The future continues to brighten for commercial aviation aftermarket sales, though these are still far short of pre-COVID levels.
The Transdigm Group’s commercial aftermarket revenues in the March quarter of fiscal 2021 were up 12% over the prior quarter, which had itself shown a 5% increase from the preceding quarter, according to Transdigm President Kevin Stein. Even more impressive, commercial aftermarket bookings on March 31 were up 30% from December 31, Stein said in the quarterly earnings call.
Unlike OEM bookings, which can stretch over two years, aftermarket bookings tend to be more of the book-and-ship sort, so this bump should turn into revenue quite soon. As for the future, “We continue to see an increase in commercial market revenue,” Stein predicted.
Aftermarket sales accelerated particularly in March, along with flight activity and passenger reservations. The increase was concentrated in freight and business jets, with passenger and interior sales still lagging a bit.
Stein says the increase was more concentrated in non-discretionary components like consumables than in discretionary parts. Still, “we are seeing some uptick in more discretionary items, as some customers need to refurbish planes around the world. Most airlines are more worried about putting people in seats than look and feel, but we are starting to see that ever so slightly change.”
The Group’s general business strategy has been to acquire aerospace component OEMs that have strong control over their aftermarkets and thus generate high profit margins. Private-equity returns with the liquidity of public markets is the goal.
For fiscal 2021, Transdigm is still expecting a 44% EBITDA margin, as EBITDA is defined by the company.
And the Group expects to emerge from the pandemic slump in good financial shape. Executive chairman Nick Howley said Transdigm will continue to look at M&A opportunities.
Howley is doubtful that a lot of M&A activity will close before 2023, as gaps between bid and ask prices may not narrow sufficiently until then. However, “maybe we could get lucky,” he said. “There could be things that are attractive and we are willing to pay a bit more to make it happen.”
Small and midsize acquisitions are most likely, and defense businesses are more probable candidates for attention, according to Howley.
Transdigm stock was trading near $580 per share on May 13, versus more than $650 on the eve of the COVID crash.
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