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he aerospace component industry has undergone considerable changes in the past

few years. Production of commercial aircraft by Boeing and Airbus remains very
strong, driven by passenger growth in emerging markets and replacement demand

in North America and Europe.

At the same time, declining demand for military planes, business jets and commercial
helicopters has become a headwind. Also, behind the scenes Boeing is bringing more of its
supply chain in-house to capture the attractive margins. With only two primary customers,
commercial aircraft suppliers must produce innovative products at competitive costs while
providing outstanding execution.
Some suppliers like Hexcel, TransDigm Group and Rockwell Collins are doing fine. Yet
others have struggled, and their share prices reflect this. I am optimistic about overall
industry demand, which should provide a tailwind to companies that need to step up their
game. I think the five companies in this special report are making good strides to adjust
to the new environment.

W W W. F O R B E S . C O M / N E W S L E T T E R S

Astronics (ATRO)
Market cap: $1.1 billion

Recent price: $44.18

52-Week range: $24.75-$48.00

Astronics builds cabin and cockpit lighting systems, airliner seat power systems and other commercial and military components. Aerospace results have been good, but investors have been turned off by
a sharp decline in its ancillary semiconductor test equipment business. This segment, built largely from
a 2014 acquisition, has Apple as a 60% customer.
While management proclaims great optimism, investors rightfully worry about its long-term merits.
Results will need to improve or management may need to consider more strategic options. Either
outcome is good for shareholders. Despite some recent strength, Astronics shares remain nearly 40%
below their prior highs of only a year ago. Valuation is reasonable at 10x next years EBITDA.
Continuing strength in the aerospace business and some resolution in the test segment should help
propel Astronics shares.

W W W. F O R B E S . C O M / N E W S L E T T E R S

B/E Aerospace (BEAV)

Market cap: $5.1 billion

Recent price: $50.53

52-Week range: $36.38-$52.87

As the worlds leading producer of cabin equipment, including seating, galley and storage gear, Floridabased B/E Aerospace is benefitting from its strong positions on Boeing and Airbus places and rising
market share in the galley-related segment. However, investors are concerned about the potential for
weaker airline production and retrofit orders as well as the reality of shrinking business jet and
helicopter orders. Retrofit (about 40% of sales) is a good business for B/E Aerospace with its
higher margins, and it has been growing as sales of newer jets create competitive pressure to
upgrade older jets.
The company is well run although it does carry a modestly elevated amount of debt. With its
reasonable 10.7x EBITDA valuation, strong cash flow and likely improvement in results, B/E
Aerospace shares look attractive.

W W W. F O R B E S . C O M / N E W S L E T T E R S

Esterline Technologies (ESL)

Market cap: $2.3 billion

Recent price: $75.59

52-Week range: $45.12-$96.44

Maker of commercial and military jet cockpit controls, sensors and advanced materials, Seattle-based
Esterline has stumbled from end-market weakness, missed production and shipment goals and
difficulties integrating its frequent acquisitions. The company has often missed its own financial
targets, leading investors to question the capabilities of its once highly-regarded CEO Curtis Reusser,
who joined in 2013 to turn things around. However, Esterlines problems were deeply embedded and
have taken time to fix. Esterline is a high-quality companyits components are used on virtually all
Boeing airliners, many of Airbus commercial jets and the advanced F-35 Joint Strike Fighter.
While its stock jumped after some encouraging news in its most recent quarter, Esterline shares
remain well below their early 2015 levels and look like a good long-term investment.

W W W. F O R B E S . C O M / N E W S L E T T E R S

Triumph Group (TGI)

Market cap: $1.6 billion

Recent price: $27.30

52-Week range: $22.94-$49.87

Triumph Group is an aggregation of nearly 50 specialized manufacturing companies that produce

aerostructures and precision components as well as provide product support. Margins have fallen as its
unwieldly and dispersed organizational structure is no longer competitive. However, under new CEO
Daniel Crowley, who joined in 2016, Triumph is restructuring its entire approach. His plan is to cut the
number of operating companies in half, reduce the number of manufacturing locations, close or sell
underperforming segments, reorganize the management structure and improve overall execution. Not
only should this reduce costs, but it will likely also convert assets to cash and increase Triumphs
ability to win and retain new business.
While revenues and cash flow over the next few years could be challenged as its aerostructure
contracts begin to wind down, the companys rebuilding should position it for healthy profits a bit
further down the runway. Valuation at about 6x next years EBITDA is appealing.

W W W. F O R B E S . C O M / N E W S L E T T E R S

Wesco Aircraft Holdings (WAIR)

Market cap: $1.4 billion

Recent price: $13.53

52-Week range: $9.91-$15.07

Wesco Aircraft is the worlds largest distributor to the global aerospace industry, offering 565,000
different products. The company has struggled as customers are transitioning toward lower-margin
long-term contracts rather than buying on an ad hoc basis. It is also vulnerable to Boeings new supply
chain initiative. To offset this, Wesco is providing more supply chain management and logistics
services, hoping to lock in long-term revenues and higher margins.
The CEO, David Castagnola, joined Wesco a year ago and is working to accelerate this transition
while maintaining margins. Private equity firm Carlyle holds a 24% stake that should keep some
pressure on the company. Debt levels are elevated, and the companys strategy change may take a while
to succeed, but healthy cash flow and better execution along with steady new commercial and defense
aircraft orders could lift Wescos shares.

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