The Cleveland-based aerospace and defense contractor TransDigm was under the microscope Wednesday yet again for what the Federal government contends is “egregious price-gouging.”
Based on an internal Department of Defense audit, TransDigm is alleged to have received nearly $21 million in excess profits on contracts for spare airplane parts. For many of these parts, TransDigm is the exclusive provider to the U.S. government.
TransDigm, whose chairman and founder W. Nicholas Howley makes more than $60 million every year in total compensation, was in the hot seat last year as well for the same reason. A previous audit found that TransDigm had received more than $16 million in excess profits, based on a small sample of its recent contracts.
According to testimony from former TransDigm employees, the company is perceived as the “cancer of the industry.” Its aggressive pricing practices include acquiring subsidiaries that are sole-source providers of particular parts and then, once they’ve obtained monopoly status, jacking up the prices. These and other observations were included in material released by Carolyn B. Maloney, who chairs the Congressional Committee on Oversight and Reform.
The government has little recourse, as TransDigm not only controls a monopoly position but also strategically pursues contracts under a $2 million threshold that would require it to provide cost data with the government.
Chairwoman Maloney introduced the meeting yesterday by announcing new legislation to ensure that the government isn’t overcharged by predatory companies like TransDigm.
TransDigm officials, who repaid the $16.8 million in excess profits last time around, said they would do so again if it was discovered that anything was amiss in their own accounting. But they argued that the Department of Defense’s audit relied on “arbitrary standards” for reasonable profit margins.
According to internal TransDigm documents shared by Maloney, seeking continually inflated profit margins was the company’s bread and butter, even if it meant laying off its own employees or lying to government officials to achieve them.
“I’m just full of BS,” one TransDigm salesperson wrote in a 2018 email shared by Maloney, “and [the DOD] took the bait.”
Cleveland.com Washington correspondent Sabrina Eaton noted in her coverage of the hearing that the committee’s Republican representatives sided with TransDigm, arguing that their Democratic colleagues were blaming one company for a “systemic problem.”
But this problem has become a blatant pattern with TransDigm. It is evidently so ruthless and underhanded that they don’t even command respect in the world of military contractors, an astonishingly low bar to be unable to clear.
Michigan Rep. Rashida Tlaib, a member of the committee, upbraided TransDigm Executives Kevin Stein and Nicholas Howley during her remarks.
“At the time when American families were and still are struggling with the financial burden of the pandemic, TransDigm paid the two executives here around $90 million, while at the same time laying off, furloughing, cutting the salaries of its other employees.”
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This article appears in Jan 5-11, 2022.
