TransDigm Group (NYSE:TDG) raised its fiscal 2026 sales, EBITDA and commercial aftermarket outlook after reporting third-quarter results that management said exceeded expectations, supported by growth across commercial OEM, commercial aftermarket and defense markets.
President and Chief Executive Officer Mike Lisman said the company generated healthy sequential and year-over-year revenue growth in all three primary market channels. He said TransDigm’s commercial transport aftermarket business grew 18% from the prior-year period, while commercial OEM sales rose into the double digits as Boeing and Airbus production rates continued to increase.
Third-Quarter Market Performance
Co-Chief Operating Officer Patrick Murphy said total commercial OEM revenue increased approximately 17% year over year on a pro forma basis, with commercial transport OEM revenue rising 25%. The commercial transport figure excludes the business-jet submarket.
Murphy attributed the commercial OEM growth primarily to production improvements at Boeing and Airbus. He also said commercial OEM bookings significantly outpaced sales during the quarter, and the company’s book-to-bill ratio remained “solidly positive.”
Total commercial aftermarket revenue increased approximately 17% from the prior-year period, excluding recently acquired Jet Parts Engineering and Victor Sierra Aviation Holdings. Commercial transport aftermarket revenue increased 18%, driven by growth in engine, passenger and interior-related markets, while freight revenue was roughly flat in the quarter.
Management said commercial aftermarket bookings exceeded expectations for a third consecutive quarter, while point-of-sale activity at distributors increased by a double-digit percentage. Although the conflict in the Middle East has affected revenue passenger miles and caused some airlines to adjust capacity, Lisman said TransDigm had not experienced a material impact on its aftermarket business.
Defense revenue rose approximately 11% year over year, with both OEM and aftermarket revenue increasing. Murphy said defense aftermarket growth ran slightly ahead of OEM growth, while bookings increased both sequentially and year over year and exceeded sales for the period.
Margins, Cash Flow and Capital Structure
TransDigm reported an EBITDA As Defined margin of 52.8% in the third quarter. Lisman said the margin improved sequentially from the second quarter as higher volumes and operating performance supported results across market channels.
The quarterly margin included more than two percentage points of dilution from recent acquisitions, including an approximately half-percentage-point sequential headwind related to Jet Parts Engineering and Victor Sierra Aviation Holdings. Management said it expects margins at acquired businesses to expand over time.
Chief Financial Officer Sarah Wynne said organic growth was approximately 13% in the third quarter. The company generated approximately $870 million of free cash flow in the quarter and $2.1 billion year to date. TransDigm now expects full-year free cash flow of approximately $2.6 billion, up from its prior $2.5 billion outlook.
The company ended the quarter with $2.8 billion of cash and a net debt-to-EBITDA ratio of 5.8 times. Wynne said TransDigm targets a net debt-to-EBITDA range of five to seven times. Approximately 75% of its $33.7 billion gross debt balance is fixed through fiscal 2029 through fixed-rate notes and interest-rate instruments, she said.
During the quarter, TransDigm repurchased approximately $980 million of common stock, or about 800,000 shares, at an average price of approximately $1,208 per share. Year-to-date repurchases totaled $1.8 billion.
Acquisition Activity
Lisman addressed TransDigm’s withdrawal from its proposed acquisition of Stellant Systems after the Department of Justice indicated it intended to challenge the transaction. He said the company disagreed with the DOJ’s view but decided that litigation-related complications and timing constraints in the purchase agreement warranted ending the pursuit.
Lisman characterized the outcome as a one-off event and said it would not alter the company’s M&A strategy. He said TransDigm continues to see activity across commercial and defense aerospace markets and retains more than $10 billion of acquisition capacity.
The company recently agreed to acquire Prince & Izant from Industrial Growth Partners for approximately $1.1 billion in cash. Prince & Izant designs and manufactures brazing alloys and specialty metal components for aerospace and defense, aeroderivative turbine and transportation applications. The business is expected to generate approximately $360 million of revenue in calendar 2026.
TransDigm also said its integrations of Simmonds Precision Products, Jet Parts Engineering and Victor Sierra Aviation Holdings were progressing well. Management did not include Jet Parts Engineering and Victor Sierra Aviation in its pro forma market reporting for the quarter because those businesses are still being integrated into its reporting structure.
Raised Fiscal 2026 Outlook
At the midpoint of its revised guidance, TransDigm expects fiscal 2026 revenue of $10.51 billion, representing approximately 19% growth from the prior year. The company now expects:
- Commercial OEM revenue growth in the mid-teens percentage range.
- Commercial aftermarket revenue growth in the low-double-digit percentage range.
- Defense revenue growth in the high-single-digit to low-double-digit percentage range.
The midpoint of EBITDA As Defined guidance was raised to $5.52 billion, up approximately 16% from the prior year, with an expected margin of about 52.5%. Adjusted earnings per share are now expected to be $41.04 at the midpoint of guidance.
Management said the outlook assumes Boeing and Airbus maintain their production rates through the remainder of TransDigm’s fiscal year. Murphy said the company’s supply chain has performed sufficiently to support customer demand, though TransDigm continues to monitor broader supply-chain conditions.
About Transdigm Group (NYSE:TDG)
TransDigm Group Incorporated is a designer, producer and supplier of engineered aircraft components and systems for commercial and military aerospace applications. The company’s product portfolio covers a broad range of mission-critical parts and subsystems, including mechanical and electromechanical components, ignition and fuel system parts, sensors and actuators, cockpit and cabin systems, and other safety-critical hardware. TransDigm supplies original equipment manufacturers (OEMs) as well as the aftermarket, providing spare parts, repair and overhaul services and component support throughout an asset’s life cycle.
TransDigm’s operating model places emphasis on proprietary, niche components that are difficult to replace, and the company operates through a collection of independently run subsidiaries and brands that sell specialized products.
