Aerospace parts supplier TransDigm Group Inc. [TDG] overcharged the Pentagon more than 1,300 percent on five programs examined by the House Oversight and Reform Committee, the worst examples cited by the committee of excess profiteering by the company, which was the subject of a Defense Department audit report earlier this year for overcharging its customers for parts.
A report by the committee released Wednesday says that TransDigm earned profits of 1,385 percent for actuator cover assemblies, 1,680 percent for hydraulic valves, 1,923 percent for motor brake rings, 3,930 percent for quick disconnect coupling half parts, and 4,436 percent for nonvehicular clutch disks.
The information is based in large part on a DoD Inspector General’s Office report from February that reviewed a sample of contracts over a two-year period that TransDigm had with the Army and Defense Logistics Agency. That report found that of 113 contracts examined, the company earned excess profits of $16.1 million on 112 of the awards.
TransDigm’s excess profits ranged from 17 percent to 4,451 percent on 46 of 47 spare parts, the IG said, saying that profit margins of 15 percent or below are reasonable. TransDigm was the only manufacturer for 39 of the parts.
“What we will not tolerate is war profiteers,” Rep. Ro Khanna (D-Calif.), who managed the hearing, said in his opening statement. “Those who seek to use the fact that we are at war to hold us hostage and hike their prices on mission critical defense articles to astronomical levels.”
Khanna said that TransDigm’s business model is to acquire companies that have monopolies on the parts they supply for defense systems and then to jack up the prices.
Kevin Stein, president and CEO of TransDigm, told the committee that his company wasn’t investigated by the IG and that the auditors found its pricing was in accordance with federal acquisition laws.