WASHINGTON — A new report from the Pentagon’s Office of Inspector General recommends the department seek a refund of at least $20.8 million from TransDigm, a company long under fire for what Defense Department officials say is a pattern of collecting “excess profit.”
TransDigm, which makes spare parts for both commercial and military aircraft, in 2019 refunded $16 million to the Pentagon, though a top executive noted this was not an admission of wrongdoing and was simply “in the best interest of the company.”
The company has been the target of bipartisan ire. During a 2019 hearing, Rep. Ro Khanna, D-Calif., said Congress will not tolerate “war profiteers, those who seek to use the fact that we are at war to hold us hostage and hike their prices on mission-critical defense articles to astronomical levels.”
Lawmakers requested the latest audit, which was meant to scrutinize whether the company earned excess profit as well as how its DoD contracts are structured and the company’s impact on the defense market.
The latest IG report, publicly released Monday, found TransDigm made $20.8 million in excess profit on 105 spare parts on 150 contracts.
“Multiple audit reports over the past 23 years have highlighted the problem of the DoD paying excess profits on sole‑source contracts where cost analysis was not used to determine fair and reasonable prices and this problem continues to occur,” the report said.
The report called for the director of defense pricing and contracting to work with the head of the Defense Logistics Agency to consider “alternative contracting strategies” for buying more efficiently from companies like TransDigm.
The IG also recommended the defense pricing chief consider whether DoD policy adequately addresses when to use cost analysis to determine whether a price is reasonable for sole-source spare parts. If the current policy isn’t sufficient, the director “should initiate actions to revise and update policy and guidance.”
TransDigm disputed the findings, saying in a statement that the IG used “arbitrary standards and analysis.”
“The report ignores significant real costs incurred by the business and contrary to law, reports these costs as excess profit,” the statement read. “The report presents profit percentages in a misleading and provocative manner. This includes computing profit as a percentage of cost rather than as a percentage of revenue — the internationally recognized method and business standard.”
TransDigm was ranked as the 50th largest defense company in the world in Defense News’ latest Top 100 list. The company made $2.18 billion in defense-related revenue in fiscal 2020; that’s 43% of it total revenue during that time period.
Marjorie Censer is the editor of Defense News. She was previously editor of Inside Defense. She also worked as the defense editor at Politico and as a staff writer at the Washington Post, the Carroll County Times and the Princeton Packet.