 200,000 different kinds of fasteners making BE an easy one stop shop for airline maintenance crews.^[9]
• Business Jet (12% of revenue) manufactures furnishings and interior systems for business jets.^[10] The segment's furnishings include seats, beds, sofas, credenzas, closets and kitchen structures.^[10] Its interior systems include walls, oxygen supply systems, lighting and air valves.^[10] BE is the largest supplier of furnishings for business jets and supplies its products to almost all business jet manufacturers.^[10] Business Jet competes with companies like Astronics (ATRO).
• Engineering Services (7% of revenue) provides design, installation and certification services for commercial passenger aircraft interiors.^[11] Engineering Services designs and manufactures crew rest compartments for commercial aircraft.^[11] The segment is also the largest provider of structural design services for passenger to freighter conversions.^[11]

Business Financials

BEAV 2007 Revenue by Geography^[5]

BE Aerospace Total Revenues, Operating Income and Net Income^[5][2] ($ in millions)

Key Trends and Forces

Increased demand for new commercial aircraft increases the demand for BE's commercial products

In 2007, 888 new large commercial jets were delivered to airlines, up 8% from 820 in 2006.^[3] As a aircraft manufacturers such as Boeing Company (BA) and Airbus adjusted to increased demand for their airplanes, they increased their orders to interior products suppliers such as BE. Partially as a result of the increased demand for commercial aircraft, BE's Seating revenues increased nearly 63% from $389 million in 2006 to $633 million in 2007.^[5] At the same time, BE's Interior Systems revenues increased 27% from $274 million in 2006 to $348 million in 2008.^[5] In general, when airlines order more planes, airplane manufacturers order more interior products. This increases BE's revenues. On the other hand, when airlines decrease plane orders, BE's revenues decrease.

Increased orders of wide-body aircraft increased the demand for BE's products

During 2007, 22% of new airplanes (excluding regional jets) wide-body aircraft.^[4] The number of wide-body airplanes sold is excepted to grow at roughly 20% a year between 2007 and 2011. ^[4] According to BE wide-body planes use five to eight times more of BE's products in dollar value than standard jets.^[4] Partially as a result of the increased sales of wide-body jets, BE's Seating revenues rose nearly 63% from $389 million in 2006 to $633 million in 2007.^[5] Likewise, the the company's Interior Systems revenues increased 27% from $274 million in 2006 to $348 million in 2008.^[5]

Increased demand for business jets increases BE's Business Jet revenue

During 2007, 1,039 business jets were delivered up 24% from 2006.^[12] As business jet manufacturers increase the number of jets they produce, they increase the number of seats and other interior components they order. As a result of the increase in business jet deliveries, BE's Business Jet revenues increased 31% from $148 million in 2006 to $193 million in 2007.^[5] In general, when deliveries of business jets increase, so do BE's Business Jet revenues. On the other hand, when deliveries of business jets decrease, BE's Business Jet revenues decrease.

Key Competitors

• Astronics (ATRO) manufactures cabin lighting, electronics and power systems for commercial, business and military aircraft. The company's cabin lighting for business jets competes with the cabin lighting produced by BE's Business Jet segment.^[13]
• Zodiac S.A. manufactures inflatable boats and pool equipment as well as aeronautical equipment. The company's aeronautical products include fuel circulation, hydraulics and electrical power systems as well as passenger seats and commercial aircraft interiors. Zodiac's passenger seats compete with BE's Seating Segment and their aircraft interiors compete with BE's Interior Systems segment.^[14][15]
• Premium Aircraft Interiors Group is a private company that manufactures seating, interiors, bathrooms and galley supplies for commercial passenger aircraft. The company's seating products compete with BE's Seating Segment and their aircraft interiors and galley supplies compete with BE's Interior Systems segment.^[16]

BE Aerospace and Key Competitors 2007 ($ in millions)

Note: Zodiac ends their financial year on August 31. Data for Zodiac S.A. were converted to U.S. dollars using the average USD-EUR exchange rates for 2006 and 2007.^[17][18]

References

1. ↑ ^{1.0 1.1 1.2 1.3} BEAV 2007 10-K Item 1: General, pgs 1-2
2. ↑ ^{2.0 2.1 2.2 2.3 2.4} BEAV 2007 10-K Item 6: Selected Financial Data, pg 23
3. ↑ ^{3.0 3.1} BEAV 2007 10-K Item 1: New Aircraft Deliveries, pg 4
4. ↑ ^{4.0 4.1 4.2 4.3} BEAV 2007 10-K Item 1: Wide-Body Aircraft Deliveries, pg 4
5. ↑ ^{5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9} BEAV 2007 10-K Item 7: Segment Reporting, pgs F-20, F-22
6. ↑ BEAV 2007 10-K Item 1: Marketing and Customers, pg 11
7. ↑ ^{7.0 7.1} BEAV 2007 10-K Item 1: Seating Segment, pg 8-9
8. ↑ ^{8.0 8.1 8.2} BEAV 2007 10-K Item 1: Interior Systems Segment, pg 9
9. ↑ ^{9.0 9.1 9.2} BEAV 2007 10-K Item 1: Distribution Segment, pg 9
10. ↑ ^{10.0 10.1 10.2 10.3} BEAV 2007 10-K Item 1: Business Jet Segment, pg 10
11. ↑ ^{11.0 11.1 11.2} BEAV 2007 10-K Item 1: Engineering Services Segment
12. ↑ BEAV 2007 10-K Item 1: Business Jet Industry, pg 5
13. ↑ Google Finance: ATRO
14. ↑ Zodiac 2007 Annual Report: Consolidated Income Statement, pg 80
15. ↑ Google Finance: ZC
16. ↑ PAIG: Homepage
17. ↑ Monthly Average Graph (American Dollar, Euro) 2007
18. ↑ Monthly Average Graph (American Dollar, Euro) 2006