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Laurans Mendelson

Thank you, Samara, and good morning to everyone on the call. We thank you for joining us, and we welcome you to this HEICO first quarter fiscal '25 earnings announcement teleconference. I'm Laurans Mendelson, Chairman and CEO of HEICO Corporation. I'm joined here this morning by Eric Mendelson and Victor Mendelson, HEICO's Co-Presidents; and Carlos Macau, our Executive Vice President and CFO.
Before highlighting our exceptional first quarter of fiscal '25 results, I would like to personally thank HEICO's incredible team members for their hard work, dedication and commitment to excellence. Their tireless efforts to exceed customer expectations and deliver outstanding results with unique efficiency are the driving force behind our remarkable success. Your efforts and accomplishments continue to shape HEICO's bright future.
We're very proud of our first quarter results, which reflect consolidated margin expansion, strong cash flows and record net sales in both of our segments. I remain very bullish on HEICO's ability to win new opportunities during fiscal '25. As we look ahead to the remainder of fiscal '25, our team is filled with great optimism.
The current US administration's pro-business agenda aligns well with our long-term goals, providing an environment for innovation, investment and expansion. With our strategic focus on key markets like defense, space and commercial aviation and the exceptional talent and drive of our team members, HEICO is uniquely positioned to capitalize on new opportunities and sustain our momentum across diverse industries.
Summarizing our first quarter fiscal '25 results, consolidated operating income and net sales in the first quarter of fiscal '25 represent record results for HEICO, improving by 26% and 15%, respectively, as compared to the first quarter of fiscal '24. Consolidated net income increased 46% to a record $168 million or $1.20 per diluted share in the first quarter of fiscal '25, and that was up from $114.7 million or $0.82 per diluted share in the first quarter of fiscal '24.
Net income attributable to HEICO in the first quarter of fiscal '25 and '24 were both favorably impacted by a discrete income tax benefit from stock option exercises. The tax benefit in the first quarter of fiscal '25, net of controlling -- noncontrolling interest was $26.5 million or $0.19 per diluted share, and that was up from $13.3 million or $0.10 per diluted share in the first quarter of fiscal '24. Excluding the impact of this tax benefit in both periods, earnings per share increased $0.29 per diluted share or 40% up.
The Flight Support Group set all-time quarterly operating income and net sales records in the first quarter of fiscal '25, improving 22% and 15%, respectively, over the first quarter of fiscal '24. The increases principally reflect strong 13% organic net sales growth mainly attributable to increased demand for the Flight Support Group's aftermarket replacement parts and repair and overhaul parts and services product lines and the impact from our profitable fiscal '24 and '25 acquisitions.
The Electronic Technologies Group operating income and net sales improved 38% and 16%, respectively, over the first quarter of fiscal '24. These increases principally reflect strong 11% net sales growth -- organic sales growth mainly attributable to increased defense, space and aerospace product deliveries and the positive impact from our fiscal '24 and '25 acquisitions.
Cash flow provided by operating activities increased 82% to $203 million in the first quarter of fiscal '25, and that was up from $111.7 million in the first quarter of fiscal '24. We continue to forecast strong cash flow from operations for the entire fiscal '25.
Consolidated EBITDA increased 22% to $273.9 million in the first quarter of fiscal '25, and that was up from $224.4 million in the first quarter of fiscal '24. Our net debt-to-EBITDA ratio was 2.08 times as of January 31, '25, and that compared to 2.06 times as of October 31, '24. Acquisition opportunities and M&A diligence efforts within both of our operating segments remain highly active, reflecting a robust pipeline of potential targets.
We consistently seek complementary acquisitions that meet our strategic and financial goals. This is guided by a disciplined approach that we pursue acquisitions that make financial sense and are accretive to our earnings while enhancing long-term shareholder value.
In January '25, we paid our regular semiannual cash dividend of $0.11 per share, which was our 93rd consecutive semiannual cash dividend since 1979. We were also very busy with acquisitions, having completed several key acquisitions in fiscal '25's first quarter. In November, our Exxelia subsidiary acquired 70% of SVM Limited, a designer and manufacturer of high-performance electronic passive components and subsystems, primarily serving the health care and industrial end markets.
In December, we secured an exclusive license and purchased key assets from Honeywell International in order to support the Boeing 777 AMs and the 737 NGP 8E/7 via product lines. In January, we acquired a 90% interest in Millennium International, a business jet avionics repair company, which complements HEICO's growing avionics repair capabilities.
All of these acquisitions were funded principally using proceeds from our revolving credit facility and cash provided by our operating activities. In addition, we expect each of these acquisitions to be accretive to our earnings within the year following the acquisition.
At this time, I would like to introduce Eric Mendelson, Co-President of HEICO and President of HEICO's Flight Support Group, and he will discuss the first quarter results of the Flight Support Group. Eric?

Eric Mendelson

Thank you very much. The Flight Support Group's net sales increased 15% to a record $713.2 million in the first quarter of fiscal '25, up from $618.7 million in the first quarter of fiscal '24. The net sales increase in the first quarter of fiscal '25 reflects strong 13% organic growth and the impact from our profitable fiscal '24 and '25 acquisitions. The organic net sales growth mainly reflects increased demand for our aftermarket replacement parts and repair and overhaul parts and services.
Wencor continues to exceed our expectations, and this was an excellent acquisition for HEICO. Our customers continue to find great value in our larger aftermarket product offerings for their aerospace parts and component repair and overhaul needs, which has translated into excellent growth opportunities and success for both our legacy businesses and Wencor.
We continue to operate Wencor as a stand-alone business operation. I have defined our strategy as cooperation, cash, capabilities and consistency without consolidation. The results have proven this to be the absolutely correct strategy. As I've mentioned before, we continue to make good progress working together and serving our customers in a combined seamless fashion.
Some examples of how we are working together include: one, utilization of all HEICO and Wencor PMAs and DERs at all repair stations; two, commercial and defense aftermarket sales cooperation; three, Wencor e-commerce platform lists all HEICO noncompetitive PMAs; four, Wencor is utilizing HEICO's manufacturing base to quote and build many new products; five, engineering and regulatory cooperation; six, sharing our best-in-class vendors; and seven, our back-office synergies such as payroll, insurance, retirement benefit plans, cybersecurity and export compliance that will help offset additional regulatory compliance costs such as SOX and our FAA ODA.
Flight Support Group's defense sales continue to grow, presenting a strong opportunity, especially as the current US presidential administration prioritizes defense and cost efficiency. As one example, we are making progress in setting the path to selling aircraft replacement parts to DoD agencies building upon our efforts over the past 2 years and frankly, the decade before.
While we don't expect this to contribute meaningfully to our 2025 revenues, we are very excited about the significant savings the US government taxpayers can reap from buying our parts, just as so many commercial airlines do around the world. For competitive reasons, I can't get into further detail on these efforts, but I can say that serious work is going into making this happen.
Our missile defense components business is experiencing significant growth as well, driven by increasing demand from the US and its allies. With a substantial backlog of defense missile orders and ongoing shortages, we anticipate meaningful expansion from this firm pipeline, reinforcing our commitment to delivering cost-effective solutions without compromising quality.
The Flight Support Group's operating income increased 22% to a record $166.1 million in the first quarter of fiscal '25, up from $136.1 million in the first quarter of fiscal '24. The operating income increase principally reflects the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth and an improved gross profit margin. The improved gross profit margin principally reflects the previously mentioned higher aftermarket replacement parts net sales.
The Flight Support Group's operating margin increased to 23.3% in the first quarter of fiscal '25, up from 22% in the first quarter of fiscal '24. The increased operating margin principally reflects the previously mentioned lower SG&A expenses as a percentage of net sales and improved gross profit margin, mainly reflecting efficiencies realized from the previously mentioned net sales growth.
Acquisition-related intangible amortization expense consumed approximately 270 basis points of our operating margin in the first quarter of fiscal '25. The FSG's cash margin before amortization or what we refer to as EBITA was approximately 26%, which has been consistently excellent and is 120 basis points higher than the comparable Flight Support Group cash margin of 24.8% in the first quarter of fiscal '24.
I am very happy with the continued expansion of our cash margin and believe our efficient decentralized operating structure has permitted us to expand these margins as we simultaneously delight our customers with fair prices, coupled with undisputed industry-leading quality and turnaround times. This is an incredible accomplishment, which is truly unique in our industry.
Now I would like to introduce Victor Mendelson, Co-President of HEICO and President of HEICO's Electronic Technologies Group, to discuss the first quarter results of the Electronic Technologies Group.

Victor Mendelson

Thank you, Eric. The Electronic Technologies Group's net sales increased 16% to $330.3 million in the first quarter of fiscal '25, up from $285.9 million in the first quarter of fiscal '24. The net sales increase reflects strong 11% organic net sales growth and the impact from our fiscal '24 and '25 acquisitions. The organic net sales growth mainly reflects increased deliveries of our defense, space and aerospace products. Further, orders remain very strong with the ETG's backlog reaching the highest ever quarter end amount on order.
Our non-aerospace and defense markets witnessed sequential order improvement in the first quarter, which we believe bodes well for a sales recovery in those markets later this year as customers continue working off their excess inventory.
The Electronic Technologies Group's operating income increased 38% to $76.5 million in the fiscal -- first quarter of fiscal '25, up from $55.3 million in the first quarter of fiscal '24. The operating income increase principally reflects the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth and an improved gross profit margin. The improved gross profit margin principally reflects the previously mentioned favorable mix of increased space, defense and aerospace products net sales.
The Electronic Technology Group's operating margin improved to 23.1% in the first quarter of fiscal '25, up from 19.3% in the first quarter of fiscal '24. The improved operating margin principally reflects lower SG&A expenses as a percentage of net sales, mainly due to the previously mentioned efficiencies and the previously mentioned improved gross profit margin due to the favorable product mix.
Importantly, before acquisition-related intangibles amortization expense, our operating margin was above 27.2% as intangibles amortization consumed around 410 basis points of our operating margin. This is -- you will recall, is how we judge our businesses as it most closely correlates to cash. On a true operating basis, these are excellent cash margins, and we are very pleased with them.
I turn the call back over to Larry Mendelson.

Laurans Mendelson

Thank you, Victor. As for the outlook, we look ahead to the remainder of fiscal '25 and continue to anticipate net sales growth in both the FSG and ETG divisions, primarily driven by strong organic growth supported by increased demand for most of our products. In addition, we plan to accelerate growth through our recently completed acquisitions while positioning ourselves to capitalize on our cost-saving solutions for customers.
Our priorities remain focused on providing excellent career opportunities for our team members while advancing new products and services, development, expanding market penetration and maintaining our fiscal strength and flexibility, all with a commitment to delivering long-term value to our shareholders.
We believe the future is extremely bright for HEICO. And when we study the numbers in the first quarter and see the large gains in both margins and cash flow, we know that the balance of '25 is going to be very strong. And we feel that we have a tremendous opportunity to grow HEICO larger than what it is today, and we will continue to do so.
I offer the opportunity for any of you to call or if you have some questions or comments now. But if your comments are not taken today, please call Carlos or me or Eric or Victor, and we will be happy to give you the outlook. Keep in mind that ETG has the largest backlog in its history.
Thank you very much. And we now open the floor for questions. Samara, you can open the floor for questions.

Question and Answer Session

Laurans Mendelson

(Operator Instructions) Larry Solow, CJS Securities.

Peter Lukas

Peter Lukas for Larry this morning. You guys covered a lot, and I do appreciate that. I guess just starting with Flight Support Group, very impressive mid-teens sales growth on top of mid-20s in the quarter -- first quarter last year. You talked about the growth drivers being organic demand for aftermarket repair services. I guess maybe if you could just give us a little more color. Is that penetration of existing customers or expansion with newer customers? How should we think about that?

Eric Mendelson

Hi. This is Eric. I'd be happy to answer the question. So I think that most of the growth is coming from expansion with existing customers. We pretty much sell to everybody in the industry. So it's just deeper market penetration. You pointed out that the 13% organic growth was on top of about 12% organic growth last year.
So that really is, I think, an outstanding accomplishment and speaks to the increased market penetration and the fact that we're hanging on to this market. We're continuing to grow. Our customers want additional cost savings, products and services, and it's really taking hold very well.

Peter Lukas

And then just lastly, looking at the margins, 23% operating margins in the quarter, I guess, again, driven by higher aftermarket sales. But how should we think about that going forward? With sales expected to grow sequentially, what keeps margins would look to be kind of flat for the rest of the year? Is that simply a question of mix?

Eric Mendelson

It's funny you asked that. So we get budgets and updated forecasts from all our subsidiaries. And somebody -- one of our investors commented to me that on the last call, I said something about our -- while our people are phenomenal, they also tend to sandbag quite well. So they turn in their numbers, they turn in their budgets. And it really -- I don't think it's sandbagging. I think it's truly what they think that they can accomplish, mildly conservative. And what ends up happening is the demand is much higher than they anticipate. And their people really come through and are able to develop the products, get the products in, get them sold, and we're able to perform and do much better.
So while I'm very happy with our roughly 26% EBITA margin in the first quarter, I'm reluctant to predict anything higher. Now if you look at the trend and what happens, we continue to move up. And we've gone on an EBITA basis from, I don't know, roughly 18% to now 26% over the last approximately 10 years. And we've just gradually taken that up.
And I think that's as a result of having a team that has been working together for a very long time. They understand each other, they trust each other, they like each other. And they're able, as a result, to make, if you will, make bets take risk that the results are going to be very good and everybody is going to do their job. So while we're not forecasting increasing margins, I mean, that has been our trend and our people are working very hard to make that happen.

Operator

Sheila Kahyaoglu, Jefferies.

Sheila Kahyaoglu

Great quarter. So I guess my first question, just a little bit of fun here. Margins are 23% in both segments for the first time. So how do we think about the expansion from there? Eric, Victor, you both mentioned EBITDA margins well above that in the 27% range. So just how do we think about margin expansion for both segments from here and longer term, but near term, how price contributed to each segment?

Victor Mendelson

Sheila, this is Victor. For the Electronic Technologies Group, as you probably heard me say, I feel comfortable with that EBITA range in the 26% to 28% range. And hopefully, 28% -- hopefully higher and the goal is higher. But I'd rather everybody be comfortable at this level. And if we do better, which we're certainly working to do and hoping to do, we'll deliver on that at that time. And Eric will answer on support.

Eric Mendelson

So, I mean, it's a great question with regard to the margins. And -- we never forecasted, we never predicted that the margins would end up being where they are. Our -- as you know, for following us and getting to know us over the last decade or two, has been just to keep our heads down, work very hard, execute on the details. Everything is in the details. And making sure that we minimize the obsolete inventory that we make sure, technically, the parts of where they need to be. We understand the pricing, what makes our customers happy.
And when you look at -- Flight Support Group is not an OEM. We don't have typically proprietary products where we are the only authorizer. We go to sleep every night knowing that the vast majority, 90%-plus of our product line is also offered by somebody else. And yet we're able to turn out this 26% EBITDA, which we think is the most important margin because depreciation and CapEx are roughly equivalent.
And if you're going to be in business long term, EBITDA is the correct way to look at it. But even on an EBITDA basis because that's what our peers do, we're 27%. So to be an independent business doing 27% EBITDA margin, I think is frankly phenomenal and honestly, I never thought that we would get here.
So having said that, our people are working really hard in order to continue to improve efficiency. This is not done through pricing. This is done through watching our costs, increasing our product line, absorbing more fixed overhead.
So I think, look, we're going to work very hard to make those margins continue to trend up. But when you talk about 27% margins for a competitive aerospace business, I think it shows the, if you will, the uniqueness of the franchise and the fact that most others in the space don't -- in the independent space, don't operate at those type of margins. So I'm nervous to predict that they're going to go higher, but I would say I'm optimistic that -- and hopeful that they will.

Sheila Kahyaoglu

Sure. Maybe, Eric, if I could ask one on PMA since we didn't get to talk about this. I know you don't want to talk about defense PMA opportunities, but overall PMA adoption has become a hot topic as MRO facilities are pretty tight. What are you thinking about penetration into the market adoption? And any new product opportunities that you're seeing and thinking about in '25?

Eric Mendelson

Yeah. So we're -- we continue to focus on broadening our product line, developing more parts. We're really very excited about the new acquisitions that we've had in Flight Support in the first quarter. One is the Honeywell aims and via product lines for -- basically, which is the avionics trains for the 777 and the 737 NG and also includes the new manufacturer of those units for the E7 and the P8 that are being delivered. So I like very much the broadening of our capability. We already had a very wide avionics business, broad avionics business, but that's an example of getting into some really critical technology, which is coupled with the display units that we acquired over a year ago.
And then also, I'm very excited about our Millennium International acquisition. So this is really the leading biz jet avionics repair facility, I think, independent facility in the world. You speak to the customers, there is nobody like Millennium, not even HEICO who's doing the stuff that Millennium is doing. And we are just absolutely overjoyed that they are in the HEICO family, and we can offer our customers PMA and DER if that's what they want or if they want OEM, we're happy to do that as well. So it's whatever the customer wants.
So I think that speaks to the broadening, and I think there's going to be a lot more potential for us in the biz jet space. We're very, very much focused there. People have asked us to get into it, and I'm very excited about it. But again, we just continue to broaden the capabilities. 10 years ago, nobody would have ever thought that HEICO would control the aircraft information management system of the 737 engine or the 777. And we couple that with our 20,000 PMAs and whatever it is, nearly 10,000 DERs, and it's a pretty broad offering, which just continues to grow step by step every quarter.

Operator

Noah Poponak, Goldman Sachs.

Noah Poponak

I wanted to follow up on the pricing question because a few quarters ago, we had talked on here about it's not the number 1 weapon in your arsenal necessarily for expanding profitability and creating value, but it is an industry with pricing power. And then your -- some of your peers and companies in the OEM parts have had price increases well above the historical average recently in the inflationary window we've been in.
And so you had the strategic decision of do you just keep taking even more market share, especially via PMA, which has attractive pricing? Or do you close that price gap? Or do you close -- do you do half and half? And you had talked about maybe leaning more into price than you had in the past just because that gap had opened. And so I was curious where you stood on that? How much of that was in the margin of this quarter? I think it's a really interesting question.

Eric Mendelson

Yeah. It's a great question, Noah. And we clearly have left a lot of money on the table. We -- our philosophy always has been that we've got to cover our cost increases. And we exist because our customers need reasonable prices, coupled with the shortest turn times and the highest quality. And that's really what we've done.
So the answer is no. We have not squeezed the orange in order to deliver these numbers. We could -- frankly, I think our prices could be a lot higher, but we don't do that. And our prices have been, as you know, sort of the increases have been sort of low single digits, maybe the high end of low single digits, but really sufficient in order to cover our cost increases.
We do have certain contracted customers where as a result of fixed prices for a longer period of time, there could be more substantial price increases. But if you look at it on an annualized basis, it's still that, I would say, low single digits up to the high end of the low single digits. So we have not -- no, we've not pushed the pricing. We want to make sure that we're very fair. And I think when you look at the -- I know Wall Street looks at organic growth.
They want to see the revenue organic growth rate, and that seems to be the metric and 13% is great. But what I really look at is the 22% on the operating income side because that's what all of -- none of our people -- we don't talk revenue at HEICO. We talk earnings. And when you look at 22% operating income increase, of which, let's just say, 90% of that is -- or 80% of that is organic, that's huge. And we do that without jacking prices inappropriately. So I think we have a good -- a very, very good balance. And that's why we have, if you will, a lot of gas in the tank and why people want to work with HEICO.

Noah Poponak

Okay. Great. I appreciate that, Eric. And just one on ETG. The -- I guess, the defense space in Aero segment of it, up 11% in the quarter and that's been volatile, and I think a watch item for people -- and it did the having a fairly tough compare. Victor, Carlos, can you just talk about what you're seeing there, how you expect that to trend through the rest of the year?

Victor Mendelson

Carlos, do you want to --

Carlos Macau

I could take a stab at that. So No, we had tremendous growth in Defense space and aerospace in Q1. And it doesn't feel to me like that, that's going to subside. Now I would caution you that ETG's characteristics are very lumpy. We have big quarters and down quarters. And I think for the -- broadly speaking, for the year, I see a continuation of growth in defense and aerospace -- space, I see it being very lumpy. It was good this quarter.
Next quarter base would be down. It could be up. We don't know yet. And we still have what I would consider a little bit of a tailwind that's coming back in the other electronics area, which for the first quarter was pretty flattish, maybe just a tick down. And so we haven't seen the big recovery yet that we talked about in December. But I do expect, as we second quarter here that we should see some life and then that will be more tailwinds. So I have some good expectations for the ETV this year.

Victor Mendelson

Yeah. And I'll add to that. This is Victor. On the other markets, the non-A&D markets, we're seeing orders moving in the right direction, not a bow wave, not a huge amount, but definitely moving in the right direction. And I mentioned in my comments, improving a bit sequentially in the quarter. And so that, I think, bodes well there. But as Carlos said, continue to expect this volatility. That's been our pattern over literally the decades. And sometimes we break out of that, and people think we're at a different inflection point, but we tend to look over the course of the year for the overall average.

Operator

Scott Mikus, Melius Research.

Scott Mikus

Larry, Victor, Eric, Carlos, a quick question on leverage. You ended with leverage at 2.1x, but you still deploy $155 million of capital for acquisitions in the quarter. Given how big the overall enterprise is and the amount of cash you're generating, is there any fundamental shift in how much leverage you want to operate the business with on a go-forward basis?

Laurans Mendelson

The answer is no. We are generally -- the maximum leverage we use is 3 times EBITDA, and we promised The Street that we would drop it to 2 times within 1 year, which did. We like it at 2 times. But if we see a very desirable acquisition, we can go to 3 times because we have such strong cash flow. I mean our cash flow permits us go from 3 times or 3.5 times back to 2 times within, say, 12, 14 months. So we want to take advantage of our ability to make an acquisition using cash because people like cash. And if we get a good opportunity, we will reach, and we're very careful. We want to make sure that, that opportunity will create strong cash flow itself.
Number two, that it will have earned -- increase the earnings per share and that it will be a strong business. And so far, we have accomplished those objectives. So I think that we've used our capital in a very, very careful way and you've seen the results. When we made an acquisition of Wencor, people said, Oh my God, you stretched to 3 times or so, and look at the results. So I think you're going to see more of the same. The 1 thing that I think HEICO is really good at is managing its capital. And we have shown that over the last 30 years -- and I believe that we'll continue exactly the same.

Scott Mikus

Okay. And then switching over supply chain. A lot of your peers have talked about seeing meaningful improvement in their supply chain. So I was wondering if you could provide color on how the suppliers are performing at both FSG and ETG? And then are there any sort of metrics you can provide with delivery or parts conforming to quality that are coming from your suppliers?

Victor Mendelson

Yeah. So look, this is Victor. I'll start with it. The supply chain issues we had experienced a while ago, have really improved and we've talked about that on some prior calls. And I would call it more or less noise level now across the EPG. There are some businesses that are particularly affect still and others that are not.
But to me, it feels fairly normal in that regard. I don't have any specific metrics on that company-wide. I can say that our past dues, if you will, the hour past due in our backlog has dropped dramatically. I don't think it was terrible. I think though at one point, as I recall, a couple of years ago, we felt it was about $50 million or so in total, where we had things shifting out to the right, but it's dramatically less than that now, and I'd call it more in the normal range.
And Eric, I don't know if you have a take for Flight Support business.

Eric Mendelson

Yeah. I would say, in general, things are getting a little bit better. There are some areas getting better. There are other areas getting worse. I can tell you that our sales could have been nicely higher if all of our suppliers were able to deliver. There's been just a massive -- our suppliers have a significant issue with regard to labor. I think that, that's getting settled out now. The answer is yeah. We do look at the on-time metrics by dollars, by orders, by quantity in all of the businesses.
So we do study it. I'm not prepared to share the details right now, especially since we operate a decentralized business, and I don't have a, if you will, a consolidated report, which pulls all that together, but we do review it at each of the businesses. So I would say getting better, but not great. And then, of course, this most recent issue with SPS and the unfortunate fire that they had is obviously going to further constrain the industry. And what we'll have to see, I think that's going to impact a lot of participants in the industry.

Operator

Jan Engelbrecht, Baird.

Jan Engelbrecht

Eric, Victor and Carlos, I'm on for Peter Arment this morning. Congrats on a really strong quarter. Victor, maybe a question for you on and just defense. Just given the constant news flow, we're seeing tied to they're currently reviewing Pentagon contracts. Could you just provide your updated view on HEICO's positioning within defense markets?
And your opportunity to win meaningful content just given the value-based approach that you follow? And obviously, this aligns really well with the current administration's goals? And -- is there any particular area maybe within sort of supporting, I guess, airborne fleets or defense electronics with radar and Marcelle defense platforms that you see as a really strong area to target?

Victor Mendelson

So I think there's some very nice opportunity for us in there. And to be clear, I believe -- we believe there'll be winners and losers in this hasn't shaken out yet as to what we'll win and what we'll lose. So we can't say with certainty what we'll experience. But as you pointed out, our focus has always been on cost saving solutions for the customers where we provide seller cost alternative than to what they could do otherwise. And so that continues to be the case. I think the things that we're excited about particular are some of the missile defense programs.
We have some very good content on those. Some of the newer space-based programs where I think we can operate solutions there in the ETG as well as that basic blocking and tackling that I talked about. And again, we've always, as Eric mentioned, with our PMA parts business, we've never pushed on the pricing lever. That has been our strategy and approach on long to deliver great value to the customers. So they're not looking to go somewhere else or figure out how to go somewhere else. So I think it definitely endures to our benefit all the time, but especially at a moment like this.
For the Flight Support Group, Eric may want to address that, but I do think there's some very nice revenue upside for us, not necessarily this year, but as we get a little further out on commercial parts equivalent parts for military use.

Eric Mendelson

Yeah. Victor, I agree with everything that you said. I think that are going to be very good opportunities within the defense department. For competitive reasons, we never get into specific customers nor products. But obviously, the spend is tremendous. And we all know that there's tremendous areas for improvement that everybody acknowledges that.
And I really need to, if you will, congratulate the administration on this focus because everybody has known this for a long time, and frankly, not much or anything has done about it. And even everybody in the industry and all of the AIA members agree that there's tremendous opportunity for efficiency gains in terms of process, cost alternatives.
So I think HEICO is going to be very well positioned. You're familiar with our product line, whether it's parts, repairs, distribution and defense sustainment to specialty manufacturing, I think we are going to be in the sweet spot here. And that's what HEICO has been built to do, to deliver those types of savings. So I'm quite optimistic. But again, this is not going to be a fiscal '25 story. Maybe there'll be a little bit of revenue in fiscal '26, but a lot has to be done. And that will take a little bit of time. But I think at least we're on our way.

Jan Engelbrecht

Perfect. Victor, it's very helpful. Just a quick follow-up. Just perhaps Eric, back to your call is just some high-level thoughts on commercial aerospace, global travels at record levels, but the OEM build rates are directionally moving higher, specifically at Boeing in 2025. You just talk about for FSG, just the impact, if any, on medium-term margins, call it, the next one to three years as the industry mix towards aftermarket towards more of an OEM mix?

Eric Mendelson

Yeah, that's been spoken about now for a couple of years. And yeah, some of the Boeing in particular, has had more challenges. But if you look, I mean, Airbus has been delivering a lot of new aircraft. And -- if you look at the way the fleet is expanding and how people want to travel as incomes increase around road, I spent the first three days of this week, reviewing our sales with all of our sales leaders in the various businesses. And I can tell you they don't see any slowdown whatsoever.
So I think things are going to be very strong. And I'm really not -- I'm just not worried about it. If down the road, there's a reduction, then fine. We go ahead and handle it. We've been through in the last 35 years, so many phases of this industry. But fundamentally, you look at the age of the fleet out there and how you've got this -- whatever it is 20-something thousand Aircraft aging, one per year. Yeah, some of the older ones will come out. But the vast majority of them are going to continue to consume a lot of parts at higher price points.
And I think HEICO is very well positioned. If a customer want OEM material, we've got it for them. If a customer wants alternative material, we've got it for them. The OEMs that we represent want to develop alternatives and want to expand their business. There is no better distributors to go with than steal dynamics and Wencor. I mean they knock the ball out of the park continually. They are able to grow their principles business because once you locked out of a particular program, you can't access it.
And between sales dynamics and Wencor, they're tied in with all the airlines and the principles come to them, and we provide opportunity to be able to grow their business as a result of the connection with all of the other HEICO and Wencor PMA and other opportunities. But we're able to deliver a product and a service that nobody else in the industry can earn on. So I'm quite optimistic that regardless of what happens with Boeing starting to deliver more aircraft that HEICO has got a lot of tailwinds here.

Operator

Tony Bancroft, Gabelli Funds.

Tony Bancroft

Gentlemen, very well done as always. Any update just interested in the previous acquisition you made a little while ago on Honeywell, and I apologize I got on late into the call. But on Honeywell's avionics businesses that you guys did. Any update with that? Are there any more -- anything out there that you're interested in? Do you still like that area? Maybe just what your appetite is there?

Eric Mendelson

Yeah. We -- Tony, great question. Honeywell is a phenomenal company. They put out incredible products, and we're very happy to be partnered with them. And now we have purchased three product lines from them in the last 18 months, and I think it's worked out extraordinarily well. Because they are able to take their limited floor space in their limited number of members and allocate them to higher-value activities. And HEICO is a great partner when it comes to buying these product lines. We execute extremely well. We're very knowledgeable about the products, and we are very well liked by the customers.
So I think not all but all many different manufacturers out there, we've now purchased product lines from. And we have really a very successful time-tested process where we're able to buy, whether it's Northrop or Triumph or Honeywell or others that we don't even talk about, we've been able to buy product lines, get this integrated, make sure that the customers are happy, and it works out very well.
So I'm overjoyed with the product lines that we bought in terms of the display units and the aircraft information management system for the -- and the ELT, the emergency locator transmitters for commercial aircraft. And I think that there continues to be very good opportunity because we're known as a very reliable partner.

Tony Bancroft

And then maybe I guess, I mean I haven't caught you talking about, obviously, Berkshire acquired your shares. Just I think it's pretty obvious, but just want to get your thoughts and let you explain why you think they bought you -- bought your company, obviously, in new position for them? And would it ever be possible that they would just -- I mean, if you want to buy your entire company, you guys have done so well and they're sort of fine with essentially all their values? Just wanted to get thoughts on that.

Eric Mendelson

Yeah. So I mean, we're obviously overjoyed that Berkshire has become an investor in HEICO. And we think that definitely, as you point out, our culture is aligned, and there's a lot of similarities in the business. We didn't, if you will, set out to sort of copy Berkshire's culture. We just set out on this path 35 years ago when it was a small $25 million company to do what made sense.
And what we saw was that by operating this decentralized model with incredible operators, you're able to produce phenomenal results. And Warren Buffett is the father and the genius behind -- originally behind that whole strategy, and he does it obviously in a significantly larger scale than we do it.
So we're very happy. As far as your comments about Berkshire wanting to -- possibly buying HEICO. HEICO is not interested in selling the business. We're very happy with the continued growth. Berkshire is really -- has been absolutely phenomenal, a great shareholder. And frankly, we can learn a lot from them. So I think Warren Buffett's got an incredible team, and it's a very deep organization, and we will continue to, I think, grow our relationship with them.

Operator

Scott Deuschle, Deutsche Bank.

Scott Deuschle

Eric, I know fasteners aren't really an aftermarket part, but Specialty Products does do a good amount of commercial OE work. And this is maybe a naive question, but I was curious if Specialty Products has any capabilities in the fastener space. And if not, is that a business you could ever see the company getting into, particularly given the recent events at PCC?

Eric Mendelson

Yeah. I -- look, PCC, they operate a phenomenal business, whether you look at their castings, their forgings, their fasteners. I think for HEICO to get into business trying to compete with PCC would be foolish. They have got it so ground in and they know exactly what they're doing and they're phenomenal. So look, there could be little opportunity here and there, but no, in the mainstream. I don't see us ever wanting to get into -- to try to do what PCC, what they do.
The whole fire thing is a very unfortunate thing, but that's an incredibly well-run company and knowing PCC and the way that we do, I think that they will figure out very quickly how to get those products resourced, built elsewhere, they've got their facility up and running. So I've got a lot of confidence they're going to come back online much quicker than anybody else would with this kind of problem.

Scott Deuschle

Okay. And then, Eric, do you think PMA parts are fully penetrated in auxiliary power units at this point relative to where it can go? Or is there still meaningful opportunity there? And I'm focused less in terms of customer adoption and more in terms of whether you think the business has PMA all the SKUs that you think represent the opportunity on APUs or if you think there's still more SKUs that the company can go after?

Eric Mendelson

I don't really -- it's our policy to not comment on particular products. Honeywell does a great job on their APUs, and they've got big market share. That has not been historically a huge area for HEICO. And I would -- I mean, while I'm capable of providing details, just in order to be consistent with what we do with other products, I'd rather not comment, but it has not been a big part of our business.

Operator

David Strauss, Barclays.

This is Josh on for David. So I wanted to ask you, you've done about $400 million in acquisitions over the last two quarters. Could you give us an idea of how much those deals add in annualized revenue?

Carlos Macau

This is Carlos. So the deals that we've done have all been -- they've not been individually material. So we don't really want to discuss the financial operations of one of those deals to be listening with the way we report it in our public filings.

Okay. And then to follow up, I think, on an earlier question, could you talk about how you see the sustainability of each of the 15% organic for growth and then the 11% organic MRO growth order?

Eric Mendelson

We -- I'm very happy with the growth that we've had. I mean, obviously, we're gaining share. We're doing very well. I've been reluctant to predict those numbers. The thing that we -- as I mentioned earlier that we really focused on is the earnings growth. Because at the end of the day, when you is honestly meaningless, it's all about the earnings because that's the money that we can reinvest in the business and continue to grow our inventories and our footprint and everything else.
So when you look, we've had 22% growth in operating income in Flight Support Group of that was organic. I feel the tailwinds that we've got and the fundamentals in the industry should continue. But we don't provide guidance reason because we don't know specifically what it's going to be. We get most of our orders in the month of shipment.
So it becomes very difficult to call out on the edge. And frankly, I think people are used to go performing so that they know that at the end of the day, whatever the industry is going to do to HEICO's going to be right at the top of it. And we have a history of 35 years of doing it. So I feel very strongly that there is a lot of tail -- But to predict specific numbers going forward, really isn't what we do and just becomes very difficult because we're very, very quantitative and that has driven and certain projections it becomes very difficult.

Operator

[João Santos], UBS.

João Santos

This is João Santos speaking on behalf of Gavin Parsons from UBS. I know you guys already talked a bit about pricing. But in terms of pricing, are you able to share with us how much of your portfolio is on long-term agreements versus how much you can reprice them annually?

Eric Mendelson

We can reprice, I would say, annually within the next couple of years. But this is a split there in terms of the long-term agreements and the repricing annually. I don't have in front of me what that is again because it's centralized to pull all that together from all of the operating subsidiaries. But my guess is in roughly the 50-50 category, something like that.

João Santos

Great. And in terms of aftermarket, how should we think of pricing power in the segment, given the supply chain and competitive dynamics?

Eric Mendelson

We think that, frankly, we're leaving a lot of money on the table. We're making our customers very happy. We started out very small. I mean -- and I showed you know the history of the company, but we started out very small. And when -- in particular, when you're small, you have to treat people right in order to business. And we maintain that philosophy for -- now.
Having said that, we have to cover our cost increases. And under no -- it's not possible for us to absorb cost increases and to not pass that along to the customers. We have to do that. And even if there's various catch-ups with customers, pricing for a period of time, we've got to go ahead and do that. And we've been successful with that.
But we stress to our customers that take advantage of them price-wise. We only go for a minority market share on all of the products that we do. So we think that there is a lot of value to these customers. So I think there's a lot of pricing opportunity for us, but we have not taken

Operator

Ron Epstein, Bank of America.

Ronald Epstein

So I mean a couple of quick questions. Maybe following up on your commentary, Eric, about the fleet and the age of the 22,000 airplanes that you get your older. Do you guys have an internal kind of guesstimate on when average age of the fleet will actually start to come down? Because it seems like to me that might not happen until like the early 2030s, but I don't know if you guys agree with that or kind of how you think about that?

Eric Mendelson

Yeah. We probably wouldn't look at the average. So for us, what we would look at is the number of aircraft in each of the age cohort. So we think that continues to increase. So as you get the new aircraft delivered, you're still going to be flying the older aircraft. And I think, especially in times where you've got higher interest rates that makes newer aircraft less attractive. But we think also if you look at the newer generation aircraft, they're very, very expensive to maintain. I mean these are insane to maintain.
So the cost per equivalent unit. So we think that the time is right and our market share is still relatively small, that we can also grow our market share. And then frankly, we compounded with the acquisition. So you put all that together and the fact that they'll deliver more new aircraft that concern me.

Ronald Epstein

Got it. Got it. Got it. Yeah. I mean it does seem like there's a really long runway there, and I want to make sure we're thinking about it. And another one to follow up on a question or a comment that you made around the unfortunate fire at SPS. My understanding is those pushing tomb facility that made a lot of fasteners. How disruptive do you think it could potentially be, honestly, on the industry? And then I guess how does that blow back on you guys?

Eric Mendelson

Yeah, I think it's going to be quite disruptive. However, SB's precision gas products being incredibly well run. And I got to -- anybody is going to have that kind of a problem. Those guys are the ones who will figure it out, number one. Number two, the necessity is the mother of invention. And while they may be sole-sourced on a bunch of stuff, they, I'm sure, will be able to get their other facilities up and running and be able to solve a lot of that.
So I think it's a little early to be able to define what that's going to be. But there definitely is going to be an impact in the -- both OE as well as the aftermarket, I think everybody is going to be impacted. I want to be careful not to get too far over much fees complements on what they can do. But our experience in working with them is those guys are really sharp and they're going to move heaven and earth to get this resolved quickly.

Ronald Epstein

Got it. And then maybe one last one. How are you guys thinking about tariffs given how global supply chains are in commercial aero to, I guess, to a far lesser extent in defense? In commercial aero, it's so global. I mean how do you guys think about it what it could mean ultimately?

Carlos Macau

I mean, Ron, this is Carlos. Most of our supply chain is focused on local markets, right? We have 100 subsidiaries and they're all dealing with vendors in local markets. So we're not purchasing big bulk in one central location. So our risk, if you would, is diffused. And our -- the cost of raw materials within our products. When you peel it back, it's not a huge component of the overall cost. So we've done some back of the envelope. I think it could be anywhere from net-net, 3% to 5% increase to our product cost assuming that there was a tariff on half the countries we do business. And I think if that was the case, we have no problem passing it on to our customers. So from our standpoint, we're not terribly concerned with the outcome of that.

Operator

Gautam Khanna, TD Cowen.

Gautam Khanna

I was wondering on DoD PMA. What -- do you have any sense for the development time lines would be to get parts qualified and uses would be much different from what you guys encountered normally with the FAA and the other --

Eric Mendelson

Yeah. I would say that there's going to be really continued work in development in that area. I'm reluctant to get into specifics because we don't want to tell our competitors what we are doing. And therefore, we really don't want to get into the details on what we're -- what our strategy is. But we do think that there is a very significant market. And we'll have to see really how that develops. But again, we don't see that as -- that has not been a revenue contributor to date, and we're not forecasting it in our '25 numbers.

Gautam Khanna

Maybe more fundamentally, is there a process already in place? And is there any PMA penetration on military products today?

Eric Mendelson

So the government doesn't -- they have their own approval process. So in general, just give some the PMA, does it mean that the government would use it. But the answer is yeah. We sell a large amount to the government in various businesses that we're in. So we're pretty familiar with the government across what it takes to get stuff done. Clearly, this focus on cost and readiness is going to be, I will be very helpful for HEICO.

Gautam Khanna

Yeah. I know it's an -- because again, I don't want to discuss it, but I'm more curious about, obviously, you guys sell a lot of defense products to the government. But I was wondering if specifically, are you -- have you been selling defense products? Or are they OEM-branded components, the ATG and specialty products?

Eric Mendelson

No, we sell HEICO proprietary parts, yeah, to the DoD. We sell parts that are interchangeable with the original manufacturers parts. Yeah. We have done that, we have a lot of experience doing that. It's relatively small but it's -- there are many examples of it. And yeah, so they're not a strange -- that's what you're getting to.

Gautam Khanna

No, that's what I was wondering. If there's precedent for it already, it sounds like there is. What do you think the -- what do you think the constraint on broader adoption has been historically?

Eric Mendelson

I don't really want to speculate on it. But I think a large part of it probably was no one was concerned about cost. And now we're in a new world. And we've got -- we have the massive budget deficit. We've got to cut our costs. We have to increase the defense output. And I think that this is just low-hanging fruit.

Gautam Khanna

Got you. Cool. And then Eric, I was curious on when core the aerospace integration, you mentioned a number of the initiatives you guys have already implemented to make sure there's cross-selling. I was curious how well penetrated you think that cross-sell has been? Or do you feel like you're far along in that journey? Or is it early? How much opportunity --?

Eric Mendelson

Yeah. I think we've done well. I mean, look, we operate the businesses independently. But clearly, when you put the 2 product lines together, you've got much more compelling savings. So I think we're early in the -- definitely in the first half, I think that there is a lot more opportunity that -- a lot more opportunity out there. I'm very happy with the progress that we've made to date, but I think our sales folks have a lot more potential out there, significant.

Gautam Khanna

And last one, on the defense demand strength you mentioned some product areas. Maybe if you could just broaden that. Is this pretty broad-based or you've seen the demand strength in the missile specifically, and that's kind of disproportionate? Or I'm just curious how broad the demand improvement across the portfolio?

Eric Mendelson

It certainly varies by subsidiary and some have a greater uptake than others and some are actually negative. So on balance, it works out to how it's done. I would say it's pretty -- fortunately, it's been fairly broadly based for us on defense, particularly in some of our larger lines.
So we're excited about that. And of course, in addition to that, you may remember, we made an acquisition in France in January of 2023, a company called Exxelia and one of the motivators for that was the European defense budgets, and we thought we needed a European business to help us with that. That has proven to be the correct thesis, and that's worked out extremely well.
By the way, Exxelia is doing very well for us. We are very happy with it, been a very nice acquisition. And we are anticipating more growth and more interest from our customers. So overall, feeling good about the And with the caveat that I mentioned earlier and the caveats that I mentioned earlier, but overall it has the right feel for the moment. And again, one of those caveats being, it will remain volatile by quarter. That will always be the case in my opinion.

Operator

Louis Raffetto, Wolfe Research.

Louis Raffetto

Maybe one for you. You said before that you guys offer OE parts if customers want more alternatives. I guess, just to clarify on that, are you selling like a PMA part and an OE part? Or is that more an OE part and a DER repair? Or is that sort of more not on the same product, I guess?

Eric Mendelson

So it would typically not be on the same product on the part side. So we represent a number of OEs on the distribution side. And so we sell OE parts. Typically, if we're doing the distribution on something we don't also offer PMA to sometimes we do. Look most of the time, it's just the straight representation of the OE, and we are able for those OEs to develop additional PMAs for them.
So I know we were just say out on the 737, but they didn't get on A320 on the particular product they may. So what we can do is go out to the A320 customers and through our PMA network, get those parts -- get those customers to support the development of and commit to purchase those parts.
And then we can have the OE fully distributed manufacture those PMA parts. And that's been a very successful part of our strategy. But then also separate from that, I was talking about really referring to the repair business that we're the largest independent component overhaul for, I believe, in the work of non-OEM, non-airline, nongovernment. And although we're a lot bigger than a lot of OEMs provide to government, but it's a very significant component repair business. And there, we do what our customers want. If they want OE parts, and we use OE parts. If they want alternatives, PMA or DER, then we'll use those, it's really customer-driven on what they want. So in that case, we stock both, the HEICO PMA parts as well as the OE parts and they make the decision.

Louis Raffetto

Any way you can size how big distribution is within Flight Support, just now it went towards -- a little less easy to tell?

Eric Mendelson

Yeah. No, we don't due to all the disaggregation rules, we don't get into that. So we did disaggregated parts, repair and the repair business now, I'm looking at roughly what we did in the first quarter. I mean it's over a $600 million business. So it's become quite a large enterprise. And then you (multiple speakers) no, no. And then just looking at parts, that's -- for the three months -- for the first quarter, we did over $450 million in aftermarket replacement parts. So that's roughly $1.8 billion in sales. So that's a very significant business as well.

Louis Raffetto

Carlos, just a quick one for you. In the past, you sort of give us how you were thinking about the combined impact of taxes, minority interest expense. I didn't know if you're able to provide that for this year?

Carlos Macau

Yeah. So we had a pretty favourable rate in the first quarter. I think as we look at the next -- if I back out the impact in the period for the taxes, we get between 20% and 21% rates on. So I think if you consider them for the next three quarters, we should run around 21%, maybe a tick above or below depending on what transpires. And I think the NCI rate for the year runs around 7%, maybe 7.5% of pretax income, similar metrics to what we've had in the past, but I think that's where we've kind of fall out for the year. Effective rate for the year is just be somewhere between 18% and 19% is what I'm estimating.

Operator

And at this time, I will turn the conference back to Laurans Mendelson for any additional or closing remarks.

Laurans Mendelson

Thank you very much to everybody on this call. We appreciate your interest, and we are available for any kind of conference that you may want to have in the future. So thank you, and we will speak to you in the next -- second quarter. Thank you, and this ends the conference.

Operator

And this concludes today's call. Thank you for your participation. You may now disconnect.