U.S. GOVERNMENT PUBLISHING OFFICE

36–511 PDF WASHINGTON : 2019

DOD INSPECTOR GENERAL REPORT 

ON EXCESS PROFITS 

BY TRANSDIGM GROUP, INC. 

HEARING 

BEFORE THE

COMMITTEE ON 

OVERSIGHT AND REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED SIXTEENTH CONGRESS 

FIRST SESSION 

May 15, 2019 

Serial No. 116–22 

Printed for the use of the Committee on Oversight and Reform 

( 

Available on: http://www.govinfo.gov 

http://www.oversight.house.gov 

http://www.docs.house.gov 
(II) 

COMMITTEE ON OVERSIGHT AND REFORM 

ELIJAH E. CUMMINGS, Maryland, Chairman 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

RAJA KRISHNAMOORTHI, Illinois 

JAMIE RASKIN, Maryland 

HARLEY ROUDA, California 

KATIE HILL, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

JOHN P. SARBANES, Maryland 

PETER WELCH, Vermont 

JACKIE SPEIER, California 

ROBIN L. KELLY, Illinois 

MARK DESAULNIER, California 

BRENDA L. LAWRENCE, Michigan 

STACEY E. PLASKETT, Virgin Islands 

RO KHANNA, California 

JIMMY GOMEZ, California 

ALEXANDRIA OCASIO-CORTEZ, New York 

AYANNA PRESSLEY, Massachusetts 

RASHIDA TLAIB, Michigan 

JIM JORDAN, Ohio, Ranking Minority Member 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

VIRGINIA FOXX, North Carolina 

THOMAS MASSIE, Kentucky 

MARK MEADOWS, North Carolina 

JODY B. HICE, Georgia 

GLENN GROTHMAN, Wisconsin 

JAMES COMER, Kentucky 

MICHAEL CLOUD, Texas 

BOB GIBBS, Ohio 

RALPH NORMAN, South Carolina 

CLAY HIGGINS, Louisiana 

CHIP ROY, Texas 

CAROL D. MILLER, West Virginia 

MARK E. GREEN, Tennessee 

KELLY ARMSTRONG, North Dakota 

W. GREGORY STEUBE, Florida 

DAVID RAPALLO, Staff Director 

KRISTA BOYD, General Counsel 

KADEEM COOPER, Counsel 

AMISH SHAH, Counsel 

BRANDON RIOS, Counsel 

LAURA RUSH, Deputy Chief Clerk 

CHRISTOPHER HIXON, Minority Staff Director 

CONTACT NUMBER: 202-225-5051 
(III) 

C O N T E N T S 

Page 

Hearing held on May 15, 2019 ............................................................................... 1 

WITNESSES

The Honorable Glenn Fine, Acting Inspector General, Department of Defense 

Oral Statement ................................................................................................. 4 

Theresa Hull, Assistant Inspector General for Acquisition, Office of Inspector 

General, Department of Defense 

Oral Statement ................................................................................................. 5 

The Honorable Kevin Fahey, Assistant Secretary of Defense for Acquisition, 

Department of Defense 

Oral Statement ................................................................................................. 7 

Kevin Stein, Chief Executive Officer, Transdigm Group, Inc., joined by W. 

Nicholas Howley, Executive Chairman, Transdigm 

Oral Statement ................................................................................................. 8 

Written statements of the witnesses are available at: https://docs.house.gov. 

INDEX OF DOCUMENTS 

The documents listed below are available at: https://docs.house.gov. 

* Federal News Network article from May 13, 2019; submittedby Rep. 

Meadows 

* Slides from Transdigm’s 2018 Analyst Day Presentation; submitted by 

Rep. Hill 

* Questions for the Record from Chairman Cummings to Mr. Walter Nicholas Howley 

* Questions for the Record from Rep. Hice to Mr. Kevin Stein 

(1) 

DOD INSPECTOR GENERAL REPORT 

ON EXCESS PROFITS 

BY TRANSDIGM GROUP, INC. 

Wednesday, May 15, 2019 

HOUSE OF REPRESENTATIVES

COMMITTEE ON OVERSIGHT AND REFORM

Washington, D.C. 

The committee met, pursuant to notice, at 10 a.m., in room 2154, 

Rayburn House Office Building, Hon. Rho Khanna presiding. 

Present: Representatives Maloney, Norton, Clay, Connolly, 

Krishnamoorthi, Raskin, Rouda, Hill, Wasserman Schultz, Sarbanes, Welch, Speier, Kelly, DeSaulnier, Lawrence, Khanna, 

Ocasio-Cortez, Tlaib, Jordan, Foxx, Meadows, Hice, Grothman, 

Comer, Cloud, Gibbs, Miller, and Steube. 

Mr. KHANNA. [Presiding.] The committee will come to order. 

Without objection, the chair is authorized to declare a recess of 

the committee at any time; and if the witnesses would like a recess, let me know. 

This full committee hearing is convening to examine the results 

of a review by the Department of Defense Inspector General of contracts for spare parts supplied by TransDigm Group, Incorporated. 

I now recognize myself for a five-minute opening statement. 

Good morning. Thank you for being here. As everyone knows, our 

Nation has been at war for almost two decades. We owe it to our 

servicemembers to give them everything they need to fulfill their 

missions on the battlefield. What we will not tolerate is war profiteers, 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. 

Now, this is a bipartisan hearing in the tradition of Harry Truman during World War II to make one thing clear: Defense contractors cannot rip off the American taxpayers. 

Unfortunately, the Inspector General of the Department of Defense, after investigating TransDigm, concluded that they owe millions of dollars back to the taxpayers for overcharging for parts. 

TransDigm supplies parts for a number of our most critical missions in Afghanistan, Iraq, and around the world. 

Today, we will hear directly from the Inspector General about 

TransDigm’s actions and to understand what took place. 

TransDigm’s basic business model consists of identifying relatively 

small companies that make spare parts for the military, especially 
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parts that no other companies make. TransDigm then, according to 

the report, buys up these small companies, purchases the rights to 

produce the products, and then, unfortunately, jacks up the prices. 

The Pentagon has to pay, knowing that they have a monopoly. 

As a result, contracting officers are in an impossible position. 

They have generals calling them from the field and demanding 

these spare parts to get their aircraft off the ground, but the prices 

they are charged are unconscionable. Let me give you an example. 

TransDigm manufactures a small part for the Freedom Fighter F– 

5. This part is called a quick disconnect coupling half. 

According to information that TransDigm provided to the Inspec- tor General, the part costs only $173 to make, but the company 

charged the Defense Department $6,986 for a part that costs $173 

to make. This is not rocket science; this is just wrong. The Inspector General found that even after factoring in all the costs and assigning a generous profit margin of 15 percent that TransDigm 

charged the Pentagon an excess profit of nearly 4,000 percent. Now, TransDigm argues that the Inspectors General’s $173 cost 

figure isn’t fair because it doesn’t incorporate the costs associated 

with restarting production or making a small number of parts. This 

is economic nonsense. We’ve consulted with leading economists, 

and they will tell you that argument wouldn’t pass Economics 101. 

The Inspector General’s cost figure is based on TransDigm’s own 

information. If TransDigm thought that making small parts and 

not having economies of scale would have additional labor hours or 

additional capital costs, they would have incorporated it into the 

Inspector General’s analysis. That’s because the cost is based on 

the labor hours and capital that TransDigm provided, including the 

cost for making small parts as opposed to economies of scale. 

These are, unfortunately, not isolated incidents; they are the 

norm. The Inspector General reviewed 47 TransDigm contracts of 

about 2,000, and identified excess profits for 46 of 47 parts that 

they reviewed. TransDigm also isn’t a first-time offender. In 2006, 

the Inspector General found that TransDigm engaged in the exact 

same type of behavior, to overcharge the Department of Defense by 

$5.3 million. 

While companies are bilked by taxpayers, the CEOs have done 

very well. In 2017, Mr. Howley earned a total compensation of $61 

million, receiving more compensation than the CEOs of Microsoft, 

IBM, and Boeing combined. I am glad that Mr. Howley has agreed 

to appear today and to cooperate with our investigation, but we are 

going to have some difficult questions for him on behalf of the 

American taxpayer. 

As part of this committee’s investigation, on both sides of the 

aisle, we talked to whistleblowers and former company officials 

who condemned these activities. For example, one former company 

official told us that TransDigm overcharging the Pentagon was like 

taking candy from a baby. These whistleblowers also told us how 

company officials concealed information from the Department of 

Defense about their true costs of production. 

The committee also obtained documents showing TransDigm employees and Pentagon officials communicating about breaking contracts into multiple smaller contracts to avoid reporting requirements. One director of sales told us the employees were coached 
3 

not to provide cost data. As the director of operations of TransDigm 

said, we were going out of our way not to disclose the costs to our 

government. 

Overall, the Inspector General found that TransDigm made more than $16 million in excess profits just from the contractors reviewed in 47 samples out of 2,000. The Pentagon asked to pay that 

money back, but so far the company has refused. Well, here is the 

deal: We will not leave here today without a commitment from 

TransDigm that they will repay the excess profits. 

Mr. Stein, we are demanding that TransDigm pay back an 

amount that is less than TransDigm paid you this year. I hope you 

will make that commitment in your opening statement or sometime 

in this committee. It would go a long way. 

Finally, I want to thank Ranking Member Jordan and his staff 

for their cooperation and assistance on this hearing and making it 

bipartisan. 

And I now yield to him for his opening statement. 

Mr. JORDAN. Chairman, thank you for this hearing today. And to 

our witnesses, thank you for being here. In particular, Assistant 

Secretary Fahey, we appreciate you being with us this morning. 

I understand the Department had reasons for preferring to testify on a government-only panel, but I am glad we were able to 

work with you to accommodate the committee’s interest today for 

this important matter. 

The worldwide threats confronting our Nation have never been 

more complex, uncertain, and daunting. It is because of that that 

Defense procurement is more important than ever. This issue 

reaches almost all our districts through enlisted men and women 

who come from our districts or, frankly, the manufacturing that 

takes place in our respective congressional districts. 

The system must provide the warfighter with the most capable, 

innovative, and cost-effective equipment, but it has clearly faltered. 

It is too complicated, too slow, and too expensive, does not consider 

how businesses operate and the goals that they have. Because of 

this, I think it imposes a massive burden on supplies and fails to 

utilize the private sector’s research, development, and innovation. 

The system employs upwards of 200,000 Federal employees. 

Think about that. That’s more than all our Active Duty Marine 

Corps. There are now over 180,000 pages of regulations, with about 

2,000 more every single year. In 2008, when there were only about 

160,000 pages, the Office of Management and Budget and the 

Small Business Administration estimated the regulatory compliance cost to be $1.7 trillion. That is certainly a problem. It is too 

expensive to do business with this government and it is driving 

away innovation and competition, and it’s time to bring Defense 

procurement into the 21st century, with a commonsense reform 

aimed at reaching nontraditional contractors, increasing competition, and obviously driving innovation. 

All that said, it is also important that the Department of Defense 

not overpay for its products. Fiscal year 2017, DOD obligated about 

$320 million on contracts, more than all the other agencies combined. It is important for us to be responsible stewards of taxpayer 

dollars. We must ensure that the Department is paying a fair and 

reasonable price for all products, including those at issue today. We 
4 

must balance the needs of the contracting officers with the burdens 

placed on the industry. I think we should recognize that this is not 

an easy goal, but certainly one worth striving for. 

It is important to note that while this is an important issue, it 

is broader than one company. As I understand it, DOD is already 

working tirelessly to root out bad actors. The DOD Criminal Investigative Service is consistently investigating issues related to defective pricing, averaging about 32 investigations per year. 

So I want to thank Mr. Khanna today and Chairman Cummings 

for holding this important hearing, for all our witnesses and for 

their testimony. 

With that, Mr. Chairman, I would yield back. 

Mr. KHANNA. Thank you, Ranking Member Jordan. 

Now I want to welcome our witnesses: The Honorable Glenn 

Fine, who is the Acting Inspector General of the U.S. Department 

of Defense; Theresa Hull, the Assistant Inspector General for Acquisition of the U.S. Department of Defense; Kevin Stein, the chief 

executive officer of TransDigm; Nicholas Howley, the founder and 

executive chairman of TransDigm; and the Honorable Kevin Fahey, 

who is the Assistant Secretary of Defense for Acquisition, U.S. Department of Defense. 

If you all could please rise and raise your right hand. 

Do you swear or affirm that the testimony you are about to give 

is the truth, the whole truth, and nothing but the truth, so help 

you God? 

Thank you. Let the record show that the witnesses answered in 

the affirmative. 

The microphones are sensitive, so please speak directly into 

them. Without objection, your written statement will be made part 

of the record. 

With that, Inspector General Fine, you are now recognized to 

give an oral presentation of your testimony. 

STATEMENT OF THE HONORABLE GLENN FINE, ACTING 

INSPECTOR GENERAL, U.S. DEPARTMENT OF DEFENSE 

Mr. FINE. Representative Khanna, Ranking Member Jordan, and 

members of the committee, thank you for inviting us to appear before you today to discuss the Department of Defense Office of Inspector General report on the DOD’s purchase of spare parts from 

TransDigm. 

Our audit examined the prices that TransDigm charged the DOD 

for these spare parts. Specifically, we determined that TransDigm 

earned profits of over 15 percent on 46 of the 47 spare parts we 

reviewed in our audit. The profits ranged from 17 percent to over 

4,400 percent for these parts. 

We also determined that TransDigm declined to share cost data 

when requested by DOD contracting officers. We concluded that the 

inability of contracting officers under the current legal framework 

to compel TransDigm to provide cost data contributed to the DOD 

significantly overpaying for these parts. 

I will briefly discuss in my oral testimony this morning the DOD 

OIG’s longstanding concerns about sole-source procurements, such 

as those with TransDigm. While these concerns are not new, the 
5 

prices charged by TransDigm provide another clear and recent 

demonstration of the problem. 

With me is Theresa Hull, our Assistant Inspector General for 

Audit, Acquisition, Contracting and Sustainment, the DOD OIG 

unit that conducted the audit of TransDigm. She will provide in 

her testimony a few more specific details about the findings of our 

audit as well as potential legislative changes to help address these 

issues. 

First, it is important to note that the issues raised in our audit 

are not limited to just this company and its contracts with the 

DOD. These findings are representative of ones we have highlighted in our audit reports going back many years. Often, our reports have identified the lack of cost data available to DOD contracting officers as a root cause for contractors obtaining excessive 

profits on sole-source parts. Our prior audits, beginning as far back 

as 1998, have repeatedly found problems with determining a fair 

and reasonable price for sole-source parts. We discuss a series of 

those audits in our written statement. 

With regard to TransDigm, we previously conducted an audit in 

2006 that had similar findings to our recent report. In our 2006 

audit, we concluded that the DOD was unable to effectively negotiate prices for spare parts procured from TransDigm subsidiaries 

and that DOD had paid approximately $5.3 million more than fair 

and reasonable prices for 77 parts. 

Also, in 2015, we published a summary report, which noted that 

since 1998 we have issued 32 audit reports related to spare parts 

pricing. In only three of the 32 reports do we find that the DOD 

had obtained fair and reasonable prices for these parts. 

Ms. Hull will now discuss our recent audit of TransDigm as well 

as some potential actions to help address these issues. 

STATEMENT OF THERESA S. HULL, ASSISTANT INSPECTOR 

GENERAL FOR ACQUISITION, U.S. DEPARTMENT OF DEFENSE, OFFICE OF INSPECTOR GENERAL 

Ms. HULL. Representative Khanna, Ranking Member Jordan, 

and members of the committee, more than three-quarters of 

TransDigm’s net sales come from products for which TransDigm 

stated that it was the sole-source provider. 

Sole-sourced parts are, by their nature, difficult to price on a fair 

and reasonable basis, because the normal market structure and 

market dynamics do not always exist for sole-sourced parts. Often, 

with sole-sourced parts, the price for the part is not what the commercial market would set. Rather, when competitive forces are absent, the price becomes what the DOD is willing to pay for the part 

that is essential for a DOD weapons platform, such as an aircraft. 

In our audit of TransDigm, which we issued in February of this 

year, we reviewed a sample of 47 spare parts that TransDigm subsidiaries sold to the DOD between January 2015 to January 2017 

on 113 contracts, with a total value of $29.1 million for the 47 

parts. TransDigm was the sole manufacturer for 39 of the 47 spare 

parts that we reviewed in our audit. 

Of the 47 spare parts, we only found one instance in which 

TransDigm received a profit less than 15 percent for that part 

when compared to the cost for TransDigm to make the part, which 
6 

we determined from the cost data we obtained from TransDigm. 

The remaining 46 spare parts that we reviewed had profits ranging 

from 17 percent to over 4,000 percent. In total, we determined that 

for these 46 parts, which cost the DOD $26.2 million, TransDigm 

earned $16.1 million in excess profit. 

On 16 occasions, DOD contracting officers requested cost data 

from TransDigm. However, TransDigm was not obligated by law to 

provide that data and it refused to do so in response to 15 of the 

16 requests. The one instance that TransDigm provided the requested certified cost data was for the only part that the contracting officer could not award the contract without obtaining the 

data. Significantly, of the spare parts we analyzed, this was the 

only time that TransDigm received a profit of less than 15 percent. 

The more insight contracting officers have into the cost of a part, 

the better their chances are to negotiate a fair and reasonable 

price. However, the contracting officers had limited options once 

TransDigm refused to provide the requested cost data. Either buy 

the parts without receiving the cost data from TransDigm or not 

purchase the parts needed to meet mission requirements, which 

could potentially impact the warfighter. 

We recommended in our report several administrative actions 

that the DOD could pursue: First, we believe that the DOD should 

seek voluntary refunds from TransDigm for the $16.1 million in excess profits that we identified. 

Second, we recommend that the DOD update and enforce policy 

guidance that DOD contracting officers track and report within the 

DOD when a contractor that provides sole-source parts refuses to 

provide the cost data to the DOD. 

However, current statutes do not deter companies where the 

statutory provisions have combined to hinder the government’s 

ability to obtain sufficient information to ensure that reasonable 

prices are paid for those spare parts. We recommend that Congress 

consider several legislative reforms, such as amending existing acquisition statutes to require that contracting officers obtain, at a 

minimum, uncertified costs or pricing data before awarding a contract to a sole-source offeror for the procurement of spare parts, regardless of the contract dollar value. 

In addition, the statutory and regulatory definitions of adequate 

price competition for spare parts could exclude those instances in 

which offerors of the spare parts obtain the part from a single 

source or from subsidiaries of that source. 

We believe that with these changes, the DOD contracting officers 

would be better able to obtain crucial information necessary to 

level the playing field and award contracts for spare parts with 

these sole-source manufacturers that do not result in profits like 

those obtained by TransDigm and others. Without these steps, the 

DOD may continue to pay excessive prices for spare parts that it 

needs. 

Thank you for the opportunity to testify this morning, and we 

look forward to answering your questions. 

The Chairman. Assistant Secretary Fahey. 
7 

STATEMENT OF THE HONORABLE KEVIN FAHEY, ASSISTANT 

SECRETARY OF Defense FOR ACQUISITION, U.S. DEPARTMENT OF DEFENSE 

Mr. FAHEY. Mr. Chairman and Ranking Member Jordan and distinguished members of the Committee on Oversight and Reform, 

thank you for the opportunity to testify today on matters relating 

to the Department of Defense’s ability to be a good steward of the 

taxpayers’ dollars in cases where we are procuring spare parts from 

an exclusive sole-source buyer. 

I am Kevin Fahey, the Assistant Secretary of Defense for Acquisition. I appreciate the opportunity today to discuss and review the 

conduct by the Office of the Inspector General at the Department 

of Defense relating to contract on military spare parts. My role as 

the Department acquisition lead is to ensure that the Department 

acquires goods and services at a fair and reasonable price at the 

time of need. 

I join you here today to discuss an atypical situation in which we 

currently find ourselves within. A contractor has developed what I 

would call a disgraceful business model designed to exploit current 

statutes and regulations that are fair and reasonable pricing of 

supplies and services procured by the Department of Defense. 

For the period of Fiscal Year 2015 to April 2019, the Department 

awarded nearly 47,000 contract actions in a total contract value of 

approximately $635 million to TransDigm and its subsidiaries. Of 

those contracts, 28 percent were sole-source transactions totaling 

$273 million, or 43 percent of the total value of the contracts 

awarded to TransDigm and its subsidiaries. 

In their review, the IG determined that TransDigm earned excessive profits on 46 of the 47 sample parts, with a profit from 17 percent to over 4,000 percent. When our contracting officers requested 

cost data on 16 of the 47 received, TransDigm denied all but one 

of those requests, leaving our contracting officers with little choice 

but to pay TransDigm prices in order to ensure warfighters’ needs 

were met. The singular instance where TransDigm agreed to pay 

the requested cost data was under a contract that met the threshold of Truth in Negotiations Act. 

Unfortunately, existing statutes and regulations do not prohibit 

TransDigm’s outrageous pricing practices nor, in fact, do they 

hinder their business model of acquiring ownership or intellectual 

property rights to be sole-source producers and then inflating those 

prices on those products. We do not condone the gouging of the 

American taxpayers or wasting the Department’s finite resources, 

which could be better used to procure supplies and services to support our men and women in uniform. 

In light of what the Department has seen today, we have taken 

several actions consistent with the IG recommendations. We continue to review the laws and regulations to make sure that they 

are sound, to protect the taxpayers’ dollars, and can prevent companies from exploiting a position where they own the intellectual 

property in a sole-source position. 

We directed the heads of contracting activities to report all contractors who refuse to provide cost and pricing information. Beginning in July of this year, this reporting will provide the Depart-
8 

ment holistic insight into such denials and requests for cost pricing 

data. 

Further, we have appointed a group of functional experts to review the information in this report to identify those sellers who 

routinely refuse to provide cost information and to identify and 

share information regarding those contractors that are deemed to 

be high risk for unreasonable pricing. To improve our negotiating 

position with sole-source contractors, the Defense Management 

Agency Commercial Items Group will engage to perform shouldcost analysis on high priority parts. 

We look forward to working with Congress to find ways to prevent companies like TransDigm from gouging the taxpayers with 

their sickening business practices. As we work to reform acquisition to support the National Defense Strategy to prepare for nearpeer adversaries, we do this based on trust and that people and 

companies will be ethical and do the right thing for the country 

and the taxpayer. 

But we have to deal with companies like TransDigm. This is a 

very small percentage of bad actors that results in necessary rules 

and regulations that bogs down the entire acquisition system, results in overhead and bureaucracy. This gets under my skin and 

makes me sick. Our warfighters are the best in the world, but also 

rely on some of the best equipment in the world. 

We have a long and mutual benefit relationship with most of our 

industry partners. They are patriotic and honorable businesses, but 

occasionally a bad actor skews public opinion against the industry, 

diverts management attention and financial resources away from 

the challenges and, the worst, endangers our warfighters. 

Thank you for the opportunity to testify today before Congress, 

and I look forward to your questions. 

Mr. KHANNA. Thank you, Secretary Fahey. Mr. Stein. 

STATEMENT OF KEVIN STEIN, CHIEF EXECUTIVE OFFICER, 

TRANSDIGM 

Mr. STEIN. Thank you, Mr. Chairman, Ranking Member Jordan, 

and members of the committee. Thank you for your invitation to 

participate in today’s hearing. I am joined by our executive chairman, Nick Howley. 

TransDigm is a supplier of highly engineered aircraft components with products in nearly all commercial and military aircraft, 

but TransDigm is not a traditional Defense contractor. Its primarily a commercial company. Our primary customers are commercial aircraft manufacturers and airlines. About seven to eight percent of our sales represent U.S. Government aftermarket sales. 

TransDigm operates through 54 independently run operating 

units, with 134 manufacturing locations and over 200,000 product 

SKUs. In general, each unit shoulders its own R&D costs. DOD 

rarely funds the cost of product development for us. Most of our 

Defense sales are of products developed from commercial parts or 

of a type sold commercially. 

As TransDigm is primarily a commercial company, its business 

model is different from that of traditional Defense contractors receiving cost-based contracts. But its model is common in the commercial aerospace, automotive, and marine industries. In these in-
9 

dustries, parts are often developed and sold to the OEM at lower 

margins. After selling parts to the OEM, suppliers are able to realize higher margins by selling the same parts or subcomponents to 

end users as spares. This razor/razor-blade pricing strategy is common in the industry. 

It is also important to note that TransDigm makes specially designed made-to-order parts in small quantities. During production, 

we might make parts for a few hundred planes per year. After the 

airplane goes out of production, we have to support the aftermarket 

for as long as those planes fly, often decades. That means that 

we’re supplying DOD in very small order sizes with sometimes 

years between orders. 

For an order of out-of-production parts, we may have to order 

materials, switch machines and tooling, set up test equipment and 

the like. These investments of time and opportunity costs are not 

captured in the product cost as reported by the IG. These dynamics 

are, however, standard in the industry and drive our pricing. 

Congress has enacted several laws to facilitate government reliance on the commercial marketplace and reduce the number of onerous government requirements applicable to commercial item procurements. The proposal of these laws is to encourage commercial 

contractors, such as TransDigm, to sell to the government. For 

parts that qualify as commercial items, the fairness and reasonableness of prices that the DOD pays is determined by commercial 

market prices. 

Contracting officers should use historical prices, catalogues, government estimates or market research. Only as a last resort should 

contractors request cost data. In TransDigm’s case, 43 of the 47 

parts audited are, in fact, commercial items and all their prices 

were originally determined to be fair and reasonable. 

But the IG appears to have ignored the FAR and congressional 

intent by using cost analysis and an arbitrary profit percentage. In 

doing so, the IG determined that TransDigm’s profit was excessive. 

However, it also found that in purchasing those parts, contracting 

officers followed all applicable laws and regulations and, importantly, that TransDigm did nothing illegal in its pricing. 

Further, the IG’s conclusion is based on informal cost estimates 

that don’t accurately capture many of the actual costs of doing 

business. The informal cost data provided by TransDigm is understated and the profit is overstated, because they were mere estimates and do not include many general and administrative costs, 

such as taxes, interest, as well as litigation, acquisition, and patent 

costs, which we do not and cannot allocate to a specific product. 

It has been wrongly asserted that TransDigm doesn’t develop 

any products itself, but, rather, only acquires businesses and raises 

prices. On the contrary, TransDigm undertakes significant engineering projects. We have about 3,000 engineers and spent almost 

$300 million in R&D over the last 5 years alone. Our written statement includes details about our development of a cockpit door locking system and module in response to 9/11 and our design of a missile actuation system. We are very proud to offer these kinds of innovative products to our commercial and government customers. 

With regard to acquisitions, after we buy a business, we focus on 

how to improve quality, expand product offerings, and better pro-
10 

vide value for our customers. For example, we acquired our 

Kirkhill business last year. Since then, we’ve added employees, improved quality and delivery, and this year we’ll invest $9 million 

in capital projects. We invest significantly to own and provide highquality engineered products and work hard to timely deliver zero 

defects. This has significant value to our customers. 

Yes, pricing is one of a number of elements that we review when 

we analyze and acquire businesses, but it’s one of many factors. We 

hope this will help dispel confusion about us and how we do business. Though our Defense sales are a minority of our business, we 

are proud of our contribution to the Nation’s Defense. 

Thank you for the opportunity to appear today. We look forward 

to your questions. 

Mr. KHANNA. Thank you. 

Mr. Howley, do you have a statement? 

Mr. HOWLEY. No, I don’t. We just have one statement. 

Mr. KHANNA. Okay. Thank you. 

The chair now recognizes Representative Speier of California for 

five minutes for questions. 

Ms. SPEIER. Mr. Chairman, thank you. And this is the kind of 

hearing that this committee should be having, so I applaud the 

chairman and ranking member for doing so. 

Mr. Fahey made a very compelling statement. He called your 

business model at TransDigm a disgraceful business model. So, Mr. 

Stein, let me ask you this question: The Inspector General has determined in two different reports now that you overcharged for 

parts. In one, they came up with a figure of $5 million. The last 

study they just did showed that you overcharged $60 million in excess of charges. 

And my question to you is, are you going to pay back the taxpayers of this country the $16.1 million and the $5 million in overcharges, yes or no? Mr. Stein, you are the CEO, correct? 

Mr. STEIN. Yes, I am. Thank you. 

In terms of the—— 

Ms. SPEIER. Yes or no? 

Mr. STEIN. No. We are still evaluating and we have not come to 

a conclusion. This meeting today is part of that evaluation and, you 

know, we will take all of this into account. 

Ms. SPEIER. So one of the estimates was done back in a 2006 report. So you’ve been evaluating this since 2006 to determine whether or not you’re going to pay back the taxpayers the $5 million in 

overcharges? How much longer do you need? That was 2006. That 

was 12 years ago, 13 years ago. 

Mr. STEIN. I wasn’t with the company in 2006, so I can’t comment on what happened back then. 

Ms. SPEIER. That to me is a cop-out. Either you are willing to 

repay the taxpayers of this country or you are not. I’m holding here 

a door handle. This door handle for the Black Hawk, you charged 

the taxpayers $977 for this door handle. The Department of Navy 

was able to reverse engineer this door handle and manufacture it 

itself for $503. So you charged almost twice as much for a door 

handle that they reverse engineered and were able to make for 

$503. That to me is outrageous. 
11 

How do you explain charging $907 for something that they were 

able to reverse engineer for $500? 

Mr. STEIN. I’m not sure I can comment on the reverse engineering. I don’t know if that information was made privy to us beforehand. Is this part of the should-cost analysis that was done, because I’m not—I can’t comment on the rationale, process, or methodology that was used to calculate the should cost. 

However, you know, if we’re alleging that we’re doing something 

wrong or, you know, not in the best interests, I think the answer 

is absolutely emphatically no. We’re a commercial company. We’re 

a commercial business that manufactures over 200,000 parts—— 

Ms. SPEIER. Okay, but you already said that. 

Mr. STEIN [continuing]. over 50,000 parts in the military business alone. 

Ms. SPEIER. Thank you. Thank you. Thank you. 

That was made public back in 2008, so that’s information that 

has been made available to you before. 

Let me ask you this, Mr. Stein: On October 10th, 2018, you had 

a call with investors about the acquisition of Esterline. And it appears that you like to buy companies that can be sole source so you 

don’t have to compete with anyone. And you commented to your investors: We just think that there’s juice here. And, again, following 

the same TransDigm value creation drivers, there’s juice here that 

we can go get. 

What is the juice you’re referring to? Is that the American taxpayer? 

Mr. STEIN. Certainly not. 

Ms. SPEIER. What’s the juice? 

Mr. STEIN. Important improvements in the business, important 

improvements in quality. 

Ms. SPEIER. To investors? 

Mr. STEIN. To investors and to customers. 

Ms. SPEIER. Well, no, to investors who are looking for profits. 

Mr. STEIN. We acquired a number of companies. Kirkhill was one 

of them that were part of the Esterline group before we acquired 

it. It was losing money. It’s an F–35 supplier. It was in doubt of 

its long-term existence. It was losing money. Esterline no longer 

wanted them in their portfolio. 

We bought that business. We’ve hired hundreds of people. We’ve 

solved some of the F–35 delivery issues on products. We’re working 

on other ones now. We’ve, you know, regained the confidence of the 

Department of Defense. 

Ms. SPEIER. Mr. Stein, my time is elapsing. When you refer to 

juice to a group of investors, I think we can all understand that 

what juice means, we can squeeze a lot of money out of this acquisition. 

And from what I understand, part of your model is to increase 

the prices of spare parts and reduce the cost of making those spare 

parts by actually laying off people. 

With that, I yield back. 

Mr. KHANNA. Thank you. 

The chair now recognizes Representative Foxx for five minutes. 

Ms. FOXX. Thank you, Mr. Chairman. 
12 

I am going to direct this question to Mr. Fine, Ms. Hull, Mr. 

Fahey. Either of you or all of you can respond. 

There’s a section of your report that discusses contractor interference when determining fair and reasonable prices. Specifically, 

the report notes previous OIG reports that discuss instances where, 

quote, ‘‘contractor actions hinder contracting officers from determining a fair and reasonable price,’’ end quote. 

The report also mentions a contracting officer recounting that a, 

quote, ‘‘contractor benefited from its status as DLA Aviation’s only 

approved source by arguing against or delaying responses to requests for supporting data on 22 occasions until the need to sustain 

the military aircraft in support of DOD missions became urgent 

and the contracting officer had to buy the part so the mission 

would not be negatively affected,’’ end quote. 

My question is, are there efficiencies available or ways to improve the source approval process at DLA and the military components that could encourage greater competition from small businesses or nontraditional Defense contractors? 

Ms. HULL. Thank you for the question. In that particular case, 

it’s referring to an instance in which the government contracting 

officer didn’t have another option. It was a sole-source situation. So 

in those cases, what we’ve found, both in this report and in prior 

work, is that there isn’t really a lot of other available options to 

that individual to get accurate pricing information. 

So, in this case, there was not another company to go to. And in 

our findings, what we’ve highlighted is that it’s important to get 

the right information into their hands, into the hands of the contracting officer, which is why we’ve laid out suggestions to look into 

providing, at a minimum, uncertified cost data. If they had had 

that information, they would have been in a much better situation 

to make a decision on the purchasing of those parts. 

Ms. FOXX. Mr. Fine, would you like to add to that? 

Mr. FINE. I think that is absolutely right. What we’re trying to 

do is level the playing field, so that particularly in sole-source cases 

without adequate competition, the contracting officers have enough 

information to determine what is a fair and reasonable price. 

In many of these cases, the contracting officer in the military 

needs that part, needs that aircraft, and they are over a barrel. 

And so it is not—they do not have options other than to take the 

part at exorbitant prices. And what we are trying to do is level the 

playing field with those suggestions. 

Ms. FOXX. Well, I certainly can concur that we need to do that. 

Mr. Fahey, when negotiating a contract for a sole-source part, do 

contracting officers explore the ability of obtaining intellectual 

property rights? If they do not, can you explain why? 

Mr. FAHEY. So, ma’am, first I’d like to touch on your first question. 

Ms. FOXX. Certainly. 

Mr. FAHEY. The additional piece which Representative Speier 

talked about, which is the reverse engineering piece, right? We get 

into situations over and over again, we do look at reverse engineering. Just some of the parts that have been around for a while that 

are critical, sometimes the engineers won’t touch them. But like 

the handle is a good example that we’ve reverse engineered. And 
13 

then we can compete it. And usually parts like that are good for 

small business. 

Yes, I mean, we absolutely do explore—could you—— 

Ms. FOXX. Yes. Do you explore the ability of obtaining intellectual property rights? 

Mr. FAHEY. Yes, ma’am, we do, right. It’s sort of the same thing 

you see here is what we find when we get in this situation when 

it’s a spare part of an old part, our ability to buy it at a fair and 

reasonable price is almost impossible, because what industry values it as an opportunity, not as the cost of the IP. And so that’s 

why it’s so important when we start acquisitions to make sure that 

we negotiate the IP up front and have an IP strategy when we stop 

programs, because when we get in the situation we’re here, it’s 

hard to buy that intellectual property. 

Ms. FOXX. When did you start looking at this issue of IP? How 

long has that been in existence? 

Mr. FAHEY. So the Department has been looking at the issue of 

IP for quite a while. Me personally, my job is—just this past November there was a report done because, you know, Congress asked 

industry and the Department to get together, and they submitted 

the report. And now I’m in the process of writing what is the Department of Defense’s new intellectual property strategy. 

If you think about a lot of these parts, their legacy was back in 

the day where we didn’t purchase the IP, right? So we have done 

a 180 and know that’s important and up front. And it’s really more 

about what is the data we need to sustain our equipment. 

Ms. FOXX. Thank you. 

Mr. Chairman, one quick comment. I have become aware of 

many situations where there is a claim of distinctiveness of parts 

when they really are not, and we are way overpaying for things 

than we should be. 

Thank you, Mr. Chairman. 

Mr. KHANNA. Thank you, Representative Foxx. 

I’d now like to recognize Representative Sarbanes, for five minutes. 

Mr. SARBANES. Thank you, Mr. Chairman. Thanks for doing this 

hearing. I appreciate it very much. 

Mr. Howley, I think you were the CEO at the time when the 

parts were being sold that Congresswoman Speier was talking 

about a moment ago at these exorbitant prices. And I think the 

company at that time was asked to pay back $5 million in association with a contract, and that has not been paid back yet, has it? 

And if not, why not? 

Mr. HOWLEY. No, it has not. 

Mr. SARBANES. How come? 

Mr. HOWLEY. We—let me—a couple things I’d like—I’d point out 

there. One, we went through an IG audit at the time. And the determination, as I recall—and I’m now saying this from 13 years 

ago—was that we had complied with all the rules and regulations 

and the company had done nothing wrong. And we decided—we 

didn’t pay it back. We did not have an obligation to pay it. 

Mr. SARBANES. That’s going to be a refrain here today, I think, 

that you complied with all the rules and regulations, which may 
14 

get to why we need to tighten those up. And I know there are some 

recommendations on that. 

But—— 

Mr. HOWLEY. I might just add there’s some differences between 

the 2018 and the 2006 one. In the 2006 one, we probably were not 

as familiar with regulations, and about half of the parts were not 

determined to be fair and reasonable. We, frankly, didn’t even 

know such a determination was made at that time. 

In the last audit, I just want to point out that all 46 or 47 parts 

were determined to be fair and reasonable at the time the order 

was placed. 

Mr. SARBANES. Let me ask you about something else, because 

you said, you know, you complied with all the regulations and so 

forth, which I imagine there may be some dispute over; but you 

then said, we did nothing wrong. 

And I want to challenge you on that, because the committee got 

some testimony from a former director of operations that said that 

at quarterly meetings, Nick Howley—that’s you—and management 

gave a wink-wink, nod-nod that we want to avoid disclosing any 

cost data. They told us under their breath we should see what we 

can do to avoid disclosing cost data. We don’t want to talk about 

costs; we want to talk about price, in parentheses profit. 

Have you or any senior official at TransDigm told an employee 

that they should avoid disclosing cost data? 

Mr. HOWLEY. What we tell the employees—well, first on that, I 

don’t know what that is. I don’t know the situation. I don’t know 

the specifics. I don’t remember it. I don’t—I simply don’t know 

what it is. 

Mr. SARBANES. Well, it’s somebody saying that basically the message was don’t talk about cost data. 

Mr. HOWLEY. I’ll repeat. I probably have not—I’ve been doing 

very few product reviews in the last 10 years. 

Mr. SARBANES. Mr. Stein, are you aware of that happening? 

Mr. STEIN. Am I aware of what happening again? 

Mr. SARBANES. Are you aware of a senior official telling employees that they should avoid disclosing cost data? 

Mr. STEIN. I’m not aware of that. I’m only aware of the—— 

Mr. KHANNA. If the gentleman would turn on his microphone. 

Mr. STEIN. Sorry, my apologies. I’m not aware of that. I am 

aware that we continually stress with our employees to follow all 

rules, regulations, laws accordingly. That’s what we stress with 

them. 

Mr. SARBANES. Yes. So then there’s another—there’s a former 

sales director on the same theme said, told the committee: Quote, 

‘‘we were coached to not provide cost data.’’ 

And then you sent a letter in May 2019, just now, to the committee, saying: ‘‘TransDigm has no written policy stating that employees should refuse to provide uncertified cost data on request.’’ 

So that you don’t have a written policy, right? 

Mr. STEIN. We have no written policy. 

Mr. SARBANES. That’s convenient to not have a written policy. 

Mr. STEIN. I’m not aware of any verbal policy either. 

Mr. SARBANES. Well, it sounds like there was kind of an unwritten policy, based on the directives that were being given to these 
15 

various employees, according to the testimony that they provided 

to the committee. 

So you’re saying you have no policy, written or unwritten, to 

refuse cost data when it is requested by a contracting officer if it 

is not required by statute. Is that correct? 

Mr. STEIN. If it’s not required by statute, we have no policy. 

Mr. SARBANES. And what’s your justification generally for denying contracting officers cost data when they ask for that data? 

Mr. STEIN. We are a commercial company. We develop—— 

Mr. SARBANES. Proprietary, all that kind of stuff? 

Mr. STEIN. Sure. It’s true. 

Mr. SARBANES. So that will be another refrain here today. But 

I don’t think it passes the smell test. I mean, you’re hanging a lot 

of stuff on some technicalities here maybe. We can try to fix those 

to, you know, lock this down, but the notion that you didn’t do anything wrong I think doesn’t meet the laugh test, given what we’ve 

heard here today and the testimony and the documentary evidence 

and so forth. 

And, with that, I yield back to the chairman. 

Mr. KHANNA. Thank you, Representative Sarbanes. 

The chair now recognizes for five minutes Representative Gibbs. 

Mr. GIBBS. Thank you, Chairman. 

Mr. Stein, you talked about it. I can appreciate you’re a commercial company and then when you have to make things for the military, Defense, in small quantities as you stated and aftermarket 

and you got to do special things. Obviously, there’s going to be 

some higher cost, and I can appreciate that. And you got legacy 

cost. 

But where I’m struggling a little bit is I never heard of this company until just recently, and I Googled your company and there’s 

from Bloomberg here a report and it talks about some of the items 

that were sold. And there’s one here, the Defense Logistics Agency 

talking about paying $4,361 for a half-inch drive pin that they say 

should have cost $46. 

Now, as the citizens, they Google that and they see that, that 

must be one hell of a drive pin. I’m a farmer. I kind of know what 

those are. I’d kind of like to see that drive pin. But I get my arms 

around things a little bit better when I see an example. Can you 

tell me about this drive pin that costs $4,300? 

Mr. STEIN. I can’t. I think, if I can, you know, again, we make 

a lot of parts for the Defense. I can’t comment on the should cost 

because, again, that is a process and a methodology no one has 

shared with us, so it’s hard for me to comment on that. 

But, again, we—you know, we have this commercial heritage. 

This is how we develop parts. But I think even in the farming industry that you’re referring to—I know because my family was also 

farmers. That’s where my mother was raised. John Deere everywhere. 

And if you go to buy a pin or a point for your corn planter that’s 

50 years old, you are going to pay more than that corn planter cost 

when you bought it originally, without a doubt. 

Mr. GIBBS. Without a doubt. 
16 

Mr. STEIN. This is a model that is common in industry, the razor/ 

razor-blade. You develop it, you sell it at extremely low cost, low 

profit up front, and you hope to recover that in the aftermarket. 

In the military case, in many cases we’re only making a couple 

parts over decades. The cost to go in and make—— 

Mr. GIBBS. I appreciate that, and maybe shame on the military 

aspect. You know, it’s just a lot of engineering or whatever to let 

that happen, but I can tell you, as a farmer, there’s no way I’m 

going to spend 43, 44 hundred dollars on a half-inch drive pin. I 

mean, we’ll just get another piece of equipment or do something 

different. 

But back to that, Mr. Fahey, on the procurement side, how do 

you justify—okay, let me ask the question this way: Sole source, I 

can understand that, especially in the Defense acquisitions and 

there’s no competition. 

So I guess back to Mr. Stein. Where would you think when 

there’s no competition, it’s sole source, is there a legitimate question to be overlooked for the Defense procurement people to come 

in and analyze what your costs are and, you know, keep it confidential? But since there’s no competition there, would you agree 

that that’s a fair thing for them to be able to do or not? 

Mr. STEIN. Sorry, is that a question for me? I wasn’t sure if you 

said Stein or Fine. 

Mr. GIBBS. I changed my—— 

Mr. STEIN. So can you repeat it? I apologize. 

Mr. GIBBS. Well, when there’s no competition, okay—a wide level 

of competition keeps prices down and makes—that’s how our system works. But in this case, where there is no competition and it’s 

sole-sourcing, do you think it’s unreasonable for the acquisition 

people in the Defense Department to come in and really ask questions and find out what your costs are? And it would be confidential, they shouldn’t be talking to anybody else about that. But, you 

know, is that an unreasonable request when there’s no competition? 

Mr. STEIN. I don’t know. It’s difficult for me to speculate on policy or intent. So I fall back to that, you know, we want to deliver 

parts on time with the highest quality, the highest engineering 

standards for these mission-critical parts. That’s—— 

Mr. GIBBS. Let me go back, go over to Mr. Fahey, the acquisition 

people. 

Mr. HOWLEY. Could I clarify just a second on that? It would be 

helpful 

Mr. GIBBS. Make it quick. 

Mr. HOWLEY. The vast majority of what we do, we are a commercial supplier. You say, how are the parts prices generally regulated? Most of what we supply is of-a-kind commercial parts. So the 

commercial market essentially establishes the price. 

Mr. GIBBS. I understand that. The commercial market is not 

going to pay $4,300 for a half-inch drive pin. 

Mr. HOWLEY. Oh, they are if it’s of a kind. That’s how we’re establishing the price for many of these parts. 

Mr. GIBBS. I have a hard time believing that, but okay. 

Mr. FAHEY. So I would take a variation of what the IG DOD is 

recommending. If you think about it, if we get to the situation 
17 

where, through sales data, market researches, reverse engine—we 

can’t figure out whether they are giving us a fair and reasonable 

price, when we ask for the cost data, by law require that they do 

it. You know what I mean? When we ask for it and they don’t give 

it to us, it makes it so we have no alternative. But there’s no reason why when we get in those situations when we do ask for it, 

it is required for them to give it. 

Mr. GIBBS. Currently, the law requires that? 

Mr. FAHEY. No. 

Mr. GIBBS. It doesn’t, okay. 

Mr. FAHEY. No. Today, they are only required if it falls above $2 

million. That’s the Truth in Negotiations. It is the recommendation 

for sole-source situations. I would argue when you can’t get data 

that says that you know it’s fair and reasonable and then when you 

request data like the procurement office have, by law, it should be 

required that they give it to them. 

Mr. GIBBS. Thank you. I yield back my time. 

Mr. KHANNA. Thank you, Representative Gibbs. 

I now recognize myself for five minutes. Mr. Fine and Ms. Hull, 

thank you for your work and the work your staff did to expose this. 

You obtained, Mr. Fine, cost data from TransDigm to see how 

much the company spent on those parts, correct? 

Mr. FINE. Correct. 

Mr. KHANNA. Can you respond to TransDigm’s obfuscation that 

they didn’t give you all the cost information because of economies 

of scale and having to make small parts? Was that factored in? 

Mr. FINE. We didn’t hear that from them. We asked them for the 

cost data. This is cost data that the contracting officers had asked 

for. And in 15 out of the 16 times they were refused that, because 

the contracting officers could not force them to give that by law. 

They didn’t give it. 

We asked for it. We are backed by subpoenas. We didn’t have to 

issue a subpoena, though. They gave us the information. They gave 

us information broken down with labor, materials, and overhead. 

The overhead did include other things, like marketing and supplies 

and other things. 

We used that information. We examined it. We came up with our 

numbers. We provided the report to them. They did not contest the 

accuracy of our figures. The first time we heard about that was last 

night when we read their testimony. So they had a chance to discuss whether the cost calculations that we made were inaccurate. 

They did not say that. 

And the final thing I’ll say is even if there are some costs that 

are not captured in the information that they gave to us—we used 

their data—I doubt it is going to turn a $43 part into $4,300. 

There’s no way that there is that delta. 

And that’s why we did a range of profit margins. And even if you 

give them a profit margin of—a significant profit margin, most of 

those parts are way, way above any reasonable profit margin. So 

that’s how I would respond to the comments that we’ve heard this 

morning in the testimony. 

Mr. KHANNA. And just to put it in perspective, Mr. Fine, the first on this chart it shows that one of the estimates is $799 for the cost 

and then the part is being sold for almost $11,000, correct? I mean, 
18 

so your analysis, even if you’re saying it’s $1,100 or $800, the idea 

is absurd that—the profits, the margins are absurd, correct? 

Mr. FINE. We think the margins are excessive, given the cost of 

the part. And we provided the—the information, we analyzed the 

information that they gave to us, which they did not contest after 

we analyzed it. 

Mr. KHANNA. Do you believe, Mr. Fine, that TransDigm should pay back the $16 million and the $5 million, as Representative 

Speier suggested? 

Mr. FINE. Yes. 

Mr. KHANNA. And some of my colleagues on the Republican side 

suggest? 

Mr. FINE. Yes. Are they required to do it by law? No. Should they 

do it? I think they should. 

Mr. KHANNA. Secretary Fahey, you represent the Department of 

Defense. Is it your view that they should pay back the $16 million? 

Mr. FAHEY. Yes, they should pay it back. 

Mr. KHANNA. Mr. Stein and Mr. Howley, a free bit of advice. You got a bipartisan Congress saying you should pay back $16 million 

you owe the taxpayers. We in Congress can almost agree on nothing. I mean, it’s remarkable that we agree on this. You got the Secretary of Defense’s representative saying you should pay back $16 

million. Your big risk is that FOX & Friends will cover this and 

you’ll have a Presidential tweet asking you to pay back the money. 

So before we get to that kind of point, why not just—the company 

is worth $1.2 billion. Why not just pay back $16 million? 

Mr. HOWLEY. We’re still evaluating that. I think a couple things 

I would like to point out on that. One, these contracts were placed, 

and they were all determined to be fair and reasonable by the Department of Defense when they gave us—when they placed the contracts with us. And I don’t think anyone is disputing that that was 

the determination. Furthermore, we had an audit of the process, 

and no one is alleging that we have not complied with any FARs, 

with the FARs or the regulations. 

The DOD is a good customer and we value the relationship, but 

we also have other constituencies that we have to think about. We 

have private shareholders. We have employees. We have management. We have commercial customers. And we’re concerned about 

implying that we’ve done something wrong here or something illegal. 

It’s not—the money is not the issue here. We’re trying to balance 

those sort of conflicting demands to come to a conclusion. And we 

also, frankly, like to hear what we hear at this committee hearing 

before concluding. That’s where we—we’re not saying no. We’re trying to balance these different tensions, I’ll say. 

Mr. KHANNA. I think it would go a long way. One final question: 

When you purchase these companies at increased prices, what 

value are you adding? I mean, for example, you purchased a company that made a part for $5,500, solenoid, and then after you 

bought it the price went up to $11,790. The part only cost $3,000. 

So what is the additional value when you’re purchasing this and 

raising the price? 

Mr. HOWLEY. I can explain our acquisition process if you’d like 

and how we go about that. We seek to buy proprietary, highly engi-
19 

neered aerospace components with some aftermarket in them. We 

do a fair amount of looking into it. We study whether the business 

is proprietary, in fact, what’s its position, what’s the quality of the 

product, what’s the management like, what’s the—and if we come 

to a conclusion that it makes sense, we buy it if the price is right. 

After we buy a business, we do a lot of things to the business. 

Typically, we have a fairly extensive evaluation of management. 

We almost invariably change the organization structure to a very 

clean simple structure with clear lines of responsibility. 

Mr. HOWLEY. We give the businesses frequently much more autonomy than they’re used to having, and that takes a fair amount 

of training. The ability to provide reliable technical product on time 

is very important. We put a lot of time into improving that, and 

I think Kevin pointed that out on the Kirkhill business. We look 

to make the businesses efficient, and we invest a lot of money in 

that. We substantially crank up the new business development 

process. We develop many, many new products, with something 

like 3,000 engineers working on them. 

And, yes, we look at the prices. And if we look at the prices and 

we determine that the combination of the value provided, the market position, the contracts, the regulation, the customer perception 

would allow us to increase prices, we do so in cases. It is one of 

many things we do when we acquire. 

By and large, we acquire businesses and we make them better 

businesses than they were before. We make them more sustainable, 

we make them better generators of products, and the like. 

Mr. KHANNA. Thank you. 

Mr. HOWLEY. And we rarely, I would add—we are not buyers and 

sellers. We are long-term owners of businesses. 

Mr. KHANNA. I recognize Mrs. Miller for five minutes of questions. 

Mrs. MILLER. Thank you, Mr. Chairman and Ranking Member 

Jordan. 

And thank you all for being here today. 

It is vitally important that our military does have the tools to do 

the job that they do well, which is protecting us and our freedom. 

However, the American taxpayers have entrusted their hardearned money with our government to spend it wisely, both responsibly and effectively. 

Mr. Fine and Ms. Hull, the majority of TransDigm contracts studied fell under the old TINA threshold of $750,000 and the new 

threshold of $2 million. Would the proposal to reverse this 2018 increase, which did not apply to TransDigm at the time, have any 

benefit? 

Ms. HULL. Reversing the threshold to the $750,000 would only 

have benefit if combined with our suggestion that, in sole-source 

situations, contracting officers are able to obtain uncertified cost 

data at a minimum. 

The issue at hand is, when they are negotiating with companies 

like TransDigm in sole-source environments, they are looking at information that they believe to be reasonable because there aren’t 

any market forces at play that are controlling costs. And as 

TransDigm alluded to earlier regarding their value-based pricing 

approach, the cost, or the price, I should say, to the government be-
20 

comes what the Department will pay and not what the market 

forces will bear. When you are limited to one source, there’s very 

little leverage. 

Mrs. MILLER. Mr. Fine? 

Mr. FINE. I think it could help, but many contracts are for small- er than even $750,000, and there can be acquisitions that will have 

the same problem under that rate. The one time they were required to provide the information was because a contract was above 

the TINA rate, $2 million, and that’s the only time they’ve received 

a profit of less than 15 percent. They received 11 percent. 

So cost information and providing cost information, we think, is 

a helpful tool for contract officers. And that’s why there ought to 

be consideration of all sorts of legislative fixes to allow the contracting officers to get that information when they need it. 

Mrs. MILLER. The contracts studied are for low-dollar and lowquantity purchases that will almost always be below the threshold. 

What are the benefits to an increased threshold, which is sort of 

what you alluded to, such as increasing competition and the inclusion of nontraditional contractors? 

Mr. FINE. I think the benefit and the reason for it was to streamline processes, to reduce the burden on contractors of providing information in all sorts of cases, even in cases when it is not necessary. In our view, some cases, it is necessary, particularly the 

sole-source context of what we are talking about here. 

Mrs. MILLER. Same answer, Ms. Hull? 

Ms. HULL. Yes. And I would say, our approach wouldn’t be to 

raise thresholds, by any means. And, again, the threshold amount 

itself won’t really have an impact. It’s really getting to that information. Because without that more critical information, the contracting officer is pretty much put in a position where they don’t 

have what they need to make the right decision for the warfighter. 

Mrs. MILLER. Thank you. 

Mr. Howley and Mr. Stein, has TransDigm ever coached employees from subsidiary companies on how to avoid exceeding the TINA 

threshold so that the cost data would not have to be provided to 

the government contract negotiator? 

Mr. STEIN. No, absolutely not. We do not do that. The government contracting officer is the deciding factor on the contract size, 

what’s ordered, number of pieces and parts. We have no ability to 

influence that. 

Mr. HOWLEY. We do run—particularly after 2006, we do put 

some amount of time in training people on what the regulations 

are, and we absolutely insist people comply with whatever the 

rules and regulations are. 

Mrs. MILLER. Thank you. 

Another question for the two of you. Does TransDigm monitor 

the bidding process of its subsidiaries? Do you know when a bid is 

placed, for how much, and for what parts? 

Mr. STEIN. Absolutely not. We have so many business units and 

parts, we have no ability to follow that. We have 150-plus business 

systems that run each individual business unit. There’s no way for 

us to see this information. 

Mrs. MILLER. Do your business practices vary significantly from 

companies in the industry? 
21 

Mr. STEIN. I do not believe so, no. 

Mrs. MILLER. Okay. 

Mr. Howley? 

Mr. HOWLEY. I don’t believe so. 

And I’d expand. I think both in the commercial aerospace business, where we primarily compete, as in, I’ll say, the automotive 

business, the mining, the power transmission, et cetera, the model 

of a razor-razorblade is a very common model. You pay all the 

money up front, you pay all your own development, you develop 

your own products, you put your capital in, you pay all your startup costs, you don’t make a whole lot of money on new equipment 

production, and you recover your investment in the higher prices 

and margins in the commercial after-market. That’s very common. 

You know, I would just give an example. As I say, if you go to 

buy a car, and you pay $35,000 for the car, and you like the car, 

and your spouse or your next-door neighbor says, ‘‘I’d like that car 

too, I think I’ll go buy the parts and put it together in my garage,’’ 

they’d probably pay $500,000 for that car. It’s a very common 

razor-razorblade model in the commercial world. 

Mrs. MILLER. Thank you. I yield back my time. 

Mr. KHANNA. I recognize Mr. DeSaulnier for five minutes. 

Mr. DESAULNIER. Thank you, Mr. Chairman. I want to thank the 

ranking member. And I’d also like to thank all of the sources you 

worked at, the whistleblowers who courageously came forward and 

helped us with this. And I do appreciate the bipartisan approach. 

Mr. Howley, I think you just said that all of these contracts were 

found to be fair and reasonable. Is that correct? 

Mr. HOWLEY. That’s my belief. At the time of placement, they 

were fair and reasonable. That’s what I understand. 

Mr. DESAULNIER. Mr. Fine, that’s not true. Eight of them where 

the excess profits came from, you actually found that they were 

best obtainable price. Is that correct? 

Or Mr. Fahey? 

Ms. HULL. If I may, eight of those parts were determined fair 

and reasonable by the reason of best obtainable price. 

Mr. DESAULNIER. Right. 

Ms. HULL. So what that means is the contracting officer didn’t 

necessarily find it fair and reasonable but didn’t call it unfair either. Just based on the information they had, they were put in a 

position where they had to purchase the part. 

Mr. DESAULNIER. Another way of saying that in layman’s terms 

is that was the only place to go to get the product. 

Ms. HULL. Yes, they were sole source for those parts. 

Mr. DESAULNIER. Is that historically the case, Mr. Fine? I’m 

sorry. I can tell by your body language you’re anxious to get in 

here. 

Mr. FINE. No, I think that’s a really important point. It’s determined to be fair and reasonable because there’s no other source for 

this and they have to get the part to allow the aircraft to fly. 

And so simply because they are over a barrel and saying we need 

this part at this price doesn’t mean it’s an appropriate practice or 

there are not excessive profits or this is an appropriate way to 

charge the government. 
22 

Mr. DESAULNIER. So what Mr. Howley just said is not accurate, 

just to—— 

Mr. FINE. Well, it’s—you know, it’s—— 

Mr. DESAULNIER. Were they all found to be fair and reasonable 

with—but eight of them have the exception is because they were 

the only possible place to get the product. 

Ms. HULL. Yes. 

Mr. FINE. Yes. 

Mr. DESAULNIER. Okay. 

We talked a lot about data. Mr. Fine, 47 of the TransDigm part 

sales that you reviewed, only 1 had a reasonable price. And as I 

understand that, it’s because the contracting officer obtained certified cost data. On the other cases, you didn’t get enough data. 

You’ve made some suggestions as to how we could change that. 

Would you like to elaborate? 

Ms. HULL. Yes. For that particular part, the contracting officer 

negotiated a fair and reasonable price because they obtained the 

certified cost data. That particular part was over the TINA threshold. 

Some of the changes what we recommend, based on our work 

here, is to amend the statutes to require that the contracting officers obtain, at a minimum, the uncertified cost or pricing data. And 

we specify that for sole-source situations because, again, there 

aren’t any other options for that contracting officer, so it would 

benefit that government contracting officer to get that information. 

The other change that we would recommend is regarding the definition of adequate price competition for spare parts. We would exclude the instances where the offerors of those parts obtain from 

that same source or subsidiaries of that source. 

Mr. DESAULNIER. Mr. Fahey, the former Director of Defense Pricing and Contracts told the IG that recent changes Congress has 

made to make the contracting process easier for certain contracts 

has led to opportunities for abuse. Do you agree with that? 

Mr. FAHEY. Yes. I mean, the one that was talked about previously is at $2 million. When you go from $750,000 to $2 million, 

by definition, you’ve increased the bandwidth that doesn’t require 

TINA. 

Mr. DESAULNIER. So, in Congress’ desire to, I think As Mr. Stein 

said, get rid of burdensome regulations, we have actually, perhaps, 

incurred costs that Congress needs to look at correcting so you 

have the proper oversight, from my perspective. I don’t want to put 

words in your mouth, but—— 

Mr. STEIN. Sir, I would agree. Working with you on what the 

right language—this is why this makes me really upset, right? Because as we try to attract small business and nontraditionals and 

those, it’s part of the reasons we make these adjustments, right? 

So maybe the balance of, you know, the—when asked for price 

data, even uncertified price data, because it doesn’t fall in—you 

have to give it, you can’t choose not to—would be, I think, a reasonable thing to look into. 

Mr. DESAULNIER. So, Mr. Fahey—and I think Congresswoman 

Foxx mentioned this, about small businesses and helping with competition. And no matter what the data you get, if they’re the only 
23 

source to get it, and the military needs the part, you still have the 

same situation. 

So, Mr. Fahey, we want to encourage competition. I assume we 

do. It’s a problem in this country; there is a lack of competition. 

How do we do that? The data will help, but getting small businesses to compete against a large company like this is going to be 

difficult. 

Mr. FAHEY. What I think is that, if you had the data, right, in 

a lot of those instances, the handle being a good example, reverse 

engineering, small business can compete, right? Because their 

overheads are low and those kind of things. Where it’s hard for 

them to compete is when they don’t have the high IP and there are 

specialized small parts that we know we’re way overpaying, they 

may not have the ability to compete on those high-performance 

parts. 

Mr. DESAULNIER. Well, I’d be particularly interested in a further 

discussion in this committee on how we make sure that we get that 

competition in the market. Otherwise, as long as they have a monopoly, you’re not going to get the best price. 

Thank you, Mr. Chairman. I yield back. 

Mr. KHANNA. Thank you. 

I now recognize Mr. Meadows for five minutes. 

Mr. MEADOWS. Thank you, Mr. Chairman. 

I thank each of you for your testimony this morning. 

Mr. Stein, Mr. Howley, let me come to you. This is the type of 

thing that just drives me crazy. And I’ll give you some advice. If 

you’re looking for feedback, you better pay the money and start giving us the cost, even though it may not be required by statute. Because I can tell you that, once you raise an issue in a bipartisan 

way like this, it makes us look for other things. 

And I can tell you that the trouble that I have with this—and 

there’s going to be enough wrath to go around, so—but my encouragement to you is to do those two things: chalk it up to marketing 

expense, and pay the American taxpayer back immediately. Because I don’t understand why you haven’t done it. Instead of coming here today, you could’ve paid a few million dollars back and 

avoided all of this. And instead you’re going to highlight it, where 

I’m going to have to, in a bipartisan way, start to look in a way 

that you would not find, I guess, supportive of future business. 

I don’t know, Mr. Fahey, why we continue to do business with 

a company that wouldn’t pay it back. 

So let me just be clear. When you have a sole source, no, I get 

that. I understand. I was a business guy. But what I’m saying is, 

with the types of moneys that we have here, the fact is we need 

to do a better job of showing the amount of money that is out there 

and available for a drive pin, $4,300. 

I mean, here’s the problem is, we’ve been alerted to this because 

of this hearing, but the average small-business guy has no idea, 

Mr. Howley, how much money is to be made, and so that’s the reason why you don’t have the competition. And so, at this point, my 

recommendation is to do that. 

And, Mr. Fahey, I would recommend that you make several recommendations here in terms of how we can fix the procurement 

side of things. I’m big on making sure we have a strong national 
24 

defense. I also know that your audit, on a regular basis, is not 

something to brag about with DOD. We have these continued 

issues that are out there. 

And so, Mr. Fahey, what I would ask of you is if you give three 

recommendations to this committee on how we can highlight the 

fact that competition could be there for some of these sole-source 

contracts. Are you willing to do that? 

Mr. FAHEY. Yes, sir. 

Mr. MEADOWS. All right. 

Mr. Fine, in the two minutes I have left, I’m going to switch 

gears just briefly, because I’ve got you here today and I may not 

have you—Federal News Network actually has talked about an 

iCloud issue with two different companies, where we have—I believe it’s Oracle and Amazon looking at a $10 billion contract. Are 

you investigating that particular conflict of interest? 

Mr. FINE. That matter has been referred to us, and we are reviewing it. 

Mr. MEADOWS. And so, as you’re reviewing it, one of the issues— 

and I’m a big fan of the IGs. You know that. This is not our first 

rodeo. When you have people that leave DOD and go out into the 

private sector, is there an issue with your oversight and the ability 

to actually do a proper investigation? 

Mr. FINE. It depends. If it’s criminal, no. We have criminal authorities to that. If it’s administrative, sometimes there is a problem with other IGs not having testimonial subpoena power. We in 

the DOD have testimonial subpoena power, which is good, because 

when we go to witnesses who have left and say we want to talk 

to you, they know that we can back that up with a subpoena, and 

they almost always talk with us. 

My colleagues in the IG community have a problem with it. I had 

a problem with it when I was at Justice—— 

Mr. MEADOWS. Right. 

Mr. FINE [continuing]. when people left and we couldn’t force 

them to talk to us and there were gaps in our investigations. 

Mr. MEADOWS. And so, in your investigation, the potential—and 

I want to stress, the potential—conflict of interest that is out there, 

is that something that you can report back to this committee? Obviously, with an IG’s report, but is that something that you can 

brief this committee as you’re going through your investigation or 

your—you didn’t say you had an investigation, because there are 

two different words there. Did you say you were investigating it? 

Mr. FINE. I did not say that. I said we have it, we are reviewing 

it. I don’t really want to talk about an ongoing matter and characterize it. But I will represent that we absolutely will brief the committee when we are completed. We’re always willing to do that, and 

we’re willing to do that in this case too. 

Mr. MEADOWS. And so, Mr. Chairman, I ask unanimous consent 

that the Federal News Network article that I mentioned be submitted as part of the record. 

Mr. KHANNA. Without objection. 

Mr. MEADOWS. And I thank the chairman. 

And, Mr. Fine, I would just let you know, in terms of the IG community, this particular procurement issue has been raised to the 
25 

level where a number of us have a concern there, and so I appreciate your further insight on that matter. 

And I’ll yield back. 

Mr. KHANNA. Thank you. 

I just want to take this moment to thank Mr. Meadows and 

Ranking Member Jordan for the bipartisan nature of this committee hearing and your staff and teams’ cooperation to put the 

country’s interests first. 

I now want to recognize Representative Tlaib for five minutes. 

Ms. TLAIB. Thank you, Mr. Chairman. 

Mr. Howley, you were the CEO of TransDigm during the time 

period where you over-billed our country, the American people, $16 

million. Is that correct? 

Mr. HOWLEY. I was the CEO in 2016. 

Ms. TLAIB. Sure. And 2017, I believe. 

Mr. HOWLEY. And 2017. 

Ms. TLAIB. Yes. According to The New York—so do you remember how much you were getting paid in 2017? 

Mr. HOWLEY. Yes. I was getting paid—I believe I was paid $61 

million in 2017 and $19 million the year before. 

Ms. TLAIB. Yes. The New York Times said it was the sixth-highest-paid CEO in American business that year. Did you know that? 

Mr. HOWLEY. I saw the article in The New York Times. I 

didn’t—— 

Ms. TLAIB. Yes. Congratulations. Mr. Howley, you earn more 

than anyone at your—combined salaries of the CEOs of Microsoft, 

IBM, and Boeing. In fact, you are one of the 10 highest-paid CEOs 

in America 3 of the last 6 years. 

You received that compensation all while you were price-gouging 

the military and American taxpayers. And then, of course, you can 

see this is very deeply troubling to both sides of the aisle. And, 

again, in a very bipartisan way, I think we’re all very troubled by 

it. 

Mr. Stein, you’re not far behind. According to TransDigm’s most 

recent proxy statement, you earned about $23 million in 2018, correct? 

Mr. STEIN. That’s right. It’s mostly non-cash compensation—— 

Ms. TLAIB. Yes. So—— 

Mr. STEIN [continuing]. as I was promoted to the CEO and given 

a—— 

Ms. TLAIB. Yes. I’m just trying to find out where I can get $16 

million back for our people. 

So TransDigm is willing to pay its executives tens of millions of 

dollars, but still not agree to pay back the Department of Defense 

the American people’s excess profits. Correct? You’re not willing to 

pay it back. 

Mr. HOWLEY. Is that a—that’s a question? 

Ms. TLAIB. Yes, I’m asking, are you willing to pay it back? 

Mr. HOWLEY. We told we have not—we have not—we are still 

evaluating that, and we haven’t—and we haven’t decided. 

Ms. TLAIB. Okay. So—— 

Mr. HOWLEY. I think I told you—I think I went through some of 

the reasons. 
26 

Ms. TLAIB. Yes, yes. No, I know. My kids, actually, my two boys 

always say ‘‘should’’ and come up with these kinds of excuses when 

it is stealing in some sort of way, right? I mean, you may not label 

it that way. I’m a lawyer; you nuance around it. But it is stealing 

when you overcharge people like this. 

So Doug Hillman, a former CEO of a TransDigm subsidiary, told 

the committee staff, quote: TransDigm management used a one-two 

punch after acquiring the company. It involves two actions: one, 

raising the prices; two, cutting the costs. They cut costs by firing 

employees. The metric they used was, quote, revenue per head. 

TransDigm provided the committee with a slide that was presented at a quarterly meeting in 2015. That slide details what is 

called the operations value creation. The slide identifies the actions 

taken at one of TransDigm’s subsidiaries, including, and I quote, 

reduced current head count by three people, $135,000; eliminated 

overtime, $68,000; implemented shutdown for 1 week over the holidays, $65,000. The slide includes proposed actions such as cutting 

workweeks to four days and shutting down for an additional week. 

Which subsidiary does this slide refer to? It’s right up there. You 

can see—— 

Mr. STEIN. This slide refers to CDA, our smallest business in 

Florida. 

Ms. TLAIB. How can you justify the compensation you received 

while TransDigm was overcharging taxpayers and you were cutting 

the pay of employees? 

It is a question. 

Mr. STEIN. We did not cut any pay of any employees. I’m confused by that statement. 

Ms. TLAIB. Yes, it’s in the slide. I mean—— 

Mr. STEIN. The slide does not say we cut pay. We looked at it, 

we had a business that was—you can see it up at the top, what 

we saw. The last 6 months, bookings on a $13.5 million annualized 

pace. That’s significantly below the annualized pace—— 

Ms. TLAIB. Okay. 

Mr. STEIN [continuing]. that the business currently operates 

at—— 

Ms. TLAIB. So I just got confirmation you actually fired people. 

The subsidiary fired people. 

Mr. STEIN. We reduced current head count by three—— 

Ms. TLAIB. Yes. 

Mr. STEIN [continuing]. people, absolutely. As the business—— 

Ms. TLAIB. You guys call it ‘‘head count.’’ That’s so interesting. 

Mr. STEIN. As the business—— 

Ms. TLAIB. Yes. 

Mr. STEIN [continuing]. goes up and down—— 

Ms. TLAIB. Yep. 

Mr. STEIN [continuing]. you frequently have to do this to rightsize the costs so that we—— 

Ms. TLAIB. Yep, I understand. 

Mr. STEIN [continuing]. can continue to return value to our 

shareholders. 

Ms. TLAIB. So I’m really trying to help you all figure out how you 

can pay us back. And my good colleague from North Carolina and 

my colleague from California, I think—you know, look, I have the 
27 

third-poorest congressional district in the country. I have veterans 

that can’t find homes. I have, on the front line, people that are 

looking to us. 

And when they see this and they see us not holding you accountable, we’re the ones they have to—they’re looking to us to do our 

jobs. And that’s what we’re doing here. And we’re urging you and 

encouraging you to please pay back the American people. Sixteen 

million dollars can do a lot for our residents at home. 

And, again, it is really about oversight and responsibility. Government is supposed to be about people, and we have to put the 

people first. And you understand that, I hope, why we have to do 

our due diligence here. 

And I thank you for coming before this committee, and I thank 

our chairman for bringing this forward. 

Thank you. I yield the rest of my time, Chairman. 

Mr. KHANNA. Thank you, Representative Tlaib. 

I now recognize for five minutes Mr. Hice. 

Mr. HICE. Thank you, Mr. Chairman. I appreciate it. 

And, listen, I would just share with what has already been said. 

This is looking really bad for you guys. And the American people 

hate to be ripped off. All of us, all of us, in any deal, hate to be 

ripped off. And this is one of those issues that is inexcusable, and 

why the money is not paid back to the American people is beyond 

me. 

Mr. Stein, let me ask you, how many long-term or multiyear contracts do you currently have with the government? 

Mr. STEIN. I do not know. 

Mr. HICE. Mr. Howley? 

Mr. HOWLEY. I don’t know the number. 

Mr. HICE. Can you give me a ballpark? 

Mr. HOWLEY. I just don’t know. 

Mr. HICE. You don’t have any idea how many contracts you 

have? Isn’t that the business you’re in? 

Mr. HOWLEY. I think we provided a very long list of contracts to 

the committee here, and I think it was thousands. I don’t believe 

most of them were long-term. We run 55 autonomous businesses 

that are run with standalone management systems and run very 

autonomously. I simply don’t know the number. 

Mr. HICE. Can you get that number to me? 

Mr. HOWLEY. I believe we gave the number to the committee already. We gave them a list of all our government contracts. 

Mr. HICE. Would you confirm? I would like to know how many 

long-term or multiyear contracts there are with the government. 

And likewise for the subsidiaries, if you’ve got 55. I’d like to have 

a ballpark, at least, of what we’re dealing with. 

And it’s amazing to me, the price-gouging that’s taking place, 

and you don’t even know how many contracts you have. I want that 

information. 

Mr. HOWLEY. I think—I would just—I think we’ve given that to 

the committee. 

Mr. HICE. We’ll followup, and if not, I expect to hear. 

Mr. HOWLEY. If not, we’ll give it to you. 

Mr. HICE. That’s what I want to hear. 
28 

Mr. Fine, let me ask you this regarding contract splitting. Of 

course, this is where a large contract is split up into smaller ones 

to avoid anything from pricing threshold to helping acquisitions. 

In the report or when you all were going through this, how often 

did you see contract splitting? Either one of you, Mr. Fine or Ms. 

Hull. 

Ms. HULL. We found 32 of our 47 contracts, or our parts that we 

looked at, were under the simplified acquisition threshold. But I 

can’t speak to splitting of contracts in that regard. 

Mr. HICE. All right. So explain that to me. How does that work, 

what you described? 

Ms. HULL. So the total dollar threshold of the contract is what 

drives the need to provide cost information—— 

Mr. HICE. Right. 

Ms. HULL [continuing]. to the contracting officer. So in the 47 

parts that we looked at, 32 were under the simplified acquisition 

threshold of $150,000 at the time. 

Mr. HICE. So somehow that had to be made an agreement that 

this is a better route for us to go to get under the pricing threshold. 

Is that correct? 

Ms. HULL. The company would’ve made a determination—— 

Mr. HICE. I mean, somebody had to make that determination. 

Were you able to determine if it was TransDigm that made that 

request or that decision or if it was the government? 

Ms. HULL. The contractor, in this case, would be the one that 

would bid on the particular part for the government. 

Mr. HICE. Okay. But there could be a situation where DOD, for 

instance, wants to simplify the acquisition process and it would go 

more quickly with a smaller contract, pricing threshold, correct? 

Ms. HULL. Potentially. I can’t speak to that for this particular 

audit. 

Mr. HICE. Okay. That would be worth knowing. 

Mr. Fahey, let me ask you this regarding intellectual property 

rights. Is that ever considered when dealing with contracts and the 

contracting officers? Do they look at intellectual property rights? 

Mr. FAHEY. So the answer is, yes, sir, we look at intellectual 

property rights, right? I mean, that’s usually more of the program 

manager who would give the requirements to the contracting officer of, do we own the intellectual property rights? And if we don’t, 

do we have a situation like we don’t think we have fair and reasonable pricing, that we should reverse-engineer it to get the intellectual property rights? 

Mr. HICE. Right. So are you saying, then, DOD does currently 

have some intellectual property rights on what would otherwise be 

sole-source-type—— 

Mr. FAHEY. Yes, sir. 

Mr. HICE. Okay. 

So there is a negotiating process to try to address the problem 

that could be—because that could lead to price-gouging—— 

Mr. FAHEY. Yes, there—— 

Mr. HICE [continuing]. by obtaining the intellectual property. 

Mr. FAHEY. There is. The challenge here is it’s usually easier to 

negotiate getting a fair and reasonable price for the IP early in a 

program, not when you’re in an after-market spare-parts situation. 
29 

Mr. HICE. All right. So do you include in that, say, first right of 

refusal on—— 

Mr. FAHEY. So that—I had mentioned earlier that we had done 

a report we delivered to Congress last November. One of the recommendations in there was, if you’re in a situation where somebody’s in sole source and owns intellectual property and they are 

going to sell it, that the government has right of first refusal to buy 

that intellectual property before they could sell it to somebody else 

like TransDigm. 

Mr. HICE. Okay. Thank you very much. 

Thank you, Mr. Chairman. 

Mr. KHANNA. Thank you, Mr. Hice. 

I want to recognize Ms. Hill for five minutes. 

[11:29 a.m.] 

Ms. HILL. Thank you so much, Mr. Chairman. 

I’d like to ask for unanimous consent to submit to the record two 

slides from TransDigm’s own 2018 Analyst Day presentation. 

Mr. KHANNA. Without objection. 

Ms. HILL. Thank you. 

Ms. Hull and Mr. Fine, as we’ve discussed today, TransDigm is 

the sole manufacturer in many of the spare parts sales you reviewed. However, as we’ve discussed, TransDigm has repeatedly refused to provide contracting officers with the cost data they requested during price negotiations. I don’t want to belabor this 

point, but I want to dig in to sole-sourcing. 

The IG report explains, and I quote, ‘‘contracting officers had the 

option of buying the parts without receiving cost data from 

TransDigm or not buying the parts needed to meet mission requirements.’’ 

Mr. Fahey, in a situation where TransDigm is the sole source for 

a part, the government and other private contractors have two options, either walk away or—either buy from TransDigm or walk 

away. And when we’re talking about parts needed to keep military 

aircraft in the sky, from my perspective, there doesn’t appear to be 

much of a choice. Would you agree? 

Mr. FAHEY. I would agree. 

Ms. HILL. In fact, according to the IG report, five contracting officers stated that they went forward with contracts even without the 

cost data they requested because, and I quote, ‘‘the need for the 

spare part was urgent enough that they had to buy the part at the 

price offered by TransDigm.’’ 

Mr. Fahey, is it harder for DOD to negotiate a fair price for parts 

when there is no market competition? 

Mr. FAHEY. Yes, it is. 

Ms. HILL. Thank you. 

And, Mr. Howley, I want to dig in to a few facts and figures from 

TransDigm’s 2018 Analyst Day presentation, which was just submitted into the record. 

According to the slides, since 1993, through the acquisition and 

integration of over 64 companies, TransDigm has established itself 

as a sole-source supplier. In fact, 80 percent of TransDigm’s revenues came from sole-source sales. Is this correct? 

Mr. HOWLEY. To the best of my belief, that’s correct. 

Ms. HILL. Great. 
30 

So, in other words, TransDigm has a business model of buying 

companies that are the sole manufacturers of spare parts. When 

TransDigm acquires companies that are the sole manufacturer for 

parts used in military aircraft or other vehicles, you know you will 

be able to use that position to make significant profits. Is that 

right? 

Mr. HOWLEY. I’d like to take a difference between we are a sole 

manufacturer, because we were typically selected in a competition 

at the beginning, at the time the airplane was designed—— 

Ms. HILL. No, no, no. But you have a business model of acquiring 

companies that are sole-source providers. 

Mr. HOWLEY. They are companies that were—they were selected 

in a competition at the time the airplane was—— 

Ms. HILL. But you specifically seek out—— 

Mr. HOWLEY [continuing]. as are we regularly selected in competition. 

Ms. HILL. Reclaiming my time, you specifically seek out solesource manufacturers. That is part of the business model that is 

described in the slides that you presented and that I have entered 

into the record. 

Mr. HOWLEY. We seek out proprietary, highly engineered aerospace components—— 

Ms. HILL. Great. Proprietary sole source. Okay. 

Mr. HOWLEY. As a practical matter—— 

Ms. HILL. Reclaiming my time—— 

Mr. HOWLEY [continuing]. if you do a good job—— 

Ms. HILL. Reclaiming my time—— 

Mr. HOWLEY [continuing]. they end up being sole source. 

Ms. HILL. Sir, I’m reclaiming my time. 

So, Mr. Howley, even if the government was able to obtain cost 

data on all these parts, TransDigm would be able to charge whatever it wants, because DOD needed the parts to meet mission requirements, because TransDigm’s business model is to own and 

hold exclusive rights to the products it sells, and that enables them 

to set the market price. Do you agree? 

Mr. HOWLEY. I agree—we are a commercial supplier primarily. 

The market—— 

Ms. HILL. Just answer ‘‘yes’’ or ‘‘no.’’ Do you agree? 

Mr. HOWLEY. The market price is frequently established by the 

commercial of a kind. 

Ms. HILL. Okay. 

We just have to look at the examples in the IG report to see how 

well TransDigm’s business model works. 

Mr. Stein, TransDigm recently sealed a $4 billion deal to buy 

Esterline Technologies. TransDigm announced in its press release 

that Esterline expands, as it quotes, ‘‘a platform of proprietary and 

sole-source content for the aerospace and defense industries, including significant after-market exposure.’’ 

Will you commit that when it is time for TransDigm to negotiate 

the contracts currently held by Esterline that you will provide cost 

data when requested by a contracting officer? 

Mr. STEIN. We will follow the law, the rules, and the regulations 

of the land. 

Ms. HILL. So you’re not committing. 
31 

Mr. STEIN. We will follow the rules—— 

Ms. HILL. So you’re not committing. 

Mr. STEIN [continuing]. and the laws and regulations of the land. 

Ms. HILL. I would like to get it on the record that you are not 

committing to providing cost sharing data. 

So will you commit that when TransDigm negotiates contracts 

currently held by Esterline that you will not take advantage of 

your sole-source position and charge DOD prices that give 

TransDigm excess profits? 

Mr. STEIN. We will follow all rules and laws of the land. 

Ms. HILL. Great. So you are not committing to that either. 

Mr. HOWLEY. Yes. I could expand on—— 

Ms. HILL. Reclaiming my time. I have 30 seconds left. 

Mr. Fine, TransDigm has the ability to grow its business as large 

as it wishes. Does it concern you, however, that the more businesses TransDigm acquires, the harder it will get for DOD to get 

fair prices on spare parts? 

Mr. FINE. It concerns me when there’s only one entity that can 

manufacture a part that is critical to the Department of Defense. 

And to the extent that increases, that’s problematic. 

Ms. HILL. Okay. 

So, last, Mr. Fahey, from my perspective, this is about more than 

just data. TransDigm has based its business on becoming the solesource provider of critical parts needed by the warfighter. It seems 

what we urgently need is a vibrant industrial base that fosters 

healthy competition. 

So, Mr. Fahey, what is the Department of Defense doing to address the issue of diminishing manufacturers and sole-source providers in the defense industrial base? 

Mr. FAHEY. So, ma’am, we have a lot going on, as you probably 

know. In the Presidential order 13806, we did a complete evaluation of the industrial base and identified over 300 risk areas, where 

a lot of it was, you know, stuff that is foreign sole source or sole 

source here. 

The hard part is, when you get into the after-market like this, 

it gets to be—one of questions that I got asked previously—you 

know, if a foreign company is buying a company here, we do have 

a national security input to it. If a U.S. company is buying a U.S. 

company, the only input we have is, will it affect competition? So, 

obviously, if you’re buying a sole source and a sole source, it doesn’t 

affect competition. It would be valuable if we had input to say, do 

we believe it could affect national security? 

Ms. HILL. That is a really great point and something that I believe we need to investigate further. 

Thank you so much, and I yield back. 

Mr. KHANNA. Thank you, Ms. Hill. 

I would now like to recognize Mr. Grothman for five minutes. 

Mr. GROTHMAN. Thank you. 

The inspector general, you folks’ report on TransDigm’s contract 

dealings indicate that historical prices for 34 different parts were 

inflated and could not be used as an accurate determination of 

price reasonableness. 
32 

This is for either Ms. Hull or Mr. Fine. Could you walk the committee through the process that the IG’s office used to determine 

that the historical prices for these 34 products were inflated? 

Ms. HULL. The process that we applied in analyzing the historical prices is we accessed a data base that holds the pricing history 

for those particular items in our sample, so 47 parts. So we looked 

at the prices over time that the government has paid for these particular items. 

Then we also obtained uncertified cost information from 

TransDigm and analyzed what we thought to be a reasonable profit. And, in doing that, we selected 15 percent as simply a benchmark. And I want to emphasize that we did not, in this report, 

state that 15 percent should be or is the reasonable profit across 

the board; it’s just simply a benchmark. And then beyond 15 percent, we classified those costs as excessive. 

Mr. GROTHMAN. Okay. 

And how did the prices then become inflated? Did they not go 

through an initial review process? 

Ms. HULL. Anytime a part is purchased, it becomes part of that 

particular part’s history. So if a part is inflated at the first time 

it’s purchased and then the next contracting officer comes along 

and negotiates a new part and then adds a couple percent on top 

of that, that already originally inflated price becomes more inflated 

over time. 

Mr. GROTHMAN. Okay. 

Could a part that you originally deemed inflated have any valid 

explanation, or were you given any valid explanations? 

Ms. HULL. No, we were not able to determine any reason for justification for the excess profit on those particular items we looked 

at. 

Mr. GROTHMAN. Okay. 

We have a question of Mr. Fahey. 

It is my understanding that several factors play on cost and pricing on a daily basis. Isn’t looking at prices in a vacuum like this 

dangerous? 

Mr. FAHEY. Looking at pricing? Absolutely, right? Just looking at 

the price, versus the cost. 

Mr. GROTHMAN. Okay. Do you want to elaborate at all? 

Mr. FAHEY. Yes. I mean, obviously, if you know the cost of what 

it costs to produce a part, then you have the difference between 

what they’re trying to charge you versus the cost, and then you 

know whether you believe it’s a fair and reasonable price, right? 

When you don’t have that cost data—as you’ve seen, it was the 

best available price, so, by definition, it was fair and reasonable. 

But you didn’t have the information to really be able to negotiate 

that. 

Mr. GROTHMAN. Okay. 

Mr. Howley and Mr. Stein, do you ever give the government cost 

or pricing data to back up a reasonableness claim even if it’s not 

mandated by law or regulation? 

Mr. HOWLEY. Well, I would like to make the difference here between price data and cost data. And I don’t allege to be an expert 

on the FAR, but I believe for the type of parts we make, where we 

are primarily a commercial supplier, the rules state that the first 
33 

place to go is to look at the price data, of which most of what we 

make is what I would call commercial of a kind, so that the commercial prices are the first place to look for reasonableness of the 

price. 

I think, of the 47 or 46 parts, I think upwards of 40 of them were 

commercial of a kind, of which we have submitted commercial comparable price data to show that there’s a comparable commercial 

market for them. 

Mr. GROTHMAN. Are there some parts so vital to the Department—and this is really for Mr. Fahey. Are there some parts so 

vital to the Department that they’re willing to pay more to have 

them, even excessively? 

Mr. FAHEY. I’d say we have to pay the price if that’s our only alternative to keep the readiness of our equipment, but we should 

never be paying excessive pricing. 

Mr. GROTHMAN. Okay. Are there any instances where the Department is priced out of a transaction, where you just say no? 

Mr. FAHEY. There have been situations. Where it becomes difficult is when it’s a readiness issue. 

Mr. GROTHMAN. Can you give me an example? 

Mr. FAHEY. I can’t give you one off the top of my head, but I was 

a program executive officer in the Army over 10 years, and there 

were many times that we walked away from the table because we 

didn’t think we got a fair and reasonable price. 

Mr. GROTHMAN. Okay. 

Do you think for mission-critical parts that having cost or pricing 

data would change the analysis of a purchase? 

Mr. FAHEY. It could change the analysis, but you should never 

be paying, quote/unquote, excessive pricing, right? It should be always be fair and reasonable. 

Mr. GROTHMAN. Okay. 

I yield the remainder of my time. 

Mr. KHANNA. Thank you, Mr. Grothman. 

I now recognize Ms. Ocasio-Cortez for five minutes. 

Ms. OCASIO-CORTEZ. Thank you, Chairman. 

And thank you, everyone, for joining us here on this panel today. 

Today is my lucky day. Because for ages we’re consistently told 

that single-payer healthcare is too expensive. We’re told constantly, 

how are you going to pay for it? How are you going to pay for covering the insulin costs of everyday Americans? And I seem to have 

found part of my answer here today. 

Because it seems that TransDigm sold a part called a non-vehicular clutch disk. You have to excuse how small the image is here, 

but it’s up there on that screen. But if I blew it up much larger, 

it wouldn’t even be to scale, because this disk is only about 3 

inches anyway. 

And it seems as though TransDigm sold 149 non-vehicular clutch 

disks to DOD. It costs about $32 to make the part, and TransDigm 

charged us $1,443 for each of these 3-inch disks. As a result of the 

upcharge, the inspector general determined that TransDigm profited 4,436 percent. 

A pair of jeans can cost $32. Imagine paying $1,000—over $1,000 

for that. 
34 

But the good news here is that what I found is that the cost of about 149 of these clutch disks will cost, at cost, about $4,768, except TransDigm charged the public $215,007. That is a margin of 

about $210,239. 

Mr. Howley, are you aware of how many doses of insulin we 

could get for that, for that margin? 

Mr. HOWLEY. I’m not. 

Ms. OCASIO-CORTEZ. In a single-payer healthcare system, an in- sulin dose can cost about $137 a vial. I could’ve gotten over 1,500 

people insulin for the cost of the margin of your price-gouging for 

these vehicular disks alone. 

The incidence of diabetes, according to the CDC, is about seven 

people in 1,000, which means I could’ve covered the insulin costs 

of a community of 21,400 people for the cost of your price-gouging 

of the public on a non-vehicular clutch disk alone. 

I could’ve sent 21 kids to college. 

I could’ve sent 18 toddlers to free preschool for a year in the most 

expensive city in America. 

So my question to you is, why should we give you another dime? 

Mr. HOWLEY. It seems to me the government always has the 

choice of what to buy and what not to buy from us. 

Ms. OCASIO-CORTEZ. Uh-huh. My—— 

Mr. HOWLEY. We believe we provide the government with welldesigned, well-manufactured, high-quality product, we deliver in a 

timely fashion, and we support it when there’s a problem. 

Ms. OCASIO-CORTEZ. Uh-huh. 

How much competition do you have? How many competitors do 

you have in this market? 

Mr. HOWLEY. We have in—I don’t know this individual part, just 

because we make 200,000 parts, but I would say there is almost 

no product we make where there aren’t other alternatives to buy 

the part. We typically—— 

Ms. OCASIO-CORTEZ. But it could be one alternative, two alternatives, or 1,000 alternatives. 

Mr. HOWLEY. But not 1,000. 

Ms. OCASIO-CORTEZ. Not 1,000. 

Mr. HOWLEY. Some number of alternatives. We are almost always—— 

Ms. OCASIO-CORTEZ. So it’s not a perfectly—— 

Mr. HOWLEY [continuing]. selected originally in a competitive 

process when the airplane’s designed, where we are selected because of our price, our technology, our delivery, our contract terms, 

whatever. 

Ms. OCASIO-CORTEZ. Uh-huh. 

You know, I find this interesting, because this term ‘‘free market’’ comes up very often, but I don’t think people really understand what that means. Because, so often, it’s not a free market 

at all. It’s a captive market. It’s one where we’re forced to choose 

between two to three people. 

Oftentimes, in these processes, there is significant argument and 

there’s significant evidence that there’s collusion in these markets, 

that it’s not a perfectly competitive market, because a perfectly 

competitive market requires a large amount of competitors. 

But I’ll move on. 
35 

Mr. Fahey, what can Congress do to break this cycle? 

It seems that the inspector general has been calling attention to 

the unreasonable prices for TransDigm, in particular, since 2006. 

So I think about all those insulin doses from just this one part in 

this one contract times 10, 15 years. 

What can we do to break this cycle? 

Mr. FAHEY. So, ma’am, you know, first, you know, I would support, you know, the recommendations of the DOD IG and working 

with Congress to figure out—what I’d say is I would absolutely like 

to work with Congress on what are the right things to do, and I’d 

rather not talk about it in front of TransDigm because they’ll go 

out and try to figure out ways to overcome those too. 

Ms. OCASIO-CORTEZ. Understood. 

Mr. FAHEY. So it just—as I’ve said, it just bugs me that we have 

to do this, right? And what it does is it’s additional bureaucracy 

within my system to account for these bad situations. 

Ms. OCASIO-CORTEZ. Well, I look forward to us having a confidential meeting sometime soon. 

Thank you very much. 

Mr. KHANNA. Thank you, Ms. Ocasio-Cortez. 

I now want to recognize Ranking Member Jordan for five minutes. 

Mr. JORDAN. Thank you, Mr. Chairman. 

Earlier, Mr. Stein, I forget whom, but someone on the Democrat 

side asked whether you would pay back the—I think they used $16 

million, and you said it’s really not about the money. But it kind 

of seems like it is. You said there was other factors you had to look 

at—you know, the message that would send to your customers— 

and I get that. 

So let me just walk through a couple things. How many parts do 

you make for the government? 

Mr. STEIN. I don’t know the exact figure. I know that I have over 

50,000 parts that are military parts. 

Mr. JORDAN. Fifty thousand. 

Mr. STEIN. Yes. 

Mr. JORDAN. Any idea how many you make for DOD? 

Mr. STEIN. No. I know—sales I could split out, but not part numbers. 

Mr. JORDAN. Mr. Fine, you said you guys looked at 47, I think 

was the number you said earlier. Is that right? 

Mr. FINE. Correct. 

Mr. JORDAN. Do you know how many they make for the government? 

Mr. FINE. I don’t know how many parts they make. I know that 

34 percent of their business is with the defense industry. 

Mr. STEIN. Yes. I can talk about revenue. 

Mr. JORDAN. Okay. So 34 percent—— 

Mr. HOWLEY. I might add, that’s not all with the Department of 

Defense. 

Mr. JORDAN. I understand. So 34 percent is with the government. 

What percent is with DOD? 

Mr. HOWLEY. No, it’s not with the government. Thirty-four percent is not with the government. 
36 

Mr. JORDAN. Oh. Straighten me out then. Thirty-four percent is 

with who? 

Mr. STEIN. Is military—— 

Mr. HOWLEY. Military some way, shape, or form around the 

world. About 6 or 8 percent is the government, the U.S. Government. 

Mr. STEIN. Is Defense—is after-market to the U.S. Government. 

Mr. JORDAN. When you say the U.S. Government, you’re talking 

about Defense. 

Mr. STEIN. Yes. 

Mr. JORDAN. Okay. 

Mr. STEIN. Sorry. 

Mr. JORDAN. So 7 percent is with the United States Department 

of Defense. The other percent, you know, whatever, 34 minus 7, the 

other 27 percent is with foreign governments? 

Mr. STEIN. Foreign governments and OEMs for U.S. production. 

Mr. JORDAN. Oh, Okay. Okay. 

Percent of your—so when it comes to profits, what’s your profit 

margin on the 7 percent, the 34 percent, and then on the commercial? 

Mr. STEIN. I don’t know the profit margin on the individual segments. What I can tell you is that our profits in the defense aftermarket spares business is significantly lower than our commercial 

after-market profit margin, just the way it works out with the regulations—— 

Mr. JORDAN. But that’s not—based on everything we’ve heard 

today—— 

Mr. STEIN. I know, but—— 

Mr. JORDAN [continuing]. that’s not what you’d be—that’s not the 

conclusion I think we’d all reach. We would assume that it 

would’ve been higher. 

Mr. STEIN. Yes. It’s because this process has nonstatistically selected a couple parts that, you know, would show a certain direction of price increase. I can just as easily select 46 part numbers 

or 47 that show dramatic changes the other way. We have—— 

Mr. JORDAN. So are you saying, like, on the commercial side, the 

non-defense side, you’re getting 4,000 percent profits on parts 

there? 

Mr. STEIN. Yes. The parts that were analyzed had commercial 

equivalents, and the commercial price is listed as reference points. 

And that’s a leading indicator of—— 

Mr. JORDAN. So Ms. Ocasio-Cortez just had up this valve or ring 

or—— 

Mr. STEIN. Yes. 

Mr. JORDAN [continuing]. whatever that was. Do you sell that to 

commercial folks as well? 

Mr. STEIN. Yes, we do. Would you like—so I have a data on that. 

Mr. JORDAN. I’m just curious, what do you charge them? 

Mr. STEIN. So it was sold to British Air for $2,400. And it currently sits on a Satair price list—they’re a commercial after-market 

distributor—for somewhere around $1,000. 

Mr. JORDAN. Mr. Fine, do you agree with all that? 

Ms. HULL. We don’t—— 
37 

Mr. JORDAN. Frankly, that’s not what I expected when I started 

my line of questioning. I was just curious where this all was going, 

and I expected something different. 

Ms. HULL. We don’t have that information. I’m sorry. I can’t 

speak to that particularly. 

Mr. STEIN. We do provide that information. When commerciality 

packages are submitted, we do provide that reference point. 

Mr. JORDAN. Let me go to the inspector generals. 

This all happened when? When you did this investigation, this 

was for what years and what timeframe? 

Mr. FINE. January 2015 to January 2017. 

Mr. JORDAN. And since that time, it’s my understanding that the 

threshold amount has been increased when you can—the sole 

source and the dollar amount—— 

Mr. FINE. The Truth—— 

Mr. JORDAN. Go ahead. 

Mr. FINE. The Truth in Negotiations Act and the 2018 National 

Defense Authorization Act increased the threshold for when they 

have to provide certified cost information from $750,000 to $2 million. 

Mr. JORDAN. And if I understood correctly earlier, a line of questioning, it’s not the threshold that is maybe the determining factor; 

it’s the fact that you just don’t get the information to—if there’s a 

way to get the information, it’s not so much the threshold. 

Because my understanding was the Armed Services Committee 

thought this made sense for our military to get access to parts in 

a quicker fashion and get what our warfighters need. That’s why 

they raised it. But you guys are saying it’s not so much the threshold, it’s we need information. Is that accurate? 

Mr. FINE. So it is a little bit the threshold. It does change the 

equation of when they have to provide the information—— 

Mr. JORDAN. I understand. 

Mr. FINE [continuing]. in order to streamline things. 

But it has side effects. And one of the side effects is contracting 

officers can’t require companies like TransDigm to provide cost information when it’s below $2 million and TransDigm declines to 

provide that information. 

In 15 of the 16 times that was below that threshold, that the contracting officer asked for cost data, TransDigm declined. They 

weren’t required by law to do it. 

Mr. JORDAN. And is that happening with other companies too? 

Mr. FINE. We haven’t looked at other companies, but I assume 

it is happening. I’m not sure to the same extent as TransDigm. 

Mr. JORDAN. And I’m running out of time here, or I guess I ran 

out of time, but I appreciate the chair’s—— 

Ms. HULL. Well—— 

Mr. JORDAN [continuing]. indulgence. 

Ms. HULL. I’m sorry. 

Mr. JORDAN. So what do we need to do so that you get the—we 

all want this to work. We want people to make a reasonable profit. 

We don’t want excessive profit. We want it to work. We want our 

military to be equipped. We want it all to work. So what needs to 

happen? We need to say, certain information has to be given to the 

Department of Defense? 
38 

Mr. FINE. I would say that we ought to look at the legislative 

structure to require companies to provide cost information when 

asked for by contracting officers. They don’t have to ask for it each 

time. There may be times they don’t need it. But there are times 

they need it, particularly in the sole-source environment, that when 

they ask for it, they should get it. 

Mr. JORDAN. And the message—if it happens just a few times, 

the message gets sent: When you ask for it, you’ve got to give it, 

so you better be doing it right from the get-go. 

Mr. FINE. Exactly. I mean, TransDigm keeps saying that we 

weren’t required to do it and the law didn’t require them to do it. 

But that’s the problem. There ought to be a requirement so that 

companies who are asked for the information, like TransDigm, provide that information. 

Mr. JORDAN. Thank you. 

Thank you, Chairman. 

Mr. KHANNA. Thank you, Ranking Member Jordan. 

I’d now like to recognize Ms. Kelly for five minutes of questioning. 

Ms. KELLY. Thank you, Mr. Chair, and thank you to the ranking 

member for holding this very important hearing. 

Ms. Hull, in the inspector general’s report, you considered a 15 

percent profit to be reasonable and any profit over 15 percent you 

considered excess profit. How did you select that as your benchmark? 

Ms. HULL. The 15 percent is certainly a benchmark. We researched Federal supply codes with similar contracts to the parts 

that we selected for our sample and found 15 percent to be a reasonable number to apply. And then anything in excess of 15 we 

claimed as excess profit. 

Ms. KELLY. And it seemed like many of TransDigm’s contracts 

you reviewed had profit margins, as we’ve been discussing, well 

over 15 percent. 

And one of the contracts your office reviewed was a contract for 

a filter subassembly used in the Hercules C–130 aircraft. This contract, according to your report, had an excess profit margin of 356 

percent. To be clear, the profit margin excludes the 15 percent in 

reasonable profits you used as a benchmark for your review? 

Ms. HULL. Yes, it does. 

Ms. KELLY. Mr. Howley, Federal Acquisition Regulations recognizes that contractors need to make a reasonable profit on their 

government contracts, but there is a difference between a reasonable profit margin and profits over 300 percent on a single contract. 

Do you agree with the inspector general that a 356 percent profit 

margin is a bit unreasonable? 

Mr. HOWLEY. What I would say is we are primarily a commercial 

business. They have a method of checking the reasonableness of 

the prices, and this is the preferred method, I believe, that the regulations describe, is to check price data, not cost data. You know, 

most all the parts that were inspected, we provided commercial 

pricing data. And that is the preferred method, I understand, by 

the regulations to confirm the reasonableness of the price. 

Ms. KELLY. So let me ask—— 
39 

Mr. HOWLEY. In other words, what the commercial market is 

paying for that. 

Ms. KELLY. Let me ask you this. Could you sell to the DOD these 

parts at a lower price and still make a reasonable profit? 

Mr. HOWLEY. I don’t believe that’s the question for us. The question for us is, what—— 

Ms. KELLY. But I’m asking the questions, sir. 

Mr. HOWLEY. Yes, I understand. 

Ms. KELLY. Let me—— 

Mr. HOWLEY. I understand. 

Ms. KELLY. Let me—— 

Mr. HOWLEY. But the reasonable—I’d say again, we run under 

a commercial model. In other words, we don’t get paid by the government for our development expenses. We don’t get paid for our 

engineering. We don’t get paid for the capital we put into a project. 

We don’t get paid—— 

Ms. KELLY. But 356 percent? 

Mr. HOWLEY. We make our money—we make our money in the 

after-market on the spare parts. We don’t make—and we even lose 

money up front. This is a razor-razorblade model—— 

Ms. KELLY. Well, reclaiming my time, my colleague asked about 

the part she asked about, my colleague Ms. Ocasio-Cortez. And 

what you are selling to us, the staff just informed me, you’re the 

only person that sells that. So there is no competition; you’re a sole 

source for that. And, again, I would think that you could still make 

a reasonable profit, very reasonable profit, that would be less than 

356 percent despite your expenses. 

The committee received documents from TransDigm that showed 

that TransDigm’s starting offer for the filters that I talked about 

was $5,581 for each filter. I’m holding up the report. TransDigm’s 

own data shows that it costs per part, however, $1,189. 

Do you feel like you were acting in good faith when you offered 

to sell these parts for over four times the cost? 

Mr. STEIN. Yes. So we do have—this is a commercial part. It’s 

of a commercial type. And we have sold that commercially, and it’s 

on a price list commercially at almost $5,000—$4,848. 

Ms. KELLY. The government cannot determine that this was a 

commercial item. 

You know, when the contracting officer pushed back on this unreasonable price, one of your employees stated, and I quote, ‘‘Given 

our costs on this part, it’s the lowest we can go at this quantity.’’ 

That statement was false, right? Based on TransDigm’s own data, 

the company had plenty of room to lower the price and still make 

a profit. 

Mr. STEIN. Given the laws and rules of the land, I don’t think 

they were wrong in the way they approached it. There is a commercial price out there, and we’re allowed to use commercial prices as 

justification for the pricing that we set to the government. If it’s 

on an identical or a part that is similar of type, this is allowed. And 

so the pricing is set that way. 

Ms. KELLY. Ms. Hull, are these parts commercial? 

Ms. HULL. Ms. Kelly, I think it’s important to point out that only 

4 of the parts of the 47 that we looked at are indeed commercial 

items or determined by the contracting officer to be commercial. So, 
40 

although TransDigm has said several times during the hearing 

that all the parts were commercial, it is our belief that four are 

commercial. 

Ms. KELLY. I’m going to squeeze in another question. 

Mr. Stein, you know it’s a crime to provide false information to 

a contracting officer. How is the statement that ‘‘given our costs on 

this part, it’s the lowest we can go at this quantity’’ not a false 

statement? 

Mr. STEIN. I do not have the information on that individual part 

at that time which would have led him to—him or her to make that 

comment. So it’s impossible for me to provide background on that. 

Ms. KELLY. Well, you’re giving the appearance that you don’t always negotiate in good faith. And I do think that you should pay 

a refund for these excessive profits immediately. 

I yield back. 

Mr. KHANNA. Thank you, Ms. Kelly. 

I now want to recognize Mr. Raskin for five minutes. 

Mr. RASKIN. Mr. Chairman, thank you. And thank you for calling 

this important hearing. 

There really are two Americas now. There’s the America that we 

all represent, where we know there to be homeless veterans and 

people going bankrupt because they can’t afford to pay their medical bills; diabetics rationing their insulin; public schools closing art 

and music classes. 

And then we’ve got the military industrial complex that President Eisenhower warned us of more than a half-century ago, a 

place where 15 percent, which is a pretty good return in most parts 

of America, isn’t remotely enough for the greed and the avarice and 

the seclusion from the rest of society. You’ve got to make 50 percent or 100 percent profit or 200 percent profit or 500 percent profit 

or, in some of these cases, more than 1,000 percent profit—something simply unheard of and unseen in the real America that we 

represent. 

Mr. RASKIN. Let me come to—let me come to you, Mr. Howley. 

A former director of operations at your company, TransDigm, told 

this committee, quote: ‘‘At quarterly meetings, Nick Howley, management, gave a wink-wink, nod-nod that we want to avoid disclosing any cost data. They told us under their breath we should 

see what we can do to avoid disclosing cost data. We don’t want 

to talk about costs; we want to talk about price.’’ 

Now, I want to ask you this and I want you to think about your 

answer carefully, because I know that you’re under oath. Have you 

or any senior official at TransDigm told an employee that they 

should avoid disclosing cost data? 

Mr. HOWLEY. First, I presume we’re talking about these various 

business unit review meetings we make. I’ve rarely attended them 

in the last 10 years, to begin with. I would tell you we regularly 

tell people what the rules are for contracting with the government. 

Mr. RASKIN. Have you ever told anyone to avoid disclosing cost 

data? 

Mr. HOWLEY. Not that I recall. We always tell people, here are 

the rules. When you deal with the government, you have to comply 

with all the rules and regulations. We have an outside law firm 
41 

come in and run those training classes for employees. We have our 

in-house counsel run them. 

Mr. RASKIN. Okay. Mr. Howley, you were, according to your testimony, in 2017, the sixth highest paid CEO in America. You made 

$61 million, right? Was the business model to find these sole-source 

contracts and then to jack up the price as far as it could go? 

Mr. HOWLEY. The business model is to—we buy and operate proprietary, highly engineered aerospace component businesses with 

significant—with aftermarket content. That’s the business model. 

Mr. RASKIN. Let me ask you—— 

Mr. HOWLEY. We buy them and we improve them. The long-term 

owners—— 

Mr. RASKIN. I was interested in your exchange with my colleague, Ms. Ocasio-Cortez. Is your business model, the way you do 

business, is that socialism or capitalism? 

Mr. HOWLEY. Capitalism. 

Mr. RASKIN. So you’re defining capitalism as one business can 

basically charge the taxpayers whatever it wants, 50 percent, 100 

percent, 500 percent, 1,000 percent, that’s what capitalism is? 

Mr. HOWLEY. Any buyer can buy from someone else if they want. 

In almost no cases are we the only one in the country that can provide the part. At such point as we don’t deliver a quality product, 

we don’t deliver it on time, it doesn’t work well, we’re not technically competent, they can go somewhere else. 

Mr. RASKIN. Let me ask you about one specific case, Mr. Howley. 

One of the contracts reviewed by the inspector general was for a 

part called an actuator cover assembly which was used in the KC– 

135 aircraft. You charged $12,000 for actuator cover assemblies. 

TransDigm’s cost for getting the same part was $800. Now, how do 

you justify getting the part for $800 and then selling it to the taxpayers for $12,000? 

Mr. HOWLEY. I’m going to defer to—I’m going to defer to Kevin 

Stein, because I don’t know the individual part. 

Mr. RASKIN. But in principle, in principle, how do you defend 

that? 

Mr. HOWLEY. I don’t know the—I don’t know how to answer in 

general. All I can do is address it specific. 

Mr. RASKIN. But that’s the business model. But that is your business model that you’ve described this as capitalism, and that’s 

what capitalism—— 

Mr. HOWLEY. No. Our business model is we are primarily a commercial business. Our business model is we—— 

Mr. RASKIN. Aren’t all businesses commercial businesses? I don’t 

know what you mean. 

Mr. HOWLEY. No. I make the distinction between a primary defense contractor. We invest our own money to develop products. We 

invest our own money to design them, to qualify them on airplanes—— 

Mr. RASKIN. All right. Let me ask you a different question. 

Mr. HOWLEY [continuing]. to do the testing, to invest the product. 

And we make our money back. 

Mr. RASKIN. Maybe you can help us—maybe you can help us find 

out how pervasive this is. One of the things that impresses me 

about the testimony is the kind of indignation you’re demonstrating 
42 

about being asked about this. Is this, in fact, the pervasive business model in the work that you do? Are you aware that other businesses are basically doing the same thing with DOD contracts? 

Mr. HOWLEY. I think the model of a razor/razor-blade type of 

model where you invest your money upfront and you make your 

money back in the aftermarket is very common across many highly 

engineered niche products. 

Mr. RASKIN. So if we did a thorough investigation of Defense Department contractors, you’re saying we would find other businesses 

that are essentially taking the taxpayers for 100, 200, 300, 400, 

500 percent profits on the products that are being sold to the government? 

Mr. HOWLEY. I’m going to say this from memory now, and the 

other people at the table know much better than I do about this, 

but I think this is a relatively common audit result when the IG 

goes out and audits component manufacturers that they come to 

the conclusion that the spare parts prices are higher than they’d 

like. I think that’s a fairly common conclusion, and I think—I believe that’s one of the reasons that they are proposing regulatory 

changes. 

Mr. KHANNA. [Presiding.] Thank you, Mr. Raskin. 

Mr. RASKIN. I yield back. 

Mr. KHANNA. Thank you, Mr. Raskin. 

I now want to recognize Ms. Wasserman Schultz for five minutes 

of questioning. 

Ms. WASSERMAN SCHULTZ. Thank you, Mr. Chairman. 

I want to clear something up for the record, so I’ll ask you, Mr. 

Howley or Mr. Stein, whichever one can answer the question. My 

understanding is that for thousands of the parts that you make 

available for sale commercially, you are the sole-source provider on 

most of them, and that there are no options besides you for the 

military to be able to make those purchases. 

Mr. STEIN. That’s, I think, not true. During the qualification 

phase, there are many people involved in qualification and quoting 

on parts who all have the capability to make these. So there is 

competition out there. Because of the extremely small volumes, you 

end up taking it as a sole source, but that’s simply the way that 

the business is awarded. 

Ms. WASSERMAN SCHULTZ. Okay. That’s not my understanding 

and, thankfully, we have people here who can testify to that. 

So, Mr. Fahey, TransDigm owns the rights for thousands of parts 

used to fix and maintain our military equipment. And my understanding is when DOD needs a mission-critical part, you are oftentimes forced to buy it at an inflated price from TransDigm who, as 

has been stated here today, may earn a profit of more than 4,000 

percent. That’s obviously not only an egregious swindling of taxpayer money, it also would appear to be a huge additional expense 

that is grossly irresponsible for the Department of Defense to have 

to bear. 

Do TransDigm’s inflated prices impact military readiness, in 

your assessment, by pulling funding that could be spent on other 

mission-critical acquisitions? 

Mr. FAHEY. Absolutely. Absolutely. 
43 

Ms. WASSERMAN SCHULTZ. Could you elaborate a little bit? 

Mr. FAHEY. I mean, every time you’re paying, you know, a cost 

that is outrageous, right, you could be spending that money somewhere else, right? So, for example, if we got our $60 million back, 

we could be buying other spare parts to increase readiness. As you 

know, if you go across the Department, one of our major concerns 

is the readiness of our fleets. 

Ms. WASSERMAN SCHULTZ. Exactly. I’m pretty familiar with that, 

given my other job in Congress, which is chairing the Military Construction VA Appropriations Subcommittee. 

Does DOD—Mr. Fahey, does DOD currently have unfunded acquisitions that could potentially have been funded if you weren’t 

expending extra dollars to meet TransDigm’s inflated prices? 

Mr. FAHEY. Absolutely. 

Ms. WASSERMAN SCHULTZ. Do you have any examples that come 

to mind? 

Mr. FAHEY. I don’t have any examples that come to mind, but I 

know, given the time of year as we’re going through that process 

now to figure out, you know, what money we’re going to ask for to 

have reprogrammed, because there are significant programs that 

need—important programs that need funding. 

Ms. WASSERMAN SCHULTZ. Pricewise, what would you say is the 

amount of unfunded acquisitions that are sitting on that list? 

Mr. FAHEY. I don’t have that, ma’am, off the top of my head. 

Ms. WASSERMAN SCHULTZ. Is it in the hundreds of millions of 

dollars? Even billions? 

Mr. FAHEY. It’s in the billions. 

Ms. WASSERMAN SCHULTZ. It’s in the billions of dollars, okay. So 

I think it’s safe to say that if we’re spending 4,000—if we have a 

4,000 percent unfair, egregious, outrageous profit, that we are really affecting our military’s readiness and our ability to make sure 

we can address mission-critical projects. 

Mr. FAHEY. Absolutely. 

Ms. WASSERMAN SCHULTZ. Okay. Mr. Stein—I’m sorry, Mr. 

Fahey, or any of you who are there and can answer the question, 

is what Mr. Howley just said accurate? Is there the kind of competition that they are suggesting, and am I wrong that the military 

appears to only have them as an option in many cases when it 

comes to these purchases? 

Mr. FAHEY. I’ll give—they are wrong, right. What he explained 

was accurate, that way back like 10 years ago when we were doing 

the development, there was probably competition to the part; but 

at this time, on most of those parts, they are sole-source providers. 

Ms. WASSERMAN SCHULTZ. And that would be because they 

bought up every single company that—with the business—using 

the business model, as my colleague Ms. Hill entered into the 

record, specifically focused on sole-source providers as their business model to acquire. 

Mr. FAHEY. Correct. And I’ll let Mr. Fine answer. 

Mr. FINE. So if I could, of the 47 parts in our sample, we determined that 39 were manufactured only by TransDigm. 

Ms. WASSERMAN SCHULTZ. Okay. So, Mr. Howley, Mr. Stein, 

what you’re saying is completely inaccurate, and I’ll just remind 
44 

you, you’re under oath. Today, there is not competition apparently 

in 39 parts that—— 

Mr. HOWLEY. There are other—there are other suppliers. 

Ms. WASSERMAN SCHULTZ. Excuse me. Reclaiming my time. The 

way it works here is that we ask the questions and you answer 

them when we’re ready for you to answer them, okay? 

So there are 39 parts that Mr. Fine just mentioned that you are 

the only source for the military to be able to purchase. Is that accurate? 

Mr. HOWLEY. We are not the only one that could supply them. 

We’re the only—they have—apparently, it’s not worth the cost or 

effort or time to qualify another source at this time. There are 

other people that could do it. 

Ms. WASSERMAN SCHULTZ. Okay. Reclaiming my time, which I 

am now out of. In legislative speak, in a setting like this, we call 

that not passing the straight face test. What you just said doesn’t 

pass the straight face test because it’s tap dancing, inaccurate, and 

incongruent with the facts. 

So you are grossly robbing the American taxpayers and impacting our military readiness and our ability to make sure that we 

have the ability to accomplish mission-critical goals. You ought to 

be ashamed of yourself, and you owe the taxpayers millions of dollars that I hope your company decides to make sure that you do 

on your own. 

I yield back. 

Mr. KHANNA. Thank you, Ms. Wasserman Schultz. 

I now want to recognize Mr. Connolly for five minutes of questioning. 

Mr. CONNOLLY. Thank you, Mr. Chairman. 

Mr. Stein, your testimony is—let me ask this. Mr. Fine made the 

point that you declined to provide DOD or his office with data because it fell at or below the $2 million threshold in contract value. 

Is that correct? 

Mr. STEIN. I think at the time of the contracting, it was 

$750,000, but I would defer to my colleague. 

Mr. CONNOLLY. No, my question is you declined. I’m asking you 

to corroborate what he asserted. 

Mr. STEIN. Okay. I think it was $750,000 at the time of the 

awards, not $2 million, because that was a—— 

Mr. CONNOLLY. But is it accurate that you declined to provide 

that information voluntarily? 

Mr. STEIN. We agreed to all the laws and rules and regulations. 

Mr. CONNOLLY. Yes, we stipulate that, Mr. Stein. My question 

again is, is Mr. Fine accurate that, in fact, you declined to provide 

information his office requested using the threshold as the reason 

why you did not have to? 

Mr. FINE. If I could, they declined to provide to the contracting 

officer when the contracting officer requested it 15 of the 16 times. 

Mr. CONNOLLY. Okay. Mr. Stein, is that accurate? 

Mr. STEIN. I’m confused. Can you rephrase the question? 

Mr. CONNOLLY. Yes. Mr. Fine said that the contract officer had 

requested information and you said, we’re not going to provide it 

because we’re not required to because it falls below $2 million. 
45 

Mr. STEIN. That’s not true. If it falls below $750,000, at the time, 

we said that—— 

Mr. CONNOLLY. Mr. Fine. 

Mr. FINE. I think he’s debating the issue of what the threshold 

was at the time. Whatever the threshold was at the time, they 

were asked to provide the cost and they declined to do it in—— 

Mr. CONNOLLY. Is that accurate? 

Mr. STEIN. That is accurate. 

Mr. CONNOLLY. That is accurate. Thank you. 

Now, is it the policy of your company deliberately to restructure 

the value of contracts so that you fall below that threshold? For example, we had one former TransDigm sales director who told the 

committee, and I quote: ‘‘We were coached on how to structure 

agreements. It was suggested to us that we use shorter agreements. Don’t sign long-term agreements. We were encouraged to 

use excuses.’’ 

Is that an accurate statement, in terms of the policy of your company? 

Mr. STEIN. I don’t think so. We do not have a policy that does 

anything but to agree with—— 

Mr. CONNOLLY. You’re under oath. Is it your testimony that nobody was ever coached to do that? 

Mr. STEIN. No, no one was ever coached to split a contract. I’m 

not aware of any instance where that happened, period. 

Mr. CONNOLLY. All right. Good. You’re on record. 

Mr. STEIN. Yes. I’m not aware of any instance where that happened. 

Mr. CONNOLLY. That employee went on to provide an example. 

He said, and I quote: ‘‘The government asked for a multiyear solicitation of Black Hawk parts. We, however, shortened the term of 

the contract to 9 months so that we wouldn’t go over TINA. 

Is it your testimony that he’s wrong, that that did not happen? 

Mr. STEIN. I have no idea the details of this part or the testimony that this person is giving. 

Mr. CONNOLLY. That’s not my question. Are you familiar with 

the fact that there was a—— 

Mr. STEIN. No. 

Mr. CONNOLLY [continuing]. multiyear solicitation of Black Hawk 

parts? 

Mr. STEIN. No. 

Mr. CONNOLLY. That doesn’t ring a bell with you? 

Mr. STEIN. No, it didn’t ring a bell with me. 

Mr. CONNOLLY. All right. So we have testimony from one of your 

former employees that contradicts what you’ve just said here under 

oath; that, in fact, it was the strategy of your company to do that. 

Mr. Fine or Ms. Hull, any evidence about that? 

Ms. HULL. For the purposes of our audit, I can’t speak to 

TransDigm intentionally keeping dollar values under a certain 

threshold, but what I can say is that the majority of the parts in 

our sample, which is proportionate to the percentage of contracts 

they have, are predominantly under the simplified acquisition 

threshold. 

Mr. CONNOLLY. Sure looks like a strategy to me. 
46 

Mr. Stein, you have repeatedly said in your testimony today in 

response to questions that you look at the commercial value of 

products, and what you provide is largely commercial. Ms. Hull, 

you said, if I understood correctly, of I think you said 47 parts you 

looked at, only 4 would fit that category. 

Ms. HULL. Only 4 of the 47 parts were commercial. 

Mr. CONNOLLY. Right. Do you dispute that, Mr. Stein? 

Mr. STEIN. I do. 

Mr. CONNOLLY. Do you want to elaborate? 

Mr. STEIN. We have commercial packages that have been submitted on all of these. These are commercial parts. They fall under 

the FAR Part 12 of commercial in type. So the commercial prices 

are legitimate. 

Mr. CONNOLLY. Ms. Hull? 

Ms. HULL. The contracting officer in this case made the decision 

that four were commercial, not more than four per our sample. 

Mr. CONNOLLY. Mr. Stein says that’s just not accurate. 

Ms. HULL. It is up to the contracting officer to determine whether a part is commercial. And in this case, for those four parts, they 

made the commercial item determination that just four were commercial. 

Mr. CONNOLLY. Mr. Fine or Mr. Fahey, before—my time is up, 

but I’d like to give you an opportunity to comment on that. 

Mr. FAHEY. I would agree. And we have—— 

Mr. CONNOLLY. You would agree with what? 

Mr. FAHEY. That the low number that is considered commercial. 

And we have a more laborious process to decide whether somebody 

is commercial or not. 

Mr. CONNOLLY. So, Mr. Fine. 

Mr. FINE. I agree with Ms. Hull. This is a decision made by the 

contracting officer and DLA in this case, what was commercial. 

And four times they were determined to be commercial; the rest 

were not. 

Mr. CONNOLLY. So, Mr. Chairman, as I yield back my time, I just 

want to note this is very troubling, because we have the government saying that only four of the parts, in fact, would be defined 

as commercial; and we have the contractor saying, no, no, they’re 

all commercial. We have employees who have told us that they 

were told not to talk about cost directly by Mr. Howley; and Mr. 

Howley says he does not recall ever making that statement to employees. 

We have employees telling this committee that the company deliberately restructured contracts and agreements to fall below a 

certain dollar threshold so that they would not have to provide 

data to the government; and we have Mr. Stein under oath denying 

that, that that was not the policy of his company. 

It just seems to me we have an awful lot of contradictions and 

a very different point of view between the government, who is the 

recipient of these services, and the company providing them, and 

the company’s own former employees. 

And I would just say to both Mr. Stein and Mr. Howley, you’d 

better be right, because you’re under oath. And it would be my 

hope that this committee will vigorously followup on this testimony 

and corroborate or not what we’ve just heard here today. 
47 

I thank the chair. 

Mr. KHANNA. Thank you, Mr. Connolly. 

The chair now recognizes Ms. Norton for five minutes of questioning. 

Ms. NORTON. Thank you very much, Mr. Chairman. 

Mr. Howley, I think this is an opportunity to clear up for the 

public, not only for this committee, some of—make us understand 

something about these private margins. For example, one of the 

findings of the inspector general was that TransDigm actually denied 15 separate requests from contracting officers for uncertified 

cost data. And the dates given us are between January 2015 and 

January 2017. You might understand that it creates a kind of suspicion right there that you can’t get the information that normally 

a buyer would ask for. 

So let’s test this. On one of the parts you refused to provide data 

for was a position indicator, it is called, purchased by the Army 

Contracting Command. And according to the cost data TransDigm 

provided to the inspector general, this part cost $2,161 to manufacture, but you charged the government $11,733 for each part. So my question is pretty straightforward. How is nearly $12,000 

a reasonable price for something that cost TransDigm about 

$10,000 less than that to manufacture? 

Mr. HOWLEY. Congresswoman, I don’t know the details of the individual parts. We have 55 independent operating units that we operate. 

Ms. NORTON. Would you regard that as a reasonable price? 

Mr. HOWLEY. I don’t know the context of it. I think—— 

Ms. NORTON. So under some circumstances—— 

Mr. HOWLEY. We are generally—we are a commercial business, 

primarily. And our business model, again, is to pay our own money 

upfront, to invest and not make money in the beginning, to pay our 

engineering capital, et cetera, to sell things for aircraft—— 

Ms. NORTON. Look, I understand what your business model is. 

Reclaiming my time, Mr. Howley, because you’re not answering my 

question. 

The inspector general found that TransDigm received 428 percent, 428 percent excess profit in the sales of this part, position indicators. 

So we may disagree and you may need some context and you 

don’t answer the question directly, but let me ask you if you will 

answer this question directly. Will TransDigm provide a refund to 

the Army of the excess profit the company received for this part? 

Mr. HOWLEY. I think I answered that earlier, but I’d be glad to 

do it again. We’re still in the process of evaluating that. We 

have—— 

Ms. NORTON. No. My question is, after you evaluate it—there 

may be some differences on how much excess profit or not. If you 

find that there was some amount that was in excess, will 

TransDigm provide a refund to the Army for your excess profit? 

After you’ve done all your study, will you provide the excess—will 

you provide a refund to the Army? 

Mr. HOWLEY. And I think I would say we’re still in the process 

of evaluating how we’re going to deal with this voluntary refund request. 
48 

Ms. NORTON. That’s not my question. Will you provide—let me 

just ask a general question. When you’ve had an opportunity to 

evaluate what the inspector general has found, if you find that 

there was some excess profit on any of these, after comparing your 

information with the inspector general, will you provide a refund 

to the Government of the United States, yes or no, Mr. Howley? 

Mr. HOWLEY. We’re in the process of evaluating how we’re going 

to handle that. I would say we are a commercial company that operates primarily in a commercial model. And there is a set of rules, 

as I understand, by which the government buys commercial of a 

type product. I think many of what we sell is commercial of a type 

product. So we have to put that in its context. 

Ms. NORTON. Mr. Chairman, I will note for the record that I have 

tried on at least three separate occasions to get a response from 

this witness that almost any manufacturer or any seller of a product to either the government or the public would have given. If I 

find I’m wrong, expect that I will give back whatever amount you 

should have received. 

And I think it should be noted for the record that this witness 

has refused to say—and I must say, in the way in which we do 

business in the future, it should be noted that this witness has refused to say that even if he finds there has been excess profits, he 

will return that excess to the government. 

And I thank you, Mr. Chairman. 

Mr. KHANNA. Thank you, Ms. Norton. 

I’d like to thank our witnesses for testifying today. I’d like to 

thank Assistant Secretary Fahey, Ms. Hull, Mr. Fine for your service to our country. 

Without objection, all members will have five legislative days 

within which to submit additional written requests, written questions for the witnesses to the chair, which will be forwarded to the 

witnesses for their response. I also ask our witnesses to please respond as promptly as you are able, and would note that, Mr. Stein, 

there is an outstanding letter with a number of requests to you. 

And our understanding and expectation is that all of those requests 

will be answered fully and comprehensively. 

Before I give Mr. Grothman a chance for his closing, I would just 

like to note the bipartisan commitment in this committee to continue to investigate this, to note Mr. Meadows’ comments as well 

as Ms. Speier’s comments, that TransDigm should reimburse the 

taxpayers for the excessive profits. You’ve heard that over and over 

again from both Republican and Democratic members. 

Now, you could do that personally, given the amount at stake 

and given the amount you were making as CEOs, or you could do 

it as a company, after you consult your lawyers, without admitting 

liability. People do that all the time. You don’t have to admit liability to do the right thing. 

My strong recommendation, speaking for many members on the 

committee, would be that you consult your lawyers, maybe over 

lunch, and do it by the end of the day, to seem responsive to a body 

that represents so many constituencies in this country. 

I now yield to Mr. Grothman for any final words. 

Mr. GROTHMAN. Right. I’d just like to thank you for having the 

hearing. I thought it was illuminating for everybody here. At a 
49 

time when we’re borrowing about 20 percent of our Federal budget, 

it is again and again amazing the degree to which we seem to shovel money out of this city without regard to the fact that we’re driving people deeper into debt. 

I would hope the military itself weighs in a little bit stronger 

here. I mean, they’ve gotten huge increases in spending the last 

few years. And the military is No. 1. I mean, if we ever doubt we’re 

the No. 1 military in the world, we’re in a lot of trouble. But it’s 

frustrating when people in that business who should be, above all, 

committed to making sure every dime is well spent, seem to view 

things as an opportunity to make ridiculously huge profits. I realize 

it’s not unique to this industry, but it amazes me how people who 

do not found an industry are making tens of millions of dollars of 

salary. I mean, I don’t know whether I was ever in that position, 

if I’d feel guilty about cashing such a check or not. 

But I’d like to thank you for having this hearing and, hopefully, 

something will come of it. 

Mr. KHANNA. Thank you, Mr. Grothman. 

I also just want to recognize the staffs, both on the Republican 

side and on the Democratic side, for their extraordinary work in 

making sure that we had this oversight hearing. 

With that said, this hearing is adjourned. 

[Whereupon, at 12:27 p.m., the committee was adjourned.] 

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