Military Pushes Parts Maker TransDigm to Return ‘Excess Profit’

(Bloomberg) -- The Army and the Pentagon’s purchasing agency are pursuing voluntary refunds from TransDigm Group Inc. after an inspector general’s report found $16.1 million in “excess profit” on $26.2 million in sales by the manufacturer of aircraft components.

The Defense Department’s watchdog office said it discovered excess profit on 46 of 47 parts in a sample of purchases from 2015 to 2017, according to the report obtained by Bloomberg News. It said the company earned more than a reasonable profit on 46 of 47 parts sampled, ranging from excesses of 17 percent to 4,451 percent.

Liza Sabol, a spokeswoman for Cleveland-based TransDigm didn’t provide an immediate comment on the audit, which is to be released Wednesday.

Although the audit disclosed relatively small sums when judged against a $617 billion U.S. defense budget, findings of excessive profit and weaknesses in the defense contracting process are likely to fuel debate over how to avoid waste as Congress takes up the Pentagon’s proposed budget for fiscal 2020 in coming weeks.

The Defense Logistics Agency initiated a request last month for $11.5 million from the company, while the Army Contracting Command will seek refunds of about $18,000, according to comments contained in the audit

Overall, “our analysis determined that only one part” within a sample of 47 had “a reasonable profit of 11 percent,” according to the audit signed by Theresa Hull, assistant inspector general for acquisition. Nonetheless, it said contracting officers had “determined that prices were fair and reasonable” at the time contracts were awarded.

The review was requested by three Democratic lawmakers who sit on defense panels: Senator Elizabeth Warren of Massachusetts, Representative Ro Khanna of California and Representative Tim Ryan of Ohio.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net, Larry Liebert, John Harney

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