TransDigm is a leading aerospace parts supplier that designs and produces highly engineered components for almost every commercial and military aircraft in service today.
To understand why the business is so attractive, it’s helpful to understand the aerospace industry. Airplanes are incredibly complex from a systems engineering perspective. Wide-body aircraft have six million parts and narrow-body aircraft have between 350,000 and 600,000 parts. Furthermore, many of these parts interact with each other in complex subsystems that must remain robust to the highly variable and often extreme environments through which airplanes travel. Moreover, they need to be able to successfully operate through these conditions repeatedly, with the average plane remaining in service for decades and millions of flight-miles. Lastly, unlike many other machines, the risk of failure is catastrophic. Most importantly, it’s catastrophic in terms of lives lost. However, the business and political costs are also gigantic. The saliency of plane crashes combined with the lack of passenger control combined with the somewhat more discretionary nature of air travel causes disproportionate anger and risk-averse behavior compared to the far riskier behavior of automobile driving, for example.
As a result of the systems complexity and enormous cost of failure, the government, aerospace industry, and passengers have developed a risk-averse industry structure that is probably a win-win-win solution for all three parties. In this structure, when Boeing or Airbus designs a plane, they generally select one provider for each part on an aircraft and then they work with the FAA to test it against a wide range of potential flying conditions and failure scenarios. Once the plane passes these tests, it is delivered to the airline that purchased it. Over time, because of normal wear and tear, some parts break. Because of the complexity of the systems involved and the cost of failure, the FAA requires the airplane to replace that part with an identical part manufactured by the original equipment manufacturer. The airline is allowed to shop around, but it can only use a different parts manufacturer if the new part goes through the same expensive, time-consuming battery of tests that the original part, and the subsystem it was a part of, went through.
Given the number of unique plane designs that have been produced over the last thirty to fifty years, there are likely tens of millions of distinct parts (Boeing alone has 15 million individual part numbers in its supply catalog1). Of these parts, many of them are a tiny percentage of the total cost (purchase cost plus operating cost) of the plane but complex and mission critical enough that they are not substitutable. TransDigm has spent the last 30 years building a portfolio of hundreds of thousands of parts with these characteristics. And while each part breaks unpredictably and infrequently, by assembling this vast portfolio, they have essentially created a collection of near monopolies that create an incredibly smooth and high pricing power annuity stream.
Moreover, this annuity is renewable and growing over time. Given how difficult it is to design a new plane, Boeing and Airbus use as many of the old designs and manufacturing partners as they can to reduce complexity,2 especially since the parts manufacturers normally sell the airframer the parts at cost and then charge the airlines the more aggressive aftermarket pricing. Even better, just like cars, airplanes are increasingly sensor heavy.3 This added complexity and cost is driving the value of TransDigm’s slots up over time.4 While this driver alone likely results in a growing annuity, the far more powerful driver is the secular growth in air travel. Travel is a deep human desire, but it is also expensive and discretionary. Thus, as the world gets wealthier and the cost of necessities declines in real terms, people devote a larger share of their growing wallet to travel. As a result, airline flight miles have grown almost 5% per year since 1990.5 Despite this long period of growth, only 11% of the global population fly each year, only 4% fly internationally, and 80% have never flown at all.6 These datapoints support industry expectations of continued 4%+ growth in the decades ahead.7
In summary, TransDigm has a portfolio of airline parts that span almost every commercial and military aircraft in service today. These parts are mission-critical, proprietary with little to no competition, and are low cost compared to both the total airplane cost and the cost of recertification, a perfect recipe for enduring pricing power, in our opinion. As a result, we believe TransDigm is a recession-resistant toll-taker on the large and secularly growing category of global travel.
1 See https://services.boeing.com/parts.
2 See https://archive.aoe.vt.edu/mason/Mason_f/ModernAircraftDesignWHM.pdf.
3 See https://www.mordorintelligence.com/industry-reports/aircraft-sensors-market.
4 See https://www.eplaneai.com/blog/how-trends-in-the-aviation-industry-impact-spare-part-pricing and https://www.globalair.com/articles/aircraft-parts-market-2025-trends-and-growth-opportunities-?id=8276#:~:text=5.,for%20manufacturers%20with%20limited%20resources.
5 See https://www.boeing.com/content/dam/boeing/boeingdotcom/market/assets/downloads/2025-commercial-market-outlook.pdf?update=1225.
6 See https://www.cnbc.com/2017/12/07/boeing-ceo-80-percent-of-people-never-flown-for-us-that-means-growth.html and https://www.sciencedirect.com/science/article/pii/S0959378020307779.
7 See https://www.boeing.com/content/dam/boeing/boeingdotcom/market/assets/downloads/2025-commercial-market-outlook.pdf?update=1225.
To read a more detailed description on TDG as discussed in a prior investment letter, click here.
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