Based in Valencia, California, Wesco Aircraft (proposed symbol WAIR) scheduled a $347 million IPO with a market capitalization of $1.4 billion at a price range mid-point of $26.50 for Thursday, July 28, 2011.

WAIR has established a niche in the aerospace supply market with predictable sales and quite high profit margins. Sales were up, however, only 13% for the March 2011 quarter compared to the March 2011 quarter. Income increase 35% the same comparative basis

WAIR"s profit margin at 12.5% is highest the company has shown. That’s about 3x as large as the primary named competitor BE Aerospace (BEAV). Obviously WAIR does a good job of managing its income statement. However, WAIR"s large profit margin suggests that its profit model should be under attack, especially in a distribution business.

100% of IPO proceeds (25% of the company) to shareholders

VALUATION

At the price range mid-point of $26.50, and annualizing the March quarter, WAIR is valued at 16 times earnings, 2 times sales and 2.4 times book value. The comparable figures for BE Aerospace are 22, 1.8 and 2.6

100% of IPO proceeds go to selling shareholders, which doesn’t necessarily instill investor confidence.

Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	Profit
Annualizing March 3 mos	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	Margin
Wesco Aircraft (WAIR)	$1,412	2.0	16	2.4	-131.0	12.5%
BE Aerospace (BEAV)	$4,350	1.8	22	2.6	2.8	4.3%

CONCLUSION

On a P/E comparison basis WAIR expects to sell at a discount of 28% to BEAV, so it looks like this IPO will get done.

The key to WAIR"s growth is top line revenue expansion based on industry growth, in a mature industry.

And with after-tax profit margins above 10%, it looks like WAIR will have difficulty further increasing profit margins.

BUSINESS

WAIR is one of the world's largest distributors and providers of comprehensive supply chain management services to the global aerospace industry.

Services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, JIT delivery and point-of-use inventory management.

WAIR supplies 450,000 different SKUs, including hardware, bearings, tools and more recently, electronic components and machined parts.

In fiscal 2010, sales of hardware represented 80% of WAIR’s net sales, with highly engineered fasteners constituting 83% of that amount

MARKET

According to Stax, a global strategy consulting firm, the global market for C class aerospace parts, which includes hardware, bearings, electronic components and machined parts for both commercial and military customers, was approximately $6.5 billion in 2010. $4.2 billion of this market flows through distributors.

WAIR’s market is fragmented and does offer WAIR the opportunity of growing by acquisition, which is not predictable.

RECENT DEVELOPMENTS

Recent Developments

On April 7, 2011, WAIR entered into a new $765.0 million senior secured credit facility with Barclays Bank PLC, as administrative agent and collateral agent, and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Key Bank, N.A. and Barclays Capital, as joint lead arrangers.

The purpose was to extend debt maturities.

As a result of the financing WAIT will record an immediate debt extinguishment loss of $7.1 million in the June 2011 quarter. Also $14.4 million of additional debt costs will be capitalized on the balance sheet.

COMPETITION

WAIR estimates that Wesco and BE Aerospace together comprised 22% of the $6.5 billion global market for C class aerospace parts during 2010, of which $656.0 million, or 10%, was attributable to WAIR. The next largest competitors include the Pentacon business of Anixter International and the Pattonair business of Umeco.

USE OF PROCEEDS

100% to selling shareholders

Wesco Aircraft	WAIR, C+, 7					Post IPO shares: 86mm
Dist of supply chain hardware		Sept fiscal year		March 6 mos '10	March 6 mos '11
Valencia, CA	2008	2009	2010	2010	2011	IPO Mkt
Revenues ($mm)	$604	$613	$656	$311	$350	Cap (mm)
Gross Margin % of revenue	42%	39%	39%	38%	38%	$1,412
Operating inc % of revenue	25%	22%	24%	22%	24%	@$16.50
Int exp % of operating inc	32%	28%	24%	27%	15%
Net income (loss) ($mm)	$58.6	$58.4	$73.7	$32.2	$43.6
Net income % of revenue	9.7%	9.5%	11.2%	10.4%	12.5%
Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
Annualizing March 6 mos	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Wesco Aircraft (WAIR)	$1,412	2.0	16	2.4	-131.0	25%
March 2011 quarter
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	2	2	1	7
Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	Profit
Annualizing March 3 mos	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	Margin
Wesco Aircraft (WAIR)	$1,412	2.0	16	2.4	-131.0	12.5%
BE Aerospace (BEAV)	$4,350	1.8	22	2.6	2.8	4.3%