TransDigm Gr (NYSE:TDG) reported fourth-quarter financial results on Tuesday. The transcript from the company’s fourth-quarter earnings call has been provided below.
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Summary
TransDigm Gr Incorporated reported strong financial performance for fiscal 2026, exceeding revenue and EBITDA guidance with double-digit growth across major markets.
The company executed significant capital allocation activities, including $2.75 billion in share repurchases and $4.4 billion in M&A, acquiring high-quality companies like Simmons Precision Products and Jet Parts Engineering.
Guidance for fiscal 2027 projects continued growth with a revenue midpoint of $12.05 billion and EBITDA of $6.27 billion, despite a 2% margin dilution from recent acquisitions.
Commercial aftermarket demand remains robust, and production rates at Boeing and Airbus are favorable, supporting a positive outlook for commercial OEM and Defense markets.
Management reaffirmed commitment to disciplined capital allocation and M&A strategy, focusing on smaller, high-return targets while maintaining substantial liquidity and financial flexibility.
Full Transcript
OPERATOR
Good day and welcome to the Q4 2026 TransDigm Gr Incorporated Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. To ask a question you will need to press star 1-1 on your touchtone telephone. Please note this call may be recorded. I would like to turn the call over to Mary Hartman, Director of Investor Relations. Please go ahead.
Mary Hartman (Director of Investor Relations)
Thank you and welcome to TransDigm Gr’s fiscal 2026 first quarter earnings conference call. Presenting on the call this morning are TransDigm Gr’s Chief Executive Officer Mike Lisman, Chief Operating Officer Joel Reiss and Chief Financial Officer Sarah Wynn. Also present for the call today is our Co-Chief Operating Officer Patrick Murphy. Please visit our website at transdigm.com to obtain a supplemental slide deck and call replay information. Before we begin, the Company would like to remind you that statements made during this call which are not historical in fact are forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the Company’s latest filings with the SEC available through our investor section of our website at sec.gov.
The Company would also like to advise you that during the course of the call we will be referring to EBITDA, specifically EBITDA as defined, adjusted net income and adjusted earnings per share, all of which are non-GAAP financial measures. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliations. I will now turn the call over to Mike.
Mike Lisman (Chief Executive Officer)
Good morning and thanks for calling in today. We have a full agenda for this morning’s call as we’re giving our guidance for our new fiscal year. So I’m going to abbreviate our usual strategy overview and get right down to business. I’ll start with a quick reminder of how we run the company and think about capital allocation, then comment on our fourth quarter and then walk through our fiscal 2027 outlook. Joel and Sarah will follow with additional color on our operations and financials respectively.
As those of you who have followed us for a long time know, TransDigm Gr’s approach is consistent and unchanged. We own and operate highly engineered proprietary aerospace businesses with significant aftermarket content. We run those businesses with a simple value-based operating methodology, a decentralized organizational structure and a unique compensation system combined with disciplined capital allocation. This approach is designed to deliver private equity-like returns with the liquidity of a public market and over our history it has consistently delivered.
Now some comments on our fourth quarter. We wrapped up fiscal 2026 with a good finish. The team executed exceptionally well with all three of our major end markets delivering double-digit growth for both the quarter and the full year. Revenue and EBITDA as defined for the year exceeded our most recent guidance, and commercial aftermarket demand remains healthy despite elevated oil prices and RPKs below what we forecasted when we first gave fiscal 2026 guidance a year ago.
As we’ve said before, aftermarket demand doesn’t move in lockstep with RPKs. In past short-term disruptions like this one, we’ve typically seen demand return to trend line once the situation resolves, meaning demand recovers as if the disruption had not occurred. We view the current environment as a short-term air pocket, not a source of long-term demand destruction for commercial aerospace. Consistent with our long-term focus, we took advantage of the air pocket’s effect on our share price to repurchase approximately $940 million of TransDigm Gr stock in the quarter, bringing fiscal 2026 total repurchases to $2.75 billion. As you’ll hear in more detail shortly, our outlook for commercial aftermarket into fiscal 2027 remains positive and we’re on track for continued growth. Our operating units have done a solid job of helping their customers catch up on pent-up maintenance demand these last several months and continue to provide excellent service.
This means high-quality parts on time to their airline end customers. Commercial OEM is trending favorably as production rates at Boeing and Airbus continue to increase. Our results for the quarter and the year reflect that strength and our guidance assumes the momentum carries into fiscal 2027. Finally, Defense delivered its third consecutive quarter of double-digit growth. As we’ve noted on prior calls, we built a very healthy backlog in Defense this year, which sets us up well for another strong performance in fiscal 2027.
Our EBITDA as defined margin was 53% in the quarter, our highest of the year, driven by higher volumes and excellent execution from our teams. That includes roughly 2 percentage points of dilution from recent acquisitions. As a reminder, new acquisitions typically dilute margins in the near term, and we expect these margins to then improve over time. We also generated strong cash flow in the fourth quarter and ended the year with nearly $2.3 billion in cash.
Next, an update on our capital allocation activities and priorities. Fiscal 2026 was a successful year for capital allocation: over $7 billion deployed through M&A and share repurchases. M&A deployed approximately $4.4 billion in the fiscal year on high-quality companies including Simmons Precision Products, Jet Parts Engineering, Victor Sierra Aviation and, most recently, Prince and Isant which just closed in late September. Along with our four new standalone acquisitions, we invested nearly $440 million in 12 smaller acquisitions which we term bolt-on acquisitions.
These bolt-ons may not be large enough to exist as standalone operating units within TransDigm Gr, but they are exceptional businesses and tuck nicely into one of our existing operating units. The bolt-on M&A activity has been another effective way to fuel the growth of our existing operating units across our 57 businesses. We have capable, experienced teams who know and cover their product space very well and this often results in the identification of good businesses that want to come into the TransDigm Gr fold as a long-term home.
When this happens, our op unit teams drive the acquisition process and integrate the acquired target into their business. We will continue to source smaller targets like these along with our traditional standalone acquisitions, while TransDigm Gr’s corporate M&A team remains focused primarily on new standalone operating unit acquisitions. We also have 57 op unit teams working to drive bolt-on acquisitions for their respective businesses. Regarding the current M&A activities and pipeline, we continue to actively look for opportunities that fit our model and, as usual, the potential targets are mostly in the small and mid-sized range.
I’d like to take a moment to discuss how our M&A efforts have evolved over time. For more than 30 years we’ve been busy in the acquisition business and gradually broadened the funnel of products that meet our criteria. In the early years the focus was mechanical components, then broadened into avionics through the acquisition of businesses like Avtech, followed by interior components with businesses like AmSafe, Schneller and Pexco, and later select electronic products with acquisitions such as Data Device Corporation.
More recently we broadened into aerospace test and measurement and PMA. And there have been unwavering constants the whole way through. First, our returns have remained high, 30% plus equity IRRs, using the same returns framework we have long utilized. Second, and probably most importantly, we have remained disciplined in our approach to M&A. This has meant a gradual broadening of the funnel rather than a rapid one and the pursuit of mid-sized M&A targets as a percentage of our enterprise value rather than the larger so-called company-defining acquisitions that often become business school case studies when they fail.
As we look out over the coming years, I expect these elements of our M&A approach to remain the same: high returns and a disciplined process that broadens our funnel gradually. The capital allocation priorities at TransDigm Gr are unchanged. First, we reinvest in our businesses. Second, do accretive disciplined M&A. And third, return capital to our shareholders via buybacks or dividends. A fourth option, paying down debt, seems unlikely at this time, but we continue to consider it. We are always evaluating all four of these options. As we sit here today, we have significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future.
Specifically, we have substantial M&A firepower and capacity remaining in excess of $10 billion. Moving to our outlook for fiscal 27, our guidance can be found on Slide 7 of the presentation for today. It includes our most recent acquisition, Prince and Isant, and assumes no additional acquisitions or divestitures. The midpoint of our revenue guidance is $12.05 billion, up approximately 14% over prior year. As a reminder and consistent with past years, our first quarter has about 10% fewer working days than the following quarters. So we expect Q1 revenue, EBITDA as defined and EBITDA as defined margin to be lower than the rest of the year.
Our revenue guidance is based on the following market channel growth rate assumptions. We expect commercial OEM revenue growth in the high single-digit to low double-digit percentage range, and we expect commercial aftermarket revenue growth in the high single-digit percentage range. We expect Defense revenue growth in the high single-digit percentage range as well. The midpoint of fiscal 2027 EBITDA as defined guidance is $6.27 billion, or up approximately 13% to the prior year, with an expected margin of around 52%.
That margin figure includes approximately 2 full percentage points of dilution related to recent acquisitions. The midpoint of adjusted EPS is expected to be $47.51, and Sarah will discuss the financial assumptions behind our guidance in more detail shortly. We believe we’re well positioned as we enter fiscal 2027 and we’ll continue to closely watch how the aerospace and capital markets develop and adjust as needed. I’d like to wrap up my comments by emphasizing how pleased we are with the company’s performance this year. Our teams continued to provide their customers with excellent service while also driving significant growth and expanded margins across the business. We remain focused on delivering for customers and shareholders in fiscal 2027.
With that, I’ll hand it over to Joel Reiss to review our recent performance and a few other items. Good morning everyone.
Joel Reiss (Co-Chief Operating Officer)
I’ll start with our typical review of results by key market category. For the remainder of the call, I’ll provide commentary on a pro forma basis compared to the prior year period in 2025. That is assuming we own the same mix of businesses in both periods. For reference, The market discussion includes the acquisitions of Simmons Precision Products, Jet Parts Engineering, and Victor Sierra Aviation, but excludes the Prince and Isant acquisition which closed in late September at the end of our fiscal year. For the fiscal 2027 guidance, all completed acquisitions are considered, including Prince and Isant.
In the Commercial market, we will split our discussion into OEM and aftermarket. Our total commercial OEM revenue increased approximately 15% for both Q4 and for the full fiscal year compared with the prior year periods. Commercial OEM wrapped up the year with another strong performance. Commercial transport OEM revenues, which exclude the business jet market, were up 25% over the comparable prior period. The strength is driven by the increased production rates at Boeing and Airbus.
Our operating units executed well in support of this year’s ramp-up, and we are well prepared for the next rate step-up. Commercial OEM bookings posted another quarter of solid growth compared to the same prior-year period, significantly outpacing sales. The strength of our bookings both in the fourth quarter along with the full year provides good momentum carrying into fiscal 2027, consistent with prior year. The commercial OEM guidance we are giving today contains what we believe is an appropriate level of risk around the stated Airbus and Boeing build rates for the fiscal 2027 year.
Now, moving on to our commercial aftermarket business discussion. Total commercial aftermarket revenue increased by approximately 17% in Q4 and 14% for the full year compared with the prior year periods. Excluding Jet Parts Engineering and Victor Sierra Aviation, growth rates for both Q4 and the full year have been the same. This marks three quarters in a row of double-digit revenue growth within commercial aftermarket. Nearly all submarkets delivered strong performances in the quarter.
Our commercial transport aftermarket revenue growth, which excludes our business jet submarket, was up 16%, combining solid growth in the submarkets of engineering, passenger, and interiors. The business jet market also had an exceptionally strong quarter of 20% versus prior year. Q4 commercial aftermarket bookings exceeded sales for the full fiscal year, and Q4 bookings were up double digits over the prior-year quarter. Additionally, point of sale at our distributors maintained a healthy growth rate versus the prior-year quarter, and total months on hand at our major distributors was effectively unchanged.
To date, we have not yet seen a meaningful impact on our commercial aftermarket orders given the elevated oil prices and tension in the Middle East impacting RPKs. The demand remains healthy, and we continue to monitor the situation in close partnership with our customers. As always, we will quickly take appropriate action if needed. Now shifting to our Defense market. Defense market revenue, which includes both OEM and aftermarket revenues, grew by approximately 12% in Q4 and 10% for the full year compared with the prior year periods. The defense market tends to have lumpy order and delivery cycles, but the 2026 fiscal year stood out for delivering consistently strong sales throughout the year while also building a healthy backlog heading into the new fiscal year. As noted in prior quarters, this is driven by a combination of new business wins and excellent operational execution by our teams.
Q4 defense revenue growth was well distributed across our businesses and customer base. Defense bookings for the full year significantly surpassed the prior year and support the guidance for high single-digit revenue growth in fiscal 2027. Additionally, the U.S. government spending environment remains strong with outlays up considerably over the prior year. While the overall defense environment and demand is favorable, the timing at the quarterly level remains difficult to predict with accuracy.
Looking ahead, we are confident that the defense business is well positioned to deliver strong results in fiscal 2027. Before moving on from defense, I’d like to briefly address the pending right-to-repair legislation since we’ve received a number of questions on it since our last call. First, let me be clear. The Department of Defense and our defense customers are very important to us. We support the Department’s goal of keeping the warfighter’s equipment ready and available, and whatever form the final legislation takes, we will work with the Department to comply with it and support its implementation.
We remain committed to delivering high-quality parts on time. The House-passed FY27 NDAA and the Senate Armed Services Committee’s version both include provisions on the government’s access to technical data and repair. The two versions differ in important ways, and we understand the final bill is still being worked out. Key details, including whether and how any requirements apply to existing contracts and flow down through the supply chain, won’t be known until final language is enacted and the Department issues implementing regulations.
Based on what we know today, we do not expect this to have a material impact on our business for three reasons. First, the vast majority of our new product development, commercial and defense, is self-funded, developed at our own expense. The designs and technical data behind our products are TransDigm Gr’s intellectual property. Second, much of our portfolio is relatively low price per unit, and our parts tend to be replaced rather than repaired.
Third, overall exposure is small. Our direct sales to the U.S. government are historically approximately 6% of total sales, and we estimate the portions that could lend itself to repair is less than 1% of total sales. We have supplied, and we will continue to supply, the manuals and technical information the government needs to properly install, maintain, train on, and operate our parts. Now turning to capital expenditures and productivity, we anticipate capex of about $380 million in fiscal 2027, an increase of about $100 million from FY26. In FY27, about 70% of our capital expenditures will be on new business and productivity-driven projects. Payback for cost-reduction projects remains about two years. We have over 230 new automation projects planned for the year, a 55% increase from fiscal 2026. We continue to see a long runway of opportunities for cost savings in our high-mix, low-volume manufacturing operations.
We also anticipate a significant increase in the number of AI-driven projects in our businesses, with targeted projects across our operating units in all functional areas. These productivity efforts are showing up in our results. Excluding businesses acquired in fiscal 2025 and 2026, our headcount is roughly flat versus fiscal 2024 even as commercial OEM production rates, which carry higher labor content, have increased significantly over that period.
Moving on to new business, one of our key value drivers. During the quarter, we continue to see strong new business momentum. Q4 was our highest new business quarter of the year and was up significantly from Q4 of fiscal 2025. We saw good new business activity across our end markets, but the quarter was led by several large defense OEM awards. These included content on next generation and current production fighter programs, support for unmanned aircraft and collaborative combat aircraft, missile defense and space-based programs, and airdrop and parachute systems for international military customers.
A few specific awards to highlight. In defense, our Chelten business received initial orders for its next-generation GPS anti-jam system on three platforms, an encouraging validation of the system’s performance. IrvinGQ received $16 million in orders for its new aerial delivery systems from several European NATO members. In commercial, Korry Electronics received additional development funding from Boeing for the flight deck control panels on the 777-8 Freighter, and Calspan was awarded three jet engine test cell programs from two airline and MRO customers together worth approximately $120 million.
Now turning to our recent acquisition integration activities, as Mike mentioned, it was a busy year for M&A capital deployment. Prince and Isant closed in September and we are well underway with the integration, which is being led by Executive Vice President Mike Harney. Prince and Isant is another high quality addition to TransDigm Gr and we are happy to have them join the team. Finally, I would like to recognize our team’s exceptional performance during fiscal 2026. Their execution drives our results and the consistent quality returns you’ve come to expect from us. With that, I’d like to turn it over to Chief Financial Officer Sarah Nguyen.
Mary Hartman (Director of Investor Relations)
Before we open the line for Q&A, I’d ask everyone in the queue to consider your fellow analysts and ask one question only so we can get to as many people as possible. Operator, can you please open the line?
OPERATOR
Thank you. As a reminder, to ask a question, please press star 11. If your question has been answered and you’d like to remove yourself from the queue, press star 11. Again, our first question comes from Sheila Kahyaoglu with Jefferies. Your line is open, Sheila. If your telephone is muted, please unmute.
Sheila Kahyaoglu (Analyst)
Thank you. Sorry about that. Good morning, guys, and thank you so much for the time. Maybe just, Mike, for the first question, since you highlighted 12 product line acquisitions, I think most people probably didn’t pick up on that. Sixteen acquisitions in total in 2026, including the four large ones. Can you update us on your aperture for M&A? You mentioned PMA, test and measurement of late, and obviously Princeton ISAM. If you could talk about the competitive position with that one in particular.
Thank you.
Mike Lisman (Chief Executive Officer)
Sure. So it was a busy year on the M&A front. We’re very happy to have deployed $4.4 billion in total across both the full standalone acquisitions as well as the bolt-ons that I mentioned. We hope to continue driving that kind of activity going forward. We’re primarily focused on the aerospace and defense sector as we look to invest from here on out in M&A. As you guys know, that’s where the focus remains and that’s where it’s going to be going forward.
As we think about broadening the aperture within aerospace and defense, we’ve continued to do that. The branch-outs we did on PMA this year, so far so good. We’re about six months in, and on test and measurement with Calspan and Raptor, so far so good as well. So we’re confident that we can continue to layer on additional subsectors and broaden out within aerospace and defense as more time evolves. With regard to the competitive environment in M&A, in the second part of your question, Sheila, there’s always been competition. At the end of the day, if you think the team here—and we fundamentally believe this—can drive the best results on these businesses, that should mean you can pay the most for them and still earn an attractive IRR. So just like there’s always been competition, there’s competition today. A little bit at the small end, at the high end too.
But that was the case a decade ago, that was the case two decades ago. We feel good about being able to still win and prevail in M&A auctions and we proved that this year with the performance.
Sheila Kahyaoglu (Analyst)
Awesome. Thank you.
OPERATOR
Thank you. Our next question comes from David Strauss with Wells Fargo. Your line is open.
David Strauss (Analyst)
Maureen, thanks for the question. Mike, your high single-digit aftermarket growth guidance for next year, where would you peg that relative to the market? You think you’re growing in line with the market or you think you’re undergrowing?
Mike Lisman (Chief Executive Officer)
We think we’re certainly growing in line with the market for the segments that we represent. Obviously we’ll see how the year evolves, but we feel good about the guidance we’ve given here today. Our op units went through a detailed bottoms-up build process and feel that we’re at least growing in line with the market, and then hopefully, through a couple new business opportunities that hit this year, we could outperform and do better than that.
David Strauss (Analyst)
Great. Thanks very much. Thanks very much.
OPERATOR
Thank you. Our next question comes from Ronald Epstein with Bank of America Merrill Lynch. Your line is open.
Ronald Epstein (Analyst)
Hey, good morning, guys. Mike, just wanted to touch base on, as you look into the next year from a supply chain perspective, is there anything that you have as watch items, anything you’re keeping an eye on in terms of, you know, materials, printed circuit boards, whatever? Is there anything that could be potentially tight as we go into the next year?
Joel Reiss (Co-Chief Operating Officer)
This is Joel. As we look at the supply chain, we have a couple watch items. Several operating units have flagged the printed wire board, so the kind of fundamental part you use for PCBs, as an item where they’re seeing some extended lead times, as well as some electronic components. We’re also watching the rare earth metals as the transition with the Department of War over to not being able to use Chinese-based earth for that. Those are really the two areas.
Beyond that we’re not seeing any significant—and even those, it is not having a material impact on the business as we look at it today.
Ronald Epstein (Analyst)
Cool. Thank you.
OPERATOR
Thank you. Our next question comes from Myles Walton with Wolfe Research. Your line is open.
Myles Walton (Analyst)
Thanks. Good morning, Mike. Of the $4.4 billion of deals you did this year, can you give us a rough estimate of how many of those, or how much of that purchase, could get to company average EBITDA margins over time? And what is the acquired incremental revenue in your 2027 outlook? Thanks.
Mike Lisman (Chief Executive Officer)
Hey, Myles, we’re in the early innings of these businesses. We’re glad to own all of them—Simmonds, Jet Parts, Victor, and Princeton ISAM. In the fullness of time, I think you guys know the playbook. We tend to acquire businesses, they come into the fold and weigh us down from a margin standpoint. We certainly saw that this year. It’s a full 2 percentage points in ’26 and then again in ’27. We like buying things that we can then improve, and we’ll aim to do that with these four businesses as well as the 12 bolt-ons.
So we’ve got 16 in total to sort of chew on now and improve over time. And in the fullness of time, we’ll see, but we expect to be able to get these margins, march them up over time. On the second part of your question, what was it again, Myles?
Myles Walton (Analyst)
The total acquired revenue in the fiscal ’27 revenue guidance. Thanks.
Mike Lisman (Chief Executive Officer)
Yeah, we’ve not historically disclosed this, but in the press release for each deal, when we announce it, when we close it, we give an estimate. And I think what we provided in the press releases, we gave a rough justice estimate for 2026 calendar year or 2025. You can assume for each of the four a good pace of growth off of that. But we’ve historically not given an exact revenue amount in the guidance for the years after we’ve acquired the businesses, and we’re not going to deviate from that past approach.
But all these businesses are growing at a good clip and we’re happy to own each and every one of them.
Myles Walton (Analyst)
Okay, thank you.
OPERATOR
Thank you. Our next question comes from Robert Stallard with Vertical Research. Your line is open.
Robert Stallard (Analyst)
Thanks so much. Good morning. Mike, this might be for you. On the FY27 guidance for the aerospace aftermarket, bit of a slowdown versus this year. Is there any particular driver to that, such as a lower expectation for RPM growth?
Joel Reiss (Co-Chief Operating Officer)
Yeah, I mean, I think their expectation is that our RPKs are certainly slowing down. You know, we use a bottoms-up forecast. Our operating units discuss with various airline customers, our distributors, to put together our number, and I think they work together to put together a pretty realistic number. I will say when we look at our CAM number, as Mike said, it doesn’t move quite in lockstep with the RPKs this year. The RPKs came in lower than what we and all of the analysts were forecasting.
But, you know, CAM still came in for us, you know, right around 14 or so percent for the year. You know, our bookings exceeded sales, which was solid. Our Q4 bookings came in well. We finished the year with distributor point of sales still growing nicely and months on hand finishing out roughly where we started. So as we look at it, I think we feel good about the guidance that we’ve given. And overall, the RPKs, I mean, I think what we see today is kind of what we’ve anticipated it being for the year.
We put the most faith, Rob, as you know, in that bottoms-up build that our op units put together, not the headline RPKs, but the bottoms-up build that they put together at a detailed part-number level.
Robert Stallard (Analyst)
Okay, that’s great. Thank you very much.
OPERATOR
Thank you. Our next question comes from Christine Liwag with Morgan Stanley, your line is open.
Christine Liwag (Analyst)
Good morning, everyone. I just wanted to look at capital deployment. So this year you guys bought back $2.8 billion of shares, which is, I think, the highest you’ve ever done in a full year. When you think about where the stock price is, how do you balance between doing more buybacks for next year versus special dividends, which is also an avenue that you’ve looked at historically.
Mike Lisman (Chief Executive Officer)
Morning, Christine. We look at all of the options, and we always consider all of them. I think you guys know the priorities. It’s first, reinvest in our businesses, second, M&A, third, return capital to shareholders, dividends or buybacks, and then fourth, pay down debt. When it comes to the third bucket, we look at both. We debate both. Historically, and this was true this year, when we step out and tend to do more share repurchases is when we see some kind of disconnect between what we think the intrinsic actual value is of the shares and where it’s trading at in the market.
And when we see something like a 20% IRR or better, we’re likely to step out and be more aggressive on the share repurchases. So that was the case this year. That’s why we dialed it up a bit more on that front. I think going forward, it’s always hard to say what the balance will be between the two because we don’t know where stock prices will trade and where our stock goes. But we’ll continue to think about things the same way and probably pursue a mix of both.
But again, it sort of depends on where the share-price IRRs are. This year it looked good, so we leaned in.
Christine Liwag (Analyst)
So, Mike, with that, do you want to share what your calculation is of what you think intrinsic value of your shares are worth?
Mike Lisman (Chief Executive Officer)
Yeah. We can’t say too much on exactly what we think the stock is worth, but I think you can look at what we did this year, the action we took leaning in in terms of share repurchases. And if a company who historically hasn’t done a lot of it does a historically high amount of 2.75 billion, hopefully that action says something about what we think the intrinsic real value of the shares is. We would not have done that if we didn’t see a really good solid return, that’s at least as good as or better than the 20% IRR we target on our M&A deals.
Christine Liwag (Analyst)
Great. Thanks, Mike.
OPERATOR
Thank you. Our next question comes from Gautam Khanna with TD Securities. Your line is open.
Gautam Khanna (Analyst)
Yeah. Hey, thanks, Mike. I was wondering if you could give us any insight having worked now with the administration on—remember the Stellant acquisition was blocked over what seemed to be a fairly trivial amount of product overlap. And do you have a sense for what that might allow from an M&A perspective for you guys? Because, you know, you’ve got a lot of components, you’re going to come across acquisitions that have overlap in the DoD side of things.
Just wanted to get a sense if you have any better read from why that deal was blocked and does it actually have any implications for the M&A you’re looking at in the pipeline.
Mike Lisman (Chief Executive Officer)
Thanks. Yeah, Gautam, morning. We think this was a one-off situation and practically won’t change anything in terms of how we look at the M&A landscape going forward with regard to what we pursue. You know, as we said in some prior comments, it’s always hard to come to agreement on exactly how someone might define a certain market. But there’s going to be no change from us going forward in terms of what we think the M&A landscape and the available opportunity and aperture is for us.
We again think Stellant was a one-off given the unique circumstances at play there. Over time we’ve gotten, as you know, 150, if you include the product line acquisitions, deals done and we’ve probably had three or so that didn’t cross the finish line for reasons like this. But we see no reason to be concerned here. Jet Parts, Victor Sierra, Prince and Isant all closed and those filings were made after the Stellant one. So again we think a one-off and no change to course going forward here.
Gautam Khanna (Analyst)
Thank you.
OPERATOR
Thank you. Our next question comes from Ken Herbert with RBC Capital Markets. Your line is open.
Ken Herbert (Analyst)
Good morning, Mike and team. Maybe, Mike, I wanted to see if you can comment on how your PMA portfolio performed relative to your broader aftermarket growth in either the full year or the quarter. And then specifically as a follow-up, how do you view PMA as a source of growth into ’27, say when we think about potential interest in broadening your portfolio into engine or other markets and the outlook within that within the broader TransDigm Gr portfolio.
Mike Lisman (Chief Executive Officer)
Yeah, I’ll take that one, Ken. I would say the PMA growth this year as we track it at the businesses we have acquired that specialize in this space is solid. That’s why we acquired Jet Parts and Victor Sierra. We’re very glad to own them. These are good businesses that, as we’ve said, are growing at a good clip, not explosive growth but a little bit ahead of what the overall rate for commercial aftermarket growth might be for the sector at large.
So we’re happy to own both businesses, and we’re six months into it. So far, so good out of the gate. We don’t break out with regard to the PMA opportunities that our existing other businesses pursue separately, but generally, rough sense from just knowing what folks are targeting and how we’re doing there, based on more anecdotal cases and evidence, we think we’re doing pretty well. As you guys know, we have op units. We have op units that specialize in a range of different product areas, and they get approached from their airline customers at times for help when there’s an issue and they lean in, develop a part, usually a better mousetrap than the existing solution because there’s some failure or something with that component that makes the airline unhappy. And when that happens, we step in, work with the airline to design something that’s better and have done a solid job and seen some growth there as a result.
With regard to the second part of your question and what it means for growth going forward, we remain positive here. As you guys know, across our existing portfolio of businesses, we don’t see too much PMA competition given the nature of our price points and where we sit. And there hasn’t been any material market loss here. But with the businesses we own and more playing offense with regard to PMA market capture, we feel pretty good about going forward.
The share we’ll be able to gain both directly through Jet Parts and Victor Sierra, but then also within our other 55 businesses, the work they do on the PMA front, too.
Ken Herbert (Analyst)
Hey, Mike, appreciate it. If I could. Would you view PMA as a way to get maybe more engine exposure over time?
Mike Lisman (Chief Executive Officer)
Certainly could be. I think anything across an aircraft is fair game when it comes to PMA.
Ken Herbert (Analyst)
Thank you.
OPERATOR
Thank you. Our next question comes from Scott Mikus with Melius Research. Your line is open.
Scott Mikus (Analyst at Melius Research)
Good morning, Mike. In the slide deck, you have the charts that have commercial OEM sales mix, 65% commercial transport, 35% bizjet/heli. Your aftermarket mix is 80/20 in favor of commercial transport. Should we expect over time the aftermarket mix to start reflecting what the current commercial OEM mix is? And if that does happen, is there any implications for margins?
Mike Lisman (Chief Executive Officer)
I’d say, Scott, I’m not sure we’ve exactly looked at this and modeled it out to definitively answer the question. Obviously, we weigh a little bit more towards commercial transport on the OEM side. You know, in the fullness of time, I would think you could see things get closer to where the OEM is. But to be honest, we’ve not gone and crunched the math on this to really answer that question conclusively.
Scott Mikus (Analyst at Melius Research)
Okay, that’s fine. I’ll stick with one. Nice quarter, by the way.
Mike Lisman (Chief Executive Officer)
Thank you.
OPERATOR
Thank you. Our next question comes from Gavin Parsons with UBS. Your line is open.
Gavin Parsons (Analyst at UBS)
Thanks. Morning. You mentioned that pent-up maintenance demand is kind of supported this year. Last year I thought that was interesting given the year before had some destocking. So I was hoping you could maybe expand on that a bit and if you have any sense for when that pent-up demand might be satisfied.
Mike Lisman (Chief Executive Officer)
I think we’ve continued to see good, good growth and I think that’s one of the key reasons that we hear back from our customers. The MRO market for engines continues to be strong for us and as we look the backlogs there are still long. The year before we had seen it at a few of our businesses where they had kind of lengthened the maintenance cycles on some and we saw that return back to more normal levels this year and don’t expect to see that return back.
So right now as we look at it, I think the key as we look across our products is the demand stays strong.
Gavin Parsons (Analyst at UBS)
Okay. No restocking or destocking in the ’27 aftermarket guide.
Mike Lisman (Chief Executive Officer)
We don’t. No, we don’t. As we’ve looked at it, we did not see any significant change this year. A lot of customer conversations around this certainly across our distributors. As I highlighted earlier, our months on hand, at the beginning of the year and the ending point of the year almost exactly the same. And we are not hearing anything from customers where there was any significant, certainly no significant stocking up. If anything, there’s probably some level of stock decrease in a few areas around the world.
Whether that will return in ’27, I don’t think we’ve modeled that level of detail that that would come back. But overall I don’t think we see that as really being a key driver for fiscal ’27.
Gavin Parsons (Analyst at UBS)
Okay, very helpful. Appreciate it.
OPERATOR
Thank you. Our next question comes from Jonathan Siegman with Stifel. Your line is open.
Jonathan Siegman (Analyst at Stifel)
Good morning. Thanks for taking my question. Always appreciate your consistent comments on interest rates and the hedge book. The 75% hedge-fixed figure has held for three years. Can you give some color on when do you plan to extend that past fiscal ’29? And then how do higher interest rates today change or not change your thinking about how you structure the fixed and variable part of your debt. Thank you.
Sarah Wynn (Chief Financial Officer)
Hi. Morning. This is Sarah. I’ll take that one. Yeah. On the 75% hedge, we certainly want to be at least a couple of years out, so we’re glad to be out through fiscal 2029. You know, whenever we go out and raise more debt, if it’s loans, we want to continue to hedge those. So that’s kind of a rolling forward look that we do on those hedges. Obviously it’s fixed — fixed notes are fixed — so it’s really on those loans that we continue to make sure are hedged.
So continuing to look at that. And we did another hedging where we did some extra swaps this quarter as well. So continue to look through that one. We also want to keep, obviously, the maturities pushed out. So when we think of the whole capital allocation strategy, another big piece is keeping the maturities out at least a couple of years as well. That helps us with the rising interest rates. You know, obviously you’re seeing it and we’re seeing it. This year our rates are forecast to be about 6.5% versus 6.1%. The hedging protects us. So obviously if the rates continue to go up — say they went up another 1% — we only see like 20 basis points on that.
So that whole strategy helps protect us on the rising rates, but we’ll continue to watch it. And that’s obviously one of the fundamental guardrails that we have in our capital allocation strategy. I’ll let Mike chime in if he has anything else, from just a global capital standpoint.
Mike Lisman (Chief Executive Officer)
I think Sarah hit most of it. I would emphasize this is a continual process that she and her team are always going through. And the hedges are not episodic events where we enter into it once a year or so. It’s a continual process where we’re looking at it and rolling on new hedges as appropriate throughout the course of a year so that three, four years out, you’re 75, 80% locked in and fixed. And we’ll continue to have a bias to do that. Sometimes it could go against you slightly in a declining rate environment, but then you eventually catch up.
And the bias from our end has always been to lock it in to get the certainty. And that’s not likely to change going forward. We’ll probably stay 75, 80% ballpark fixed as we look out in the coming years.
OPERATOR
Thank you. We have time for one last question, and that question comes from Matt Akers with BMP. Your line is open.
Matt Akers (Analyst)
Yeah. Hey, good morning, guys. Thanks for the question. Could you touch more on the margin kind of walk into 2027, going from 53% Q4 to 52% next year? How much of that just layering on Prince and Isaiah? Is there any kind of a mix issue? And just generally, how are you thinking about sort of margin expansion in the organic business as you talked about in the past?
Mike Lisman (Chief Executive Officer)
Yeah, sure. Morning, Matt. It’s Mike. I’ll take that one. So we’re really happy with the margin improvement our base businesses are driving year over year into fiscal 27. As you guys know, we’ve long targeted a percent to percent and a half of annual improvement, and we’re absolutely seeing that in our base businesses. It’s hard to see it in the consolidated TransDigm Gr metrics we publish publicly because of the acquisition dilution from Princeton Eyes, Ant Jet Parts, Victor Sierra, and the other bolt-on acquisitions we mentioned.
So the 26 margin of 52.7% going to 27 guide of 52.0%, when you adjust out the two full percentage points of dilution from that year over year comparison for the EBITDA margins, you come up with a base level of improvement in the starting stores of something, an amount that fits squarely between the brackets of what I mentioned — 1.0% to percent and a half of annual improvement. So we’re still getting it and we like to see that. By the way, we like to see large acquisitions coming into the fold.
We like buying good businesses that we can then improve over time and march the margins up. So we’re seeing that in fiscal 27. Out beyond fiscal 27, if you’re looking for something to plug into a model, I think it’s fair game to assume that on the base businesses we own — the starting stores — you continue to get that percent, percent and a half of annual improvement. That’s what our teams drive toward and what we expect to get going forward.
Matt Akers (Analyst)
Great. Thanks. That’s helpful.
OPERATOR
Thank you. This concludes the question and answer session. I’d like to turn the call over to Mary Hartman for closing remarks.
Mary Hartman (Director of Investor Relations)
Thank you all for joining us today. This concludes the call. We appreciate your time and have a great rest of your day.
OPERATOR
Thank you for your participation. You may now disconnect.
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