TransDigm Pricing Spineometer: 1 of 5 Vertebrae

TransDigm Group Inc. , a global aerospace components provider to commercial and military aircraft, had a positive FY 2024. Revenue rose 21% to $7.9 billion and earnings before interest and taxes rose 21% to $3.5 billion over last year.

A review of TransDigm Group’s 4 February 2025 earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

TransDigm operates with three reporting segments, Power & Control, Airframe, and Non-aviation. Power & Control serves aircraft engine and power systems suppliers, airlines, maintenance crews, and military buying agencies with multiple products to provide or control power of the aircraft.? Airframe serves airframe manufacturers and cabin systems providers. Non-aviation makes seatbelts and actuators for ground operations, child restraints, space systems and other industries.

TransDigm has a highly concentrated customer base with the top 10 customers contributing 42% of revenue.

Joel Reiss, Co-COO, shared their approach to pricing.? “Our typical approach to pricing is unchanged. We're basically looking to cover our inflationary costs and then a little bit more. And I don't know that we've seen anything significantly different than that.”? With these remarks, TransDigm is claiming to operate under cost-plus pricing perspective. Issues of the differential value of their offerings over their competitors may not be informing their pricing.?

This approach to pricing may be attributable to TransDigm’s market.? 40% of revenue is from the U.S. and friendly government defense customers.? Government contracts tend towards fixed-price based on reimbursement costs.? Furthermore, the U.S. government may review pricing to determine if it is “fair and reasonable.”? Hence, pricing based on identifying the added benefits of an offer over its competition may fall afoul of government protocols and regulations.?

Yet sales to commercial aviation and aftermarket would not have such a limitation.? 31% of revenue is derived from commercial, regional, business jet and general aviation aftermarket customers.? 27% of revenue is from the aerospace OEM market.? In these markets, value-based pricing concepts would be very applicable.?

A significant business resiliency and continuity driver for TransDigm is landing supplier roles with aircraft manufacturers.? An aircraft design may be in production for 25 years.? Moreover, once built they tend to operate for 25 to 30 more years.? This creates a 50-year product lifecycle between OEM (Original Equipment Manufacturers) and aftermarket parts sales.?

Out of the 16,600 professionals working at TransDigm, industry benchmarks would suggest 16 to 80 professionals to be dedicated to pricing.

1. Sales incentives are based on bookings and landing new opportunities, as is aligned with TransDigm’s business strategy.? Pricing analytics can deliver salespeople pricing guidance for negotiations with major customers on new OEM sales as well as aftermarket parts sales.
2. Economic Value to Customer studies can inform TransDigm’s executives of the value differential between their offerings and their competitors, enabling them to capture business at more relevant price points.? This would have a significant role to play in landing new opportunities with new designs.?
3. TransDigm primarily manufactures in the U.S. but sells globally.? This has two major implications.? One, it is best practice to co-locate pricing expertise with sales operations globally to enable regional variations in commercial policy.? Two, while Kevin Stein, CEO of TransDigm, believes tariffs would have “de minimis impact to the corporation,” a trade war with any major trading partner would have a significant impact on market accessibility, and a blanket tariff on steel and aluminum would likely impact the cost of goods sold.? For TransDigm, the dynamic may limit their sales to Airbus in Europe.
4. Applied economics may improve management decision making and planning in many ways.? Macroeconomic factors that impact commercial flights impact TransDigm’s aftermarket parts sales.? Geopolitical challenges such as war or armed conflict impact sales to defense departments.? Other economic shocks, such as a tariff on aluminum or fluctuating raw material costs, would also be addressed and informed by economic models.
5. 55% of net revenue is from aftermarket sales.? This significantly important business has been demonstrated to benefit from account-level analysis that examines areas where price increases can vary across shop keeping units (SKU).
6. A portion of TransDigm’s business relies on multi-year, fixed-priced contracts.? These could be converted into contracts reliant on index-based pricing to account for inflation or input cost volatility where possible to both deliver a more competitive price and ensure profitability.? Many businesses have had strong success with this model for their large customers.?

Research into the investment by TransDigm Group in pricing yielded discouraging results.?

• The pricing function does not appear to be a recognized profession at TransDigm.? Rather, finance professionals identify pricing as a part of their contribution along with some sales professionals and business unit leaders.

Given the importance and capability of pricing at TransDigm Group as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of February 2025.

TransDigm Group Pricing Spineometer: 1 out of 5 Vertebrae. Management at TransDigm has not invested in creating a reliable pricing capability nor does it appear to be a cause for concern.? Industry cohorts in the aerospace industry have invested in this capability.? Witness Parker Hannifan and Boeing.?

TDG ?(TransDigm Group Incorporated) fell from 1,353 the day prior to their earnings call to 1,335 one week later. FY 2025 revenue of $7.9 billion with a 44% operating margin and P/E ratio near 71.?

For FY 2024, a 1% improvement in price would yield a 2% improvement in operating profits holding all else constant at TransDigm.

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