Aftermarket Growth Outlook
Q: How should we calibrate aftermarket growth in Q2?
A: Management forecasts mid-teens percentage aftermarket growth in Q2, with potential for upward revision. Q1 saw strong bookings and a sequential increase in shipments, and this positive trend is expected to continue. "

M&A Pipeline and Capital Deployment
Q: How does the M&A pipeline look and what are the opportunities to deploy capital after CPI?
A: The M&A pipeline is robust with many targets, including unexpected ones. TransDigm plans to deploy capital closer to the end of the fiscal year, focusing on highly engineered aerospace products with aftermarket access. There are many small and medium-sized targets that are easiest to execute. "

Margin Expansion Expectations
Q: Is the expectation of 100 basis points of organic margin expansion still valid?
A: Management believes the business will continue to support 100–150 basis points of margin expansion annually. Despite potential changes in mix, margins are expected to expand sequentially. "

Supply Chain and Production Rates
Q: Are supply chain issues affecting your ability to meet production rates?
A: Supply chain challenges persist industry-wide, but TransDigm's team has navigated these well. Previous issues with castings and electronic components have largely been resolved. Assumptions are aligned with Boeing's and Airbus's production rates, adopting a conservative approach. "

Input Costs and Pricing Power
Q: Have input costs started to ease, and how does that affect pricing?
A: Input costs, particularly labor, may be starting to ease, though it's early in the fiscal year to see significant changes. The company continues to focus on market-based pricing to offset inflationary pressures, with costs and pricing remaining closely matched. " "

Capital Allocation and Cash Balance
Q: How do you think about the appropriate cash balance going forward?
A: The company isn't anchored to a specific cash amount and is comfortable keeping cash on hand to support acquisitions like CPI and other investment opportunities. "

CPI Acquisition Timing
Q: Has there been any change in the timing of closing the CPI deal?
A: There is no significant change; the acquisition is expected to close within the fiscal year. The approval process is ongoing, and management remains positive about the outcome. "

Defense Business Trends
Q: How is the defense aftermarket performing compared to OEM?
A: Defense aftermarket growth outpaced OEM, though the difference wasn't significant. The defense aftermarket had a solid quarter, benefiting from multiple platforms. "

CapEx Increase
Q: What's driving the significant step-up in CapEx this year?
A: CapEx is increasing due to investments in infrastructure, productivity improvements, and new projects like solar programs, which offer great payback and add to CapEx needs. "

Automation Opportunities
Q: How much automation can you incorporate into the business over time?
A: While challenges exist due to high-mix, low-volume manufacturing, management is optimistic about increasing automation as costs come down. Significant progress has been made in automating processes like painting, polishing, and brazing. "