TransDigm CEO: $16 million voluntary repayment was 'in the best interest of the company'

August 6, 2019

By Marjorie Censer

TransDigm Group executives today said a new Defense Department inspector general audit underway will likely yield the same results as a previous review.

Earlier this year, the DOD IG found that TransDigm had reaped $16 million in excess profit on the contracts it reviewed.

Under pressure from Congress, TransDigm opted to repay the $16 million, but executives speaking to analysts today said the reimbursement was voluntary and not an admission of guilt.

"This was not an obligation of the company," Kevin Stein, TransDigm's chief executive, said today. "We thought this was in the best interest of the company."

He said TransDigm isn't certain how long the new audit, which began last month, will take, but noted the last one "took a while."

The new audit will review a "slightly larger pool of contracts," Stein added.

"But we don't believe that there will be anything different in this process than in the last," he said. "We assume that any exposure here is voluntary."

Stein noted that direct sales to the U.S. government make up only 6% to 8% of TransDigm's annual sales. Within that pool, only about 25% are competitive products, he added.

Stein also said a Pentagon memo issued in June simply "reflects the wording of the applicable" federal acquisition regulations.

"The contracting officers could always request cost and pricing data and of course we always comply with the FAR," he added.

Stein acknowledged that the memo might mean "some awards could be delayed," but said the company is seeking to work with the Pentagon.

"We recognize DOD is a valuable customer to us," he added.