The TransDigm Group saw its commercial aftermarket sales register another healthy gain in the latest quarter, but managers acknowledged in their latest earnings call that the pace of future recovery is still not entirely clear—not only on the demand side, but on some supply issues as well.

Commercial aftermarket sales were up 41% in the fourth fiscal quarter, ended Sept. 30, from the same period of 2020. These sales included a 49% gain, quarter over same quarter, in commercial transport revenue, along with more modest gains in business and helicopter markets, which were not hit as hard by the pandemic.

Compared with the prior quarter of fiscal 2021, commercial aftermarket sales were up 14% as the air traffic and MRO recoveries continue.

President and CEO Kevin Stein said that, for planning purposes, TransDigm expects commercial aftermarket sales to increase “in the 20-25% range,” in the coming fiscal year. Stein says this forecast is based on what customers are telling his salespeople, not on any corporate analysis of traffic and MRO demand. Stein acknowledged he does not have any visibility into airline inventories, MRO policies or deferred maintenance. “It’s just based on more planes flying,” he said.

The hope and expectation are that as vaccinations increase and more countries relax restrictions on international travel, aftermarket sales will continue to grow. These hopes are reinforced by the fact that aftermarket bookings grew more than 25% from the end of the third quarter to the end of the final fiscal quarter of 2021. “It was a good quarter, and we continue to see recovery in air traffic,” Stein said.

COO Jorge Valladares did not mention any labor challenges to the recovery, noting that TransDigm remains cautious in staffing up for the recovery. However, he is seeing some increase in lead times in the supply chain, especially for electronic components. “It is likely to get worse and could be an issue,” said Valladares.

Stein is also seeing some inflationary pressures on TransDigm costs. He stressed that TransDigm “will pass these along; we don’t eat inflation.” That should be easy for the company. About 80% of TransDigm’s sales are sole-source, which gives it a great deal of pricing power.

TransDigm was built through acquisitions and it is still “always on the hunt” for more, according to CFO Mike Lisman. The company usually targets buyouts of small to midsized firms worth $50-100 million, but Lisman said TransDigm also monitors opportunities, including divestitures, “up to a couple billion.”

However, price, fit and information still have to be right. TransDigm’s attempt to acquire $3-billion-a year Meggitt fell through, Stein said, because Meggitt management would not provide enough data in response to his due diligence requests to justify the 900-pence per share acquisition price. “Our additional diligence requests were not met . . . we are most prudent,” said Stein.

Prudence and strategy have paid off so far. Earnings before interest, taxes, depreciation and amortization, as defined by TransDigm, were 45.6% of sales in fiscal 2021, up 1% from the prior year. Fourth quarter earnings per share beat analyst estimates handily, and TransDigm stock prices have stabilized to near pre-pandemic highs.