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TransDigm Group (TDG): Company Profile, Stock Price, News, Rankings

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TransDigm Group

transdigm group

Hello, and welcome to the Q1 2026 TransDigm Group Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Director of Investor Relations, Jaimie Stemen.

Thank you, and welcome to TransDigm's fiscal 2026 first quarter earnings conference call. Presenting on the call this morning are TransDigm Chief Executive Officer, Mike Lisman, Co-Chief Operating Officer, Patrick Murphy, and Chief Financial Officer, Sarah Wynne. Also present for the call today is our Co-Chief Operating Officer, Joel Reiss. Please visit our website at transdigm.com to obtain a supplemental slide deck and call replay information. Before we begin, the company would like to remind you that statements made during this call, which are not historical in fact, are forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the company's latest filings with the SEC, available through the investor section of our website or at sec.gov.

The company would also like to advise you that during the course of the call, we will be referring to EBITDA, specifically EBITDA as defined, adjusted net income, and adjusted earnings per share, all of which are non-GAAP financial measures. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliations. I will now turn the call over to Mike.

Good morning, and thanks for calling in today. First, I'll start off with the usual quick overview of our strategy. Second, make a few comments about the quarter, and third, discuss our fiscal 2026 outlook. Then Patrick and Sarah will give some additional color on the quarter. This will be the first time you're hearing from our new co-COO, Patrick Murphy, but he's hardly a new guy around TransDigm, having served as an executive vice president for the last six years and as president at our HarcoSemco operating unit in Connecticut prior to that. To reiterate, we believe we are unique in the industry in both the consistency of our strategy, in both good times and bad, as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle. To summarize, here are some of the reasons why we believe this.

About 90% of our net sales are generated by unique proprietary products. Most of our EBITDA comes from aftermarket revenues, which generally have significantly higher margins and over any extended period, have typically provided relative stability in the downturns. We follow a consistent long-term strategy. First, we own and operate proprietary aerospace businesses with significant aftermarket content. Second, we utilize a simple, well-proven, value-based operating methodology. Third, we have a decentralized organizational structure and unique compensation system closely aligned with our shareholders. Fourth, we acquire businesses that fit this strategy and where we see a clear path to private equity-like returns. And lastly, our capital structure and allocation are a key part of our value creation methodology. Our long-standing goal is to give our shareholders private equity-like returns with the liquidity of a public market.

To do this, we stay focused on both the details of value creation as well as careful allocation of our capital. As you saw from our earnings release, we had a good start to our fiscal year. Our Q1 results ran ahead of our expectations, and we raised our sales and EBITDA as defined guidance for the year. During the quarter, we saw solid growth in the revenue for our commercial OEM channel and healthy growth in both our commercial aftermarket and defense market channels. Bookings in the quarter were strong across all of these three market channels. Commercial aerospace trends remain favorable, air traffic continues to steadily grow, and airline schedules remain fairly stable as well, with takeoffs and landings growing in the 4% ballpark year-over-year.

Within commercial aftermarket, a quick note on our growth in this market channel over the last 12 months. While our growth rates have hit and continue to hit our own expectations, there is a lag in TransDigm's growth versus the broader market of probably 5-6 percentage points. As we have said many times before, it's not odd for us to see this, and we have lived through brief periods like this before. With regard to what is driving it, as we run the math, roughly half of the 5 or 6 percentage point growth gap is from our underexposure on engine content versus the rest of market, and the remaining half comes from lumpiness in our distribution channel and at airlines, with this latter piece owing to our earlier and higher recovery versus the broader market as we came out of COVID.

This second piece, the lumpiness, can be hard to quantify exactly. Switching to the commercial OEM market, there's still much progress to be made for OEM rates. However, it is good to see both Boeing and Airbus steadily ramping up their production rates. They expect to continue doing so in coming months and quarters. Airline demand for new aircraft remains high, and the OEMs have long backlogs. The OEM production rate recovery to date has been bumpy, and we're planning for it to remain so. We remain encouraged by the progress we're currently seeing and have seen over the last several quarters. Our EBITDA as defined margin was 52.4% in the quarter, which includes about 2 full percentage points of dilution from recent acquisitions.

Contributing to this solid Q1 margin is the continued growth in our commercial aftermarket, along with diligent focus on our operating strategy, which is allowing margin performance to expand across all segments. Additionally, we had strong operating cash flow generation in Q1 of over $830 million, and we ended the quarter with a cash balance of over $2.5 billion. Next, an update on our capital allocation activities and priorities. In the past five weeks, we have signed up the acquisition of three new operating units and two separate M&A transactions, Stellant Systems, Jet Parts Engineering, and Victor Sierra Aviation. On December 31st, we announced that we had agreed to acquire Stellant Systems from Arlington Capital Partners for approximately $960 million in cash.

Stellant is a designer and manufacturer of high-power electronic components and subsystems serving the aerospace and defense end market. The business generated approximately $300 million in revenue for the 2025 calendar year. And then on January 16, we announced that we had agreed to acquire two businesses, Jet Parts Engineering and Victor Sierra Aviation, from Vance Street Capital for approximately $2.2 billion in cash. Jet Parts Engineering is a designer and manufacturer of aerospace aftermarket solutions, primarily proprietary OEM alternative parts and repairs. Victor Sierra is a designer, manufacturer, and distributor of proprietary PMA and other aftermarket parts, serving the commercial, commercial aerospace end market, primarily the general aviation and business aviation sectors. Collectively, Jet Parts and Victor Sierra generated approximately $280 million in revenue for the 2025 calendar year.

As you know, we've been a player in the PMA space for many years through our existing operating units, which often work directly with the airlines on their PMA efforts, most of which are focused on developing better technical solutions for the airline customers. We see PMA as a small but growing subsector within commercial aerospace that serves an important need for the airlines. Jet Parts and Victor Sierra will add to our existing PMA revenue and further enhance our partnership with these airlines. We look forward to owning all three businesses, Stellent, Jet Parts, and Victor Sierra. These are good businesses with proprietary products that generate significant aftermarket revenue and align well with TransDigm. Regarding the current M&A activities and pipeline, we continue to actively look for opportunities that fit our model. As usual, the potential targets are mostly in the small and mid-size range.

And while we are very happy to be adding Jet Parts and Victor Sierra into the fold, the primary M&A focus at this time remains on acquiring proprietary OE component aerospace businesses. As always, we will remain focused and disciplined around our approach to M&A. Additionally, acquisitions are, by their nature, hard to predict, so consistent with past practice, I will not be saying too much on what is currently active in our funnel. The capital allocation priorities at TransDigm are unchanged. Our first priority is to reinvest in our businesses, second, do accretive, disciplined M&A, and third, return capital to our shareholders via buybacks or dividends. A fourth option, paying down debt, seems unlikely at this time, though we do still take this into consideration. We are continually evaluating all of our capital allocation options.

We exited the quarter with a sizable cash balance, and our recent capital allocation actions still leave us with significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future. Pro forma for the announced acquisitions, we have significant M&A firepower and capacity remaining, approaching $10 billion. Moving to our outlook for fiscal 2026. As noted in our earnings release, we are increasing our full-year 2026 sales and EBITDA as defined guidance to reflect our strong first quarter results and our current expectations for the remainder of the year. At the midpoint, sales guidance was raised $90 million, and EBITDA as defined guidance was raised $60 million.

We are still early in our fiscal year and considerable risk remains, but I am quite encouraged by and optimistic on how things appear to be shaping up these first four months. The guidance assumes no additional acquisitions or divestitures. Our current guidance for fiscal 2026 is as follows, and can also be found on slide six in today's presentation. Note, the pending acquisitions of Stellent, Jet Parts Engineering, and Victor Sierra are all excluded from this analysis until each acquisition closes. The midpoint of our fiscal 2026 revenue guidance is now $9.94 billion, or up approximately 13% over the prior year. In regard to the market channel growth rate assumptions that this revenue guidance is based on, we are not updating the full-year market channel assumptions for our three primary end markets, commercial OEM, commercial aftermarket, and defense.

Underlying market fundamentals have not meaningfully changed for any of these markets. The revenue guidance is based on the following market channel growth rate assumptions. We expect commercial OEM revenue growth in the high single digits to mid-teens % range, which is highly dependent on the evolution of the production rates in the commercial OEM environment.... commercial aftermarket revenue growth to be in the high single-digit % range, and defense revenue growth in the mid-single digit to high single-digit % range. The midpoint of fiscal 2026 EBITDA-defined guidance is now $5.21 billion, or up approximately 9%, with an expected margin of around 52.4%. We are very pleased with our margin performance in the year-to-date period, and we are running ahead of where we thought we'd be.

Adjusting for the two dilutive factors we discussed last quarter, the margins in our base businesses improved nicely in our first fiscal quarter, more than we had expected. As a reminder, the dilutive factors are approximately 200 basis points of margin dilution from our recent acquisitions and about 0.5-1 percentage point of dilution from commercial OEM and defense mix headwind. The midpoint of adjusted EPS is now expected to be $38.38. We believe we are well positioned for the remainder of fiscal 2026. We'll continue to closely watch how the aerospace and capital markets develop and react accordingly. We are pleased with the company's performance this quarter. It is a good start to the fiscal year. Our teams remain focused on our value drivers, cost structure, and operational excellence.

We look forward to the remainder of fiscal 26 and expect that our disciplined, consistent strategy will continue to deliver the value you have come to expect from us. Now let me hand it over to Patrick Murphy, our TransDigm Group Co-COO, to review our recent performance and a few other items.

Good morning, everyone. I'll start with our typical review of results by key market category. For the remainder of the call, I'll provide commentary on a pro forma basis compared to the prior year period, 2025. That is, assuming we own the same mix of businesses in both periods. For reference, the market discussion includes the recent acquisition of Simmonds Precision Products. The pending acquisitions of Stalon, Jet Parts Engineering, and Victor Sierra are excluded. In the commercial market, we will split our discussion into OEM and aftermarket. Our total commercial OEM revenue increased approximately 17% in Q1 compared with the prior year period. As we anticipated, commercial OEM revenue in the first quarter showed strong growth as we supported higher build rates. Commercial transport OEM revenues, which excludes the biz jet sub-market, were up 18% over the comparable prior year period.

As you will recall, Boeing experienced production issues in late 2024 that resulted in a drop in OEM demand in our first fiscal quarter last year. Our Q1 FY 2026 growth is driven by the increase in the Airbus and Boeing OEM build rates and the bounce back from the Boeing production disruption in the prior year. Commercial OEM bookings in the quarter were up compared to the same prior year period and ran ahead of our expectations and significantly outpaced sales. Commercial transport bookings growth was up into the high teens% for the first quarter. The bookings levels for commercial transport OEM continued to show that the market is recovering from the various disruptions seen over the past year and a half.

However, the OEM recovery to this point has been bumpy and uneven on a quarterly basis, and we expect that to continue as OEMs and our tier one and tier two customers right-size inventory levels. We remain encouraged by the continued progress of the 737 MAX production line, as well as the overall progress we are seeing at both Boeing and Airbus as they ramp their production rates. Our operating units are well positioned to support the higher production rates as they occur. The commercial OEM guidance we are giving today contains what we believe is an appropriate level of risk around the production build rates for the 2026 fiscal year. Our fiscal 2026 commercial OEM revenue guidance range, which, as Mike mentioned, is unchanged, is high single-digit to mid-teens % growth and contemplates reasonable risks around the Boeing and Airbus rates.

Now moving on to our commercial aftermarket business discussion. Total commercial aftermarket revenue increased by approximately 7% compared with the prior year period. This quarter, all submarkets within commercial aftermarket experienced positive growth. Our commercial transport aftermarket revenue growth, which excludes our biz jet submarket, was up 8%, driven by solid growth in all four of the transport submarkets: freight, interiors, engine, and passenger. Overall, we saw strength in commercial aftermarket transport across a large majority of our operating units. Q2 bookings in commercial aftermarket were also strong, running ahead of our expectations, solidly outpacing sales and supporting the full year growth outlook. Additionally, POS at our distributors grew in the double digits on a percentage basis this quarter.

As Mike already mentioned, our commercial aftermarket revenue growth guidance is unchanged, and with positive leading indicators in bookings, book-to-bill ratio, and distribution sales, we fully expect 2026 commercial aftermarket growth in the high single-digit % range. Additionally, as we have said before, our operating units continue to vigilantly monitor market share and competitive losses. We see no material loss in this space from either USM or PMAs. Now, shifting to our defense market. Defense market revenue, which includes both OEM and aftermarket revenues, grew by approximately 7% compared with the prior year period. Over the past year, we have seen strong growth in defense, driven by new business wins and strong performance by our teams in both domestic and international markets, driven by the growth in defense spending around the world. Q1 defense revenue growth was well distributed across our businesses and customer base.

We saw similar rates of growth in both OEM and aftermarket components of our total defense market, with OEM running slightly ahead of aftermarket. Defense bookings for the quarter were robust, up year-over-year, higher than our expectations, and significantly surpassing sales for the period. Bookings started the year strong and continued to support our unchanged 2026 defense guidance from mid-single-digit to high single-digit revenue growth. As we have said many times before, defense sales and bookings can be long. We are confident that the bookings and sales will meet our expectations, but forecasting them with accuracy and precision, especially on a quarterly basis, is difficult. Overall, we are encouraged by the backlog that is building in our defense market segment. Moving on to our value drivers.

We continue to see strong success winning new business at our operating units, and I would like to highlight a few new business program wins from last quarter. Our Chelton business was awarded a multimillion-dollar contract from Lockheed Martin to supply their latest generation, very high frequency, ultra-high frequency antenna system. These systems are used in line with the upgraded radios that are now standard fit for production on a C-130J aircraft. In December, the IrvinGQ business was awarded a $24 million contract from the U.S. Department of Defense for provisioning of floating decoy systems to protect the U.S. Navy, Arleigh Burke destroyers. These systems are used as one of the last lines of defense for ships under missile attack. U.S. DoD have requested these deliveries to start in FY 2026, the overall program period of performance over the next four years.

Just a quick update on our acquisition integration activities. We continue to make good progress integrating our two most recent acquisitions, Servotronics and Simmonds Precisions. Both integrations are being led by experienced EVPs, and we have augmented the existing teams with seasoned individuals from other TransDigm operating units to accelerate their progress. It's still early, but our experience today indicates that these are going to be two very good additions. I'd like to wrap up by recognizing the concerted efforts of our operating teams during the first quarter of fiscal 2026. We are pleased with the solid operational performance our teams delivered for our shareholders this quarter. The teams continue to execute on our value drivers, and it was a good start to our fiscal 2026.

As we progress further into the year, our management team remains focused on our consistent operating strategy, delivering on new business opportunities, and meeting increased customer demand for our products. With that, I'd like to turn it over to our Chief Financial Officer, Sarah Wynne.

Thanks, Patrick, and good morning, everyone. I'll recap the financial highlights for the first quarter and then provide some more information on the guide. First, on organic growth and liquidity. In the first quarter, our organic growth rate was 7.4%, and all market channels contributed to this growth, previously discussed by Mike and Patrick. On cash and liquidity, free cash flow, which we traditionally define as EBITDA less cash interest payments, CapEx, and cash taxes, was just under $900 million for this quarter. This is higher than our average free cash flow conversion due to the timing of our interest and tax payments in this quarter. This will normalize throughout the year as these payments pick up next quarter. We expect to steadily generate significant additional cash throughout the remainder of fiscal 2026.

Our free cash flow guidance is unchanged, and we continue to expect free cash flow of approximately $2.4 billion for fiscal 2026. As a reminder, this guidance doesn't include the pending acquisitions or interest expense from any potential debt issuance to fund those acquisitions. Below that free cash flow line, an investment of net working capital consumed approximately $30 million for the quarter. For the full year, we expect working capital to end roughly in line with historical levels as a percentage of sales. We ended the quarter with approximately $2.5 billion of cash on the balance sheet after paying for the Simmonds acquisition at the beginning of the quarter. Our net debt to EBITDA ratio was 5.7 times, down from the 5.8 at the end of last quarter.

While we don't target a specific amount of cash that we like to have on hand, our current balance and available debt capacity provides ample liquidity to fund the recently announced pending acquisitions through a likely combination of cash on hand and new debt issuance, based on our strategy of operating in the 5-7 times net debt EBITDA ratio range. Our net debt EBITDA target range also preserves plenty of capacity for additional acquisitions should opportunities arise, along with other capital deployment options. Regarding our debt, our capital allocation strategy is to both proactively and prudently manage our debt maturity stacks by keeping near-term maturities well extended. In addition, approximately 75% of our $30 billion gross debt balance is fixed through fiscal 2029. This is achieved through a combination of fixed rate notes, interest rate swaps, caps, and collars.

This provides us plenty of protection, at least in the immediate term. Our EBITDA to interest expense coverage ratio ended the quarter at 3.1 times, which provides us with comfortable cushion versus our target range of 2-3. Additionally, during Q1, we took advantage of a dip in the share price and opportunistically deployed a little over $100 million of capital for repurchases of our common stock. These share repurchases are anchored in the same targeted returns criteria we have consistently applied over the years. We continue to seek the best opportunities for providing value to our shareholders through our capital allocation strategy. We think we remain in good position, with adequate flexibility to continue to pursue M&A opportunities or return cash to our shareholders via share buybacks and or additional dividends during the course of fiscal 2026.

With that, I'll hand it back to Jaimie, our Director of Investor Relations.

Before we open the lines for Q&A, I'd ask everyone in the queue to consider your fellow analysts and ask one question only, so we can get to as many people as possible today. Operator, can you please open the line?

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment, please. Our first question comes from the line of Sheila Kahyaoglu with Jefferies.

Hi, guys. It's actually Eleanor on for Sheila this morning. Thanks for the question. Just-

Looking at your profitability in the quarter, it was better than expected, given fiscal Q1 is typically seasonally weaker, and it's in line with your guidance for the year. How are you thinking about the puts and takes through the year, and the cadence of profitability, and what is, yeah, kind of what's driving that strength in the quarter?

Sure. We had a stronger start to the year on the margin front than we thought. The 52.4% that we came in at on EBITDA was a little bit better than we expected. In terms of what contributed to that, while commercial OEM did have a strong growth quarter, was up 17% on a pro forma basis, as Patrick said, that was a little bit light of where we thought it would come in, a couple points. So we got a bit of tailwind on the margin just from the mix that came with that. And then separate from that, the teams at our op units have done a really good job in terms of getting costs out, productivity projects, driving a higher margin for us into Q1. Hopefully, that continues for the balance of the year.

There's probably a bit of conservatism embedded in the guidance, too, from here on out. I think, as you guys know, we aim to be conservative on some of the projections. We'll see how the year evolves in terms of the growth rates as commercial OEM bounces back. As you know, that's expected to be the highest growth end market for us, so that could present a bit of, a bit of a headwind, but overall solid start to the year.

Thank you. And our next question comes from the line of Myles Walton with Wolf Research.

Yeah, good morning. I was wondering, maybe, Mike, could you comment a bit on the distributor POS and that's been running double digits now for the last several years, every quarter, but three of the last five times aftermarket has fallen short of that double digit mark. I think it's more engine sensitive, so maybe you can confirm that or how much information value there is. Then within the aftermarket growth, if you can just tell us what is lagging in that plus 8%. Is interiors, you know, in the low single digits still?

Sure. So, a couple things on the POS point. We do, through the POS channel, weight a bit more heavily towards engine there, so that has been a little bit of what's contributed, driven it up. In terms of where distributors are generally, as I think we mentioned on last quarter's call, during our fiscal 2025 year, we probably saw 1-2 percentage points of drag on the overall CAM growth from distributor inventory changes. That was a headwind at the time. Some of that persisted into our Q1 here, probably a little bit more elevated than the 1-2 percentage points. That should turn the corner as we head into the year. Again, it's not rare to see these kind of movements in distributor inventory levels.

So as that rebounds into the balance of fiscal 2026, that continued headwind should hopefully turn into a bit more of a tailwind. In terms of the end market color, Patrick, do you want to provide a little bit of commentary?

Yeah, I mean, we see that really solid growth rate on our engine end market for CAM, as well as our airframe and airline being in line with what our expectations are. BizJet's a little bit wider here, and that's what's kind of holding us back. But overall, you know, these are well within our expectations, and it was good growth in the first quarter.

All the submarkets were, when you strip out the business jet, which was obviously at 1% and dragged us back a little bit, all the sub-submarkets within commercial transport at 8%, for commercial transport, were above sort of the 7% overall CAM growth rate, for all of them. So good to see uniformly distributed growth.

... Just one clarification on the 7.4% overall company organic growth versus the subsectors 17, 7, and 7. I know there's pro forma versus organic. But is the takeaway that Simmons is significant growth underlying year-on-year, and that's what's driving most of that differential?

Yeah. Hi, Myles, this is Sarah. I'll take that one. Yeah, if you look at the market growth segments, which are obviously pro forma for Simmons, we do see a little bit of upside in the market segments coming from Simmons on that piece. The other bit that's playing into that delta difference, the 7.4 of organic, that includes our non-aero market segment. It's a smaller piece, but it's lower than the average 7.4, so that's the other bit of the delta that you see going on there.

Thank you. Our next question comes from the line of Gavin Parsons with UBS.

I just wanted to follow up on Myles' question on the lumpiness to make sure I'm just clear on the timeframe we're talking about, and I appreciate that color. The 7% aftermarket growth rate in the quarter, so if half of 5%-6% below peer growth was lumpiness, does that suggest that your core growth is more like 9% or 10% for aftermarket?

I guess it depends how you define core growth. We've taken a bit of a headwind just because of distributor lumpiness and some of the inventory in the channel, potentially at the airlines. It's, as I tried to address in the prepared remarks, hard to quantify that exactly and what it might be because you don't get great inventory data from the airlines. You do from distributors, but not always from the airlines in terms of great detail on exactly what they have. As we rack up the math, over the last four or five quarters or so, with 4 or 5 or 6 percentage points light versus where the rest of the market is, about half of that is this kind of lumpiness, both at airlines and at the distributors.

That's the point we were trying to raise in the prepared comments.

Was the destocking last year more specific to the first half or second half?

No, I think it was pretty uniformly distributed throughout the year. It bounces around a little bit, quarter by quarter, as you'd guess, with as many distributors and off units as we have, but generally fairly uniformly distributed.

Thank you. Our next question comes from the line of Noah Poponak with Goldman Sachs.

You mentioned, aftermarket, aerospace aftermarket bookings grew faster than revenue. I was hoping maybe you could quantify how much faster the bookings growth was compared to revenue, or a book to bill. And I don't know if you also had that for full year 2025, just so we can understand if things are accelerating, decelerating, staying the same. And then as we go through the rest of the year, how much should we be taking into consideration the compares from last year in aerospace aftermarket, just because, you know, 2Q is a much different comp than 3Q, or do you expect the remainder of the year's growth to be pretty even?

Yeah, no, it's Mike. I'll take that one. I think you know how we look at the quarterly CAM bookings trends. We don't focus on it too much. We look at a rolling 12-month average, so I don't wanna go down the path of saying too much on the quarterly bookings targets. Then I think everybody expects to get it every single quarter. That said, it, as Patrick said in his comments, prepared comments, it ran nicely ahead of what the sales growth was this quarter, into the double digits. But we're not gonna go and give a specific number, but good growth that we think sets us up nicely for the rest of the year.

When we look at CAM growth, we look at a rolling 12-month average stat, and as you look at the 2025 level and where we sort of tracked out all of calendar last year, it was nice. Signals growth was above 1.0, but again, we don't disclose the exact amount. That's what set us up well, you know, as we looked and forecasted out FY 2026 and what the growth could be, made us somewhat confident that we'll have at least a little bit of backlog there to hit the shipments target. On the quarterly comps and where things go from here, you know, we don't wanna say too much. This sort of sounds like we're giving quarterly guidance. We'll see how the year progresses.

As we give the guidance, we guide for a full year because we know how lumpy commercial aftermarket can be. We feel really good about the high single-digit guidance for the full year, but I'm hesitant to give anything that sounds like we know exactly what it's gonna look like on a quarter-by-quarter basis, as we get there.

Okay, appreciate that. And just one clarification, the lumpiness in distribution being a headwind and then the statement of POS at distribution grew double digits. What, what's the difference between those two comments on one being a headwind, one being a tailwind from distribution?

Well, I think the point is, distributor inventory is contracted, so we're getting headwinds of selling into distributors, and then their on-sale rate into the market from the distributor is higher.

The net inventory position is contracting a bit.

Do you have visibility into how much inventory of yours is left in the channel?

We do. We track it quite a bit at the op unit level with distributors, and we think as the rest of the year shapes up, this should be something that, instead of a headwind, should hopefully become more of a tailwind for us as we head out through Q2 through Q4. We did take a bit of a headwind in Q1, couple percentage points.

... Thank you. And our next question comes from the line of Scott Mikus with Melius Research.

Mike, quick question on the Jet Parts Engineering and Victor Sierra acquisition. That should accelerate your commercial aftermarket growth, but was part of the rationale also to deter other companies from PMA and your OEM parts, because you could then retaliate in PMA or DER their parts as well?

No. No, we bought these businesses because we think they're fundamentally good businesses on which we can make a 20% IRR. The same TransDigm logic we've always applied to M&A, the businesses will run and operate themselves, and that's why, that's why we bought these two companies.

Okay, and then thinking about the deal model, normally you let your operating units run autonomously, but is there upside to your deal model if Jet Parts Engineering and Victor Sierra start distributing the PMAs from your other operating units?

You know, potentially, but our businesses run themselves, so anything of that sort would have to be an arm's length agreement between the op units and those businesses. That certainly wasn't in our acquisition case and not what we banked on. Our, I think, as you guys know, our 53 businesses and going on 56, will run themselves independently.

Thank you. Our next question comes from the line of Robert Stallard with Vertical Research.

Just a couple from me. First of all, on the acquisitions, they're a little bit pricey, and I was wondering if that was reflective of broader M&A market trends in aerospace and defense at the moment. Then secondly, do you expect to see similar opportunities for value-based pricing readjustments going forward? Thank you.

I guess, on the valuation multiples, and, you know, you're always, theoretically, you'd love to buy things for lower than you actually have to pay for them, but at a certain point, the market is what it is, and we have to pay up, especially in the current environment, to own these businesses. What we did pay is not anything that we view as too high. Again, it foots to math that basically results in the same 20% sort of IRR we always targeted. So we're happy to own the businesses. We think we paid, you know, fair prices, but nothing that was too high given the valuation environment we're in today.

Oh, and on the pricing, I think it's gonna be, you know, the similar playbook as we deploy in our acquisitions, over time at TransDigm. Basically, no change there.

Thank you. Our next question comes from the line of Scott Deuschle with Deutsche Bank.

Hey, good morning. Patrick, I think in your prepared remarks, you mentioned that you've seen no material share loss from PMAs. I guess within that, what would you define as material? Is it, is it less than 1% share loss per year?

We just think that that's something small, and it's not something that we're seeing. You know, our operating units is where they're sort of fighting this or looking for that potential risk to pop up, and those are the ones, those are the teams that are really considering what they should be doing. Right now, our teams are delivering very well to the market. They're satisfying the demand for all of our customer needs. You know, our on-time delivery has improved significantly over the last few quarters, over the last year, and I think we're well positioned to defend ourselves there, and it's just not something that we see as an issue.

Okay. And then just to clarify, does Jet Parts currently have many PMAs on existing TransDigm products? And is there any kind of conflict of interest that needs to be managed through there, or can it all just be done by the typical TransDigm playbook of running them as their own entities?

Yeah, I think the playbook is they'll run themselves as their own entities. That's the game plan for all of our businesses, consistent with how we do it here, and there's no, no significant or sizable overlap to your other question.

Thank you. Our next question comes from the line of Ronald Epstein with Bank of America.

Hey, good morning. This is Jordan Lyonnais on for Ron.

On Jet and Victor, if we look out three years and you start to realize revenue synergies, do you guys have a target or an idea of how much you would like to see your PMA business grow or what percentage of the portfolio you'd be comfortable with?

That's not necessarily how we looked at it in terms of overall TransDigm. We, again, we footed this. We bought these businesses. We model it up, and we built a five-year LBO model, same approach we've always taken, and ask ourselves: Can we hit 20% IRR at the price we have to pay? And we think that's the case with both of these businesses, but we're not footing necessarily to a total percentage growth target for TransDigm's overall CAM in year five. We think these are great businesses. That's why we bought them. We think there's a good growth trend here in PMA. It's something that's not gonna see explosive growth, but it's probably gonna grow a little bit above the market. This gives us a position in that space and a way to benefit from that growth.

Again, we look forward to getting both deals closed and owning these businesses and then watching them continue to grow.

TransDigm Group Q1 2026 Earnings Call Transcript | Fortune

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TransDigm Group (TDG) Q1 2026 Earnings Call Transcript

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