TransDigm (TDG)
TransDigm prices sole-source parts already on wing, not backlog-driven engine sales: 60.1% gross margin, 53.9% EBITDA As Defined, ~$27.2B net debt.
Educational analysis for professional use. This profile is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
Snapshot
Business Overview
Pricing on proprietary parts already on wing drives TDG's economics more than narrowbody delivery schedules do. Defence supplied 42.6% of FY2025 revenue against 31.8% commercial aftermarket and 23.8% commercial OEM. Gross margin was 60.1%, and EBITDA As Defined, TransDigm's own adjusted EBITDA measure set out in its credit agreements, ran to 53.9% of net sales. Market capitalisation was roughly $70.3B on 10 June 2026 (55.9M shares at about $1,257).
TransDigm explicitly does not use a traditional backlog. Demand is inferred instead from purchasing patterns on proprietary components already on aircraft. The installed-base guide contrasts this with GE's roughly $170B backlog in its Commercial Engines and Services (CES) segment: TDG monetises the fleet through part-by-part replacement cycles rather than long-term service contracts.
The OEM vs aftermarket guide places TDG's 60.1% gross margin and 53.9% EBITDA As Defined against Boeing Commercial Airplanes (BCA) at −17.1% and engine maintenance, repair and overhaul (MRO) gross margins of 20-35% per IATA and Oliver Wyman. TDG's economics sit closer to a proprietary-parts business than to engine or airframe manufacturing.
How the Numbers Read
Free cash flow was ~$1.8B in FY2025 ($2,038M operating cash flow less $222M capex), a computed conversion of roughly 38% against $4.76B EBITDA As Defined. Net debt was ~$27.2B ($30.0B debt less $2.8B cash), the leverage that funds TransDigm's pricing power on proprietary parts and its acquisition programme.
Defence at 42.6% of revenue adds a non-commercial aero leg that pure engine OEM peers do not have. Commercial aftermarket at 31.8% is the direct comparator to Howmet's roughly 21% spares share, but the two businesses monetise differently: TDG's sole-source pricing shows up as a 60.1% gross margin and a 53.9% EBITDA As Defined margin, well above Howmet's 29.3% adjusted EBITDA margin on the same like-for-like basis.
Valuation Framework
TransDigm's economics separate pricing power from balance-sheet risk. High margin (60.1% gross, 53.9% EBITDA As Defined) comes from proprietary parts with no substitute once they are on an aircraft; ~$27.2B net debt is the cost of building that position through leveraged acquisitions rather than organic capacity. The valuation guide sets out how to compute an EV/EBITDA multiple for a proprietary-parts name once EBITDA As Defined is matched against the filer's own basis, and why net debt has to sit alongside the multiple for a leveraged balance sheet to be read correctly.
TDG does not lend itself to backlog-to-rate valuation. Airline flying hours and fleet age drive commercial aftermarket revenue more than Boeing or Airbus delivery schedules do. M&A and price increases on proprietary SKUs are the historical EBITDA As Defined drivers instead.
What to Watch in the Financials
EBITDA As Defined margin. 53.9% in FY2025. Regulatory or airline pushback on sole-source pricing is the margin risk to watch.
Commercial aftermarket growth. The $2.8B line, 31.8% of revenue, should track fleet utilisation and ageing aircraft more than narrowbody delivery counts, which are a secondary input here.
Defence mix. 42.6% of FY2025 revenue adds a non-commercial leg that cushions a commercial downturn, but it also muddies a pure commercial-aero peer comparison.
Net debt and FCF. ~$27.2B net debt against ~$1.8B FCF leaves little room for balance-sheet error. FCF mainly services debt and funds acquisitions rather than rapid de-leveraging.
Key Risks
Leverage. ~$27.2B net debt on a ~$70.3B equity cap leaves thin room for error. An airline downturn that hits aftermarket volumes would stress the balance sheet before margins move, and higher rates add to the bite.
Pricing and regulatory scrutiny. 60.1% gross margin on sole-source parts draws customer and government pressure. Acquisition accounting can also blur EBITDA As Defined if normalisations stack up.
No backlog visibility. Demand inferred from purchasing patterns only. Unlike GE's ~$170B CES backlog, there is no forward contracted revenue headline to underwrite a downturn.
Defence dependency. 42.6% defence revenue diversifies commercial cyclicality but ties a large revenue block to US and allied defence appropriations cycles.
Commercial Aerospace Sector Primer
Delivery rates and the aftermarket annuity are the inputs. This primer takes them to a dual-rate sum-of-the-parts and an EV/EBITDA you can defend.
The Excel model is the primer's two dual-rate sum-of-the-parts builds live across 12 sheets: original equipment capitalised at a cyclical rate, the installed-base aftermarket at a lower annuity rate, summed to enterprise value. Change the delivery rate, the aftermarket dollars per unit or either discount rate and the value per share moves.