BEAV

B/E Aerospace, Inc. (BEAV)

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BE Aerospace, Inc. (BEAV)

Q3 2009 Earnings Call Transcript

October 27, 2009 9:00 am ET

Executives

Greg Powell – VP, IR

Amin Khoury – Chairman and CEO

Mike Baughan – President and COO

Tom McCaffrey – SVP and CFO

Analysts

Robert Spingarn – Credit Suisse

Myles Walton – Oppenheimer

Howard Rubel – Jefferies

Eric Hugel – Stephens

Lucy Gao – Macquarie Capital

Presentation

Operator

Good morning. My name is Jessica Morgan, and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to the B/E Aerospace third quarter 2009 earnings conference call. All audience lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator instructions) As a reminder, ladies and gentlemen, this conference is being recorded, this day, October 27th, 2009. Thank you.

I would now like to introduce B/E Aerospace's Vice President of Investor Relations, Greg Powell. Mr. Powell, you may begin your conference.

Greg Powell

Thank you, Jessica. Good morning to everyone, and thank you for joining us this morning. We are here to discuss our financial results for the third quarter ended September 30th, 2009. By now, you should have received a copy of the news release we issued earlier this morning. If you haven't received it, you'll find a copy on our Web site.

We will begin this morning with remarks from Amin Khoury, Founder, Chairman, and Chief Executive Officer of B/E Aerospace. And then we will take your questions. For today's call, we prepared a few slides to help you follow our discussion. You can find our presentation on the Investor Relations page of the B/E Aerospace Web site at beaerospace.com. In addition, copies of the slides will be posted on our Web site for you to refer to after the call.

Joining us for the call this morning also are Mike Baughan, President and Chief Operating Officer; and, Tom McCaffrey, Senior Vice President and Chief Financial Officer.

As always, in our prepared remarks and our responses to your questions, we will rely on the Safe Harbor exemptions under the various Securities Acts, and our Safe Harbor statements in the company's filings with the SEC.

We will address questions following our prepared remarks. At that time, the operator will provide instructions. As in the past, please limit your questions to no more than two at a time. Now I will turn the call over to Amin Khoury, Amin.

Amin Khoury

Thank you, Greg, and good morning, everyone. This morning, I would like to discuss the current macroeconomic environment and the impact it's having on our customers and on our business. Then we will review our third quarter financial and operating results. And finally, we'll discuss our guidance for the remainder of 2009 and the outlook for 2010.

Let's first discuss the current market environment. The global economic crisis appears to be abating. Credit markets are beginning to function. The stock market has recovered strongly off its March, 2009 low, but remains down about 30% from its 2007 high. Economies are improving, and global air traffic declines appear to have finally ended. However, prospects for our recovery continue to be hampered by high global unemployment rates, depressed real estate prices, lack of readily available credit, and weak consumer and business spending.

Despite recent signs of recovery, our global airline customers continue to suffer from high fuel cost, weak demand for passenger travel, and significantly lower ticket prices, all of which have resulted in sharply lower yields. The airlines have lost $6 billion globally during the first half of this year, and are forecast to lose about $11 billion for the full year. Fortunately, the airlines have been able to access the capital markets to shore up their balance sheets. In the past six weeks or so, the US airlines, alone, have accessed the capital markets to raise about $4 billion.

Although global traffic declines have stabilized, US September passenger revenue was down 19% on about 2% fewer passengers, paying nearly 18% less per ticket than a year earlier. And while the IATA international data is not yet available, global traffic comps should be better than US comps, as clearly, both Asia and the Middle East are now growing at healthy rates.

Notwithstanding the unimpressive traffic results for 2009 to date, the most recent traffic results are starting to show slight sequential improvement over prior months, and a consensus is building among forecasters that 2010 traffic will show an increase over 2009. And clearly, improving global traffic is expected to increase demand for our consumables and spares.

While the airline industry has reduced global capacity by about 10%, the reduction in demand for consumables and spares has been in excess of 30%. We believe that many of aircraft idle during the past year were flown right up until scheduled heavy maintenance was required. As such, we believe there was a growing heavy maintenance backlog that will likely create additional demand for consumable products and spares once revenue passenger miles turn positive on a year-over-year basis and demand for lift begins to improve.

Throughout the downturn, we have been intensely managing our cost structure, which in turn has allowed us to maintain our margins in spite of the downdrafts in demand for our products. We've been able to protect our balance sheet, and have begun to generate respectable cash flows, while at the same time allowing the company to continue to invest in new products and technologies in order to expand our global market leadership positions.

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