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Supporting the DoD
WHO WE ARE
TransDigm is a global commercial aerospace manufacturing company that designs, produces and supplies highly engineered aircraft components, systems and subsystems that are critical to the safe and effective functioning of aircrafts worldwide. For nearly three decades, TransDigm's many businesses and their thousands of employees have engineered and built the products that keep the world's commercial airlines flying and safeguard troops around the globe. TransDigm's parts are represented on nearly every aircraft in service today.
~7,000
Highly Paid US Jobs
50 +
US Manufacturing Facilities
65 %
Average Global Commercial Sales
35 %
Average Global Defense Sales
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TransDigm businesses have manufacturing plants throughout the United States. Each business designs, engineers and manufactures their own highly engineered products that support the commercial aerospace industry. Though each business is a TransDigm company, they operate autonomously, engaging in local and national economic and workforce development

 

TransDigm businesses produce, design and supply a wide variety of highly engineered aerospace components, systems and subsystems used on nearly all commercial and military aircraft in service today.
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PARTNERING WITH DoD
Since 2019, TransDigm has actively partnered with the DoD to improve communication, training, and responsiveness between our businesses and the DoD. This engagement is crucial for proper assessment of the products and ensuring efficient procurements.

Establishing Better Communication

In 2019, TransDigm and the DoD established a Working Group consisting of key TransDigm representatives and senior DoD acquisition officials. This regular engagement has provided an opportunity for the DoD to reinforce its priorities and challenges and for TransDigm to provide information about the issues that impact its businesses.

Responsiveness & Training

Our open and continuous communication with DoD buying commands has allowed TransDigm businesses to improve responsiveness to DoD requests. DoD customers have expressed appreciation for TransDigm’s increased cooperation and proactive engagement. Additionally, TransDigm has implemented internal training programs for its commercial businesses that also have defense products to ensure we continue to comply with all government-specific procurement regulations.

Proactively Providing Data

Since 2019, TransDigm businesses are proactively providing more detailed data about their products to the DoD to support a more informed acquisition. By providing detailed technical analyses on commercial products and data to support the value of each product, TransDigm businesses are working to ensure contracting officers have the information they need in line with the applicable regulations.

Challenges

Commercial aerospace customers typically provide reliable forecasts and buy products on regular intervals. The DoD on the other hand typically engages in spot buys, procuring only a few parts as-needed, sometimes going years without purchasing a particular part. Nevertheless, our businesses maintain capability to manufacture parts as requested and disrupt commercial manufacturing to ensure prompt delivery to the government. We continue to work with the DoD to address these challenges.
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THE DoD IG REPORT
The report makes clear that there was no wrongdoing by TransDigm, its businesses, or by the DoD. TransDigm agrees with that conclusion. However, TransDigm disagrees with many of the implications contained in the report, and objects to the use of arbitrary standards and analysis which render many areas of the report inaccurate and misleading. These include:
The report expressly acknowledges that it used arbitrary standards that are not applicable to the audited contracts and warns that its arbitrary standards should not be used in the future. The use of inapplicable standards results in flawed analysis and is misleading.
The report ignores significant real costs incurred by the business and contrary to law reports these costs as excess profit.
The report presents profit percentages in a misleading and provocative manner. This includes computing profit as a percentage of cost rather than as a percentage of revenue—the internationally recognized method and business standard.
Despite data demonstrating that the DoD paid lower prices compared to the commercial prices for similar parts, the report did not conduct a price analysis and instead implies that the DoD negotiated prices that were too high.

Cost Reimbursement vs. Fixed Price Contracts

The report acknowledges that it applies arbitrary standards to the audited contracts to arrive at the conclusion of “excess profit”. It states that the standard that it utilizes - a 15% mark up on costs as a benchmark for profitability – is not applicable to the contracts that it reviewed. A fixed percentage mark up on costs is applicable only to cost-reimbursement contracts where the government bears all costs, and the contractor bears no risk. None of the audited contracts were cost reimbursement contracts. The audited contracts were fixed price contracts in which the TransDigm operating units bore all risks of performance. This is important because profitability on fixed-price contracts is determined after the contractor performs—and controls costs. The report inexplicably applies this arbitrary standard to the audited contracts but then goes acknowledge that it is conflicting with law and policy and goes on to warn against use of the arbitrary standard in the future:

“The FAR identifies profit percentages for three contract types, none of which were in our sample….We are not stating that 15 percent should be used as a benchmark when negotiating firm-fixed-price contracts; rather, this is the percentage we decided to use for the purposes of our audit analysis. In addition, this should not be interpreted to mean that any special profit ceiling applies solely to TransDigm contracts.” 

 ~ DoD IG Report

Ignores Real Costs Incurred

The report does not count all real costs. The report ignores significant costs incurred by TransDigm businesses and in doing so, overstates profit for the contracts audited. Establishing the correct cost base is vital to assessing profit and despite having all necessary cost data which were independently verified by a third-party government cost accounting firm (BDO USA LLP), the report removes certain costs like tax by again viewing the fixed-price contracts as cost-type contracts. This further renders the assertion of “excess profit” inaccurate. In ignoring real costs, the report expressly makes clear that the exclusion should not be applied in future fixed-price contracts but fails to explain why it is appropriate to exclude costs for the audited contracts.

“Our exclusion [of costs] should, in no way, be interpreted to mean that, in all instances, offerors are or should be precluded from including interest and taxes in price calculations for fixed-price contracts.”

 

 

~ DoD IG Report

Misrepresentation of Profit

The report presents profit numbers in an incorrect and provocative way. The method disregards international accounting standards of calculating profit margins in order to arrive at misleading and inflammatory figures. Instead of calculating profit in line with international accounting standards (profit as a percentage of price) the report, for reasons it does not explain, instead calculates profit as a percentage of cost which results in outlandish percentages. These incorrectly computed profit levels only serve to create artificially inflated profit margins that do not reflect reality.

“We used the percentage of cost calculation, where profit is divided by cost to make the part, to calculate the profit percentages to stay consistent with the February 2019 report. Another calculation that could be used would be the percentage of revenue calculation, where profit is divided by selling price. Using the percentage of revenue calculation, the percentages of excess profit would range from 2.4 to 97.1.”[Versus the “2.8 percent to 3850.6 percent” used]

 ~ DoD IG Report

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