Congress to question TransDigm over defense profits exceeding 1,000%

WASHINGTON (Reuters) - Executives for TransDigm Group Inc will testify before a Congressional committee on Wednesday after a Pentagon-endorsed investigation found the aircraft parts supplier made profits exceeding 1,000% on some spare parts and equipment.

TransDigm shares were down 3.2% in early trading as the broader market was flat. According to a House of Representatives committee memo seen by Reuters, TransDigm had “extreme” profit margins, and that “in five of the worst examples examined by the Committee, TransDigm made excess profits of between 1,385% and 4,436%.”

Chief Executive Officer Kevin Stein and other company executives were scheduled to speak to the House Committee on Oversight and Reform.

The congressional memo said that in one of the examples the Department of Defense paid $1,443 for a nonvehicular clutch disk used in a C-135 transport aircraft that cost TransDigm just $32 to produce, giving TransDigm 4,436% in profit.

TransDigm was able to charge these exorbitant prices because it is the sole source provider for all these parts, the congressional memo said.

In his opening statement Stein said “TransDigm did nothing in contravention of the federal acquisition laws and regulations with respect to its pricing.”

TransDigm has made several acquisitions in recent years to boost its share of the spare parts market.

After examining 113 Department of Defense contracts the Pentagon’s inspector general recommended TransDigm repay $16.1 million in excess profits, the memo said.

TransDigm informed the Committee in a letter on May 7 that it “has not yet determined whether it will make a voluntary refund as recommended by the Department of Defense Office of Inspector General,” the congressional memo said.

(Story was refiled to remove typographical error in headline)

Reporting by Mike Stone in Washington D.C.; Editing by David Gregorio