Pngfund

$TDG is one of the best compounders in recent decades. It's a company I keep a close eye on so I can buy when prices drop. Here's the company in a nutshell: 1. Sole-Source Monopolist at Scale: TransDigm is the only supplier for 75% of what it sells, across ~100 acquired niche businesses. No competitor can justify the R&D spend to challenge a product that generates maybe $1,000 in annual revenue per unit for the OEM. 2. The Aftermarket is ~⅓ of revenue but 75% of adjusted EBITDA. FAA regulations lock part designs in for the life of the aircraft, turning every new plane win into a multi-decade, sole-source replacement contract. 3. TransDigm has incredible pricing power. It raises prices up to 40% per year on certain products. It works because a $1,000 part is immaterial to a $100M aircraft. There was even a DoD investigation that found 112 of 113 contracts exceeded the government's "fair and reasonable" 15% margin cap. Some of them by thousands of percent. Yet, due to the lack of alternatives, nothing happened. This is a risk, but it also shows the enormous pricing power of TransDigm. 4. TransDigm has done about ~100 acquisitions, and zero of them were losers. Every deal requires a 20%+ IRR and a 5-year money-double. The concept is to buy a business and immediately pull the pricing lever and focus on the high-margin business units. That often improves margins from 15% to nearly 40% in a few years. 5. 80–90% of exec pay is performance-based. Stock options only fully vest at a 17.5% annual stock CAGR. The base salary for top executives is just over $1M. The rest is earned alongside shareholders. 6. 6x Net Debt/EBITDA is the target, currently at 5.7x after a $5B debt issuance. It's manageable because ~75% of revenue comes from the aftermarket, which is effectively non-discretionary. Airlines can delay new plane orders, but they cannot skip maintenance on planes already flying. Even during COVID, this hasn't been a problem. Air travel fell more than 50%, and commercial aftermarket revenue dropped 40%+. Total revenue and EBITDA still declined by only ~10%, underscoring just how resilient the model is under extreme duress. 7. Aging fleet = more aftermarket dollars. The average age of active aircraft has risen sharply due to delivery delays by Boeing and Airbus. Older planes require more frequent component replacement across exactly the subsystems that TransDigm dominates. 8. Only 3% penetrated in a $60B market — Global airline maintenance spend is ~$850–900B per year; ~15% is maintenance. TransDigm is active in 47% of that pool (~$60B addressable), but currently captures only ~$1.7B in commercial aftermarket revenue. The market remains highly fragmented with thousands of acquisition targets. 9. Interest expense is the one number to watch. Interest expense as a % of revenue has been creeping up and now sits at 17.5%, with the long-term trend clearly moving higher as cheap pre-2022 debt matures and gets refinanced. TransDigm still covers interest 2–3x, but this is the key variable that could compress the leverage arbitrage over time.