Transdigm Group (NYSE:TDG) reported what executives described as a “good start” to fiscal 2026, with first-quarter results coming in ahead of internal expectations and prompting an increase to full-year sales and EBITDA-as-defined guidance. Management pointed to solid demand across commercial OEM, commercial aftermarket, and defense channels, along with strong cash generation and continued acquisition activity.
First-quarter performance and margin drivers
CEO Mike Lisman said the company’s fiscal first-quarter EBITDA-as-defined margin was 52.4%, which included about two percentage points of dilution from recent acquisitions. He also highlighted operating cash flow of over $830 million and an ending cash balance of more than $2.5 billion.
- Commercial OEM revenue rose about 17% year-over-year in Q1, with commercial transport OEM revenue up 18%.
- Commercial aftermarket revenue increased about 7%, with commercial transport aftermarket up 8%.
- Defense revenue grew about 7%, with growth “well distributed” across businesses and customers.
On profitability, management said Q1 margin was slightly better than expected, even though the first fiscal quarter is typically seasonally weaker. In Q&A, executives attributed the upside to a mix benefit (commercial OEM growth was strong but “a little bit light” versus expectations, providing a tailwind) and operating unit execution, including cost and productivity initiatives. Management also said there was “a bit of conservatism” embedded in the full-year guidance, while noting that stronger commercial OEM growth later in the year could be a margin headwind because it is a lower-margin segment for the company.
Commercial aerospace: aftermarket lag versus market and OEM ramp remains “bumpy”
Lisman said commercial aerospace trends remain favorable, citing steady air traffic growth and stable airline schedules, with takeoffs and landings up “in the 4% ballpark” year-over-year. However, he noted TransDigm’s commercial aftermarket growth has lagged the broader market by roughly 5 to 6 percentage points over the last 12 months.
Management attributed that gap to two main factors:
- Underexposure to engine content versus the broader market (about half of the gap).
- Lumpiness in the distribution channel and at airlines (the remaining half), which management linked partly to TransDigm’s earlier and stronger post-COVID recovery.
Murphy said all commercial aftermarket submarkets posted positive growth in the quarter, while noting in Q&A that business aviation was a weaker area (he characterized it as around 1% growth, which weighed on the overall result). Executives also said they have not seen any “material loss” to used serviceable material (USM) or PMA products in commercial aftermarket.
On distribution, management said distributor point-of-sale (POS) grew at a double-digit rate in Q1, but they also described a headwind from distributor inventory contraction, which reduced sales into distributors despite stronger sell-through. Lisman said this headwind was “a couple percentage points” in Q1 and indicated it could turn into a tailwind later in fiscal 2026 if channel inventory dynamics reverse.
In commercial OEM, management said the production-rate recovery at Boeing and Airbus is progressing but remains uneven. Murphy said Q1 benefited from higher Airbus and Boeing build rates as well as a comparison tailwind after Boeing production issues in late 2024 affected demand in the prior-year quarter. He added that inventory “right-sizing” at OEMs and tier suppliers could continue to drive quarterly lumpiness, though he said the company believes it is now through the destocking seen around Boeing programs.
Defense demand and backlog signals
Murphy said defense bookings were “robust,” ahead of expectations, and “significantly surpassing” sales, while reiterating that defense forecasting is difficult on a quarterly basis because of long sales and bookings cycles. He said the company is encouraged by a defense backlog that is building, supported by global defense spending.
Management also cited a pair of recent program wins, including a multimillion-dollar contract at Chelton to supply a next-generation VHF/UHF antenna system for Lockheed Martin’s C-130J work and a $24 million U.S. Department of Defense contract at IrvinGQ for floating decoy systems for the U.S. Navy’s Arleigh Burke destroyers, with deliveries requested to start in fiscal 2026.
Guidance raised; free cash flow outlook unchanged
Lisman said the company increased fiscal 2026 guidance based on the strong first quarter and current expectations for the balance of the year. At the midpoint, management raised:
- Revenue guidance by $90 million to a midpoint of $9.94 billion (about 13% higher than the prior year).
- EBITDA-as-defined guidance by $60 million to a midpoint of $5.21 billion (about 9% higher), with an expected margin of around 52.4%.
- Adjusted EPS guidance to a midpoint of $38.38.
Management said it did not change its underlying market channel growth assumptions. The company continues to assume:
- Commercial OEM growth in the high single digits to mid-teens.
- Commercial aftermarket growth in the high single digits.
- Defense growth in the mid-single digits to high single digits.
CFO Sarah Wynne reported 7.4% organic growth in Q1 and said free cash flow (defined by the company as EBITDA less cash interest, CapEx, and cash taxes) was just under $900 million, boosted by timing of interest and tax payments. She said the company still expects approximately $2.4 billion in free cash flow for fiscal 2026, and noted the guidance excludes pending acquisitions and any incremental interest expense from potential debt used to fund those deals.
Acquisitions, capital allocation, and balance sheet
TransDigm highlighted three recently announced acquisitions (all excluded from current guidance until closing):
- Stellant Systems, to be acquired from Arlington Capital Partners for approximately $960 million in cash. Management said Stellant designs and manufactures high-power electronic components and subsystems serving aerospace and defense, and generated about $300 million in 2025 calendar-year revenue.
- Jet Parts Engineering and Victor Sierra Aviation, to be acquired from Vance Street Capital for approximately $2.2 billion in cash. Management said Jet Parts focuses on proprietary OEM alternative parts and repairs, while Victor Sierra designs, manufactures, and distributes proprietary PMA and other aftermarket parts, primarily for general aviation and business aviation. Collectively, the two businesses generated about $280 million in 2025 calendar-year revenue.
Lisman said the company views PMA as a small but growing subsector that addresses airline needs and said the deals expand TransDigm’s presence in that area. In Q&A, management emphasized the acquisitions were not intended as a competitive deterrent, but rather because the company believes it can achieve its typical return thresholds, describing the deals as modeled to a 20% IRR. Management also said it did not underwrite the PMA acquisitions to reach TransDigm’s margin levels.
On leverage and liquidity, Wynne said net debt-to-EBITDA was 5.7x at quarter-end (down from 5.8x) and reiterated the company’s strategy of operating in a 5–7x range. She also said about 75% of the company’s $30 billion gross debt balance is fixed through fiscal 2029, and EBITDA-to-interest coverage was 3.1x. The company also repurchased a little over $100 million of common stock during the quarter.
Lisman said that after the announced deals, the company still has significant capacity for additional M&A, describing pro forma “firepower” approaching $10 billion, while reiterating that TransDigm’s primary M&A focus remains proprietary OE component aerospace businesses.
About Transdigm Group (NYSE:TDG)
TransDigm Group Incorporated is a designer, producer and supplier of engineered aircraft components and systems for commercial and military aerospace applications. The company’s product portfolio covers a broad range of mission-critical parts and subsystems, including mechanical and electromechanical components, ignition and fuel system parts, sensors and actuators, cockpit and cabin systems, and other safety-critical hardware. TransDigm supplies original equipment manufacturers (OEMs) as well as the aftermarket, providing spare parts, repair and overhaul services and component support throughout an asset’s life cycle.
TransDigm’s operating model places emphasis on proprietary, niche components that are difficult to replace, and the company operates through a collection of independently run subsidiaries and brands that sell specialized products.
