[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]

                      DOD INSPECTOR GENERAL REPORT
                           ON EXCESS PROFITS
                        BY TRANSDIGM GROUP, INC.



                               BEFORE THE

                              COMMITTEE ON
                          OVERSIGHT AND REFORM
                        HOUSE OF REPRESENTATIVES


                             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

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                 ELIJAH E. CUMMINGS, Maryland, Chairman

Carolyn B. Maloney, New York         Jim Jordan, Ohio, Ranking Minority 
Eleanor Holmes Norton, District of       Member
    Columbia                         Justin Amash, Michigan
Wm. Lacy Clay, Missouri              Paul A. Gosar, Arizona
Stephen F. Lynch, Massachusetts      Virginia Foxx, North Carolina
Jim Cooper, Tennessee                Thomas Massie, Kentucky
Gerald E. Connolly, Virginia         Mark Meadows, North Carolina
Raja Krishnamoorthi, Illinois        Jody B. Hice, Georgia
Jamie Raskin, Maryland               Glenn Grothman, Wisconsin
Harley Rouda, California             James Comer, Kentucky
Katie Hill, California               Michael Cloud, Texas
Debbie Wasserman Schultz, Florida    Bob Gibbs, Ohio
John P. Sarbanes, Maryland           Ralph Norman, South Carolina
Peter Welch, Vermont                 Clay Higgins, Louisiana
Jackie Speier, California            Chip Roy, Texas
Robin L. Kelly, Illinois             Carol D. Miller, West Virginia
Mark DeSaulnier, California          Mark E. Green, Tennessee
Brenda L. Lawrence, Michigan         Kelly Armstrong, North Dakota
Stacey E. Plaskett, Virgin Islands   W. Gregory Steube, Florida
Ro Khanna, California
Jimmy Gomez, California
Alexandria Ocasio-Cortez, New York
Ayanna Pressley, Massachusetts
Rashida Tlaib, Michigan

                     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
                         C  O  N  T  E  N  T  S

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


The Honorable Glenn Fine, Acting Inspector General, Department of 
    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://

                           INDEX OF DOCUMENTS


The documents listed below are available at: https://

  * 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

                      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 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 
Inspector 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 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 
    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 
    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 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.


    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 
    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 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 
    Ms. Hull will now discuss our recent audit of TransDigm as 
well as some potential actions to help address these issues.


    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 
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.


    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 
    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 
    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 Department 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 should-cost 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 near-peer 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 
    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.


    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 industries, 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 provide 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 high-quality 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 
    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 
    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 
    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 
    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 
    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 
    Ms. Foxx. Thank you, Mr. Chairman.
    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 
    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 
    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 
    Mr. Fahey. So, ma'am, first I'd like to touch on your first 
    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 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 
    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 
    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 get to why we need to tighten those up. And I know 
there are some recommendations on that.
    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 
    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 
    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 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 
    Mr. Sarbanes. And what's your justification generally for 
denying contracting officers cost data when they ask for that 
    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 
    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 
    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 
    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 
    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.
    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 
    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 
    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. 
    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 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 
    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, 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 
    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 engineered 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 
    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 
    Mrs. Miller. Thank you, Mr. Chairman and Ranking Member 
    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 hard-earned 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 becomes what the 
Department will pay and not what the market forces will bear. 
When you are limited to one source, there's very little 
    Mrs. Miller. Mr. Fine?
    Mr. Fine. I think it could help, but many contracts are for 
smaller 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 
low-quantity 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?
    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 
    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.
    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 
    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 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 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 
    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 
    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 
    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 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 
    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 
    Mr. Howley. I saw the article in The New York Times. I 
    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 
    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.
    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 
    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 
    Ms. Tlaib. You guys call it ``head count.'' That's so 
    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 
right-size the costs so that we----
    Ms. Tlaib. Yep, I understand.
    Mr. Stein [continuing]. can continue to return value to our 
    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 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 
    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.
    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 
    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-
    Mr. Fahey. Yes, there----
    Mr. Hice [continuing]. by obtaining the intellectual 
    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.
    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 
    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 
    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 
    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.
    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 
    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 
    Ms. Hill. Reclaiming my time, you specifically seek out 
sole-source 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 
    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.
    Mr. Stein. We will follow the rules----
    Ms. Hill. So you're not committing.
    Mr. Stein [continuing]. and the laws and regulations of the 
    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 sole-source 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 
    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.
    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 
    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 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 
    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 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.
    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 
insulin 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 
    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 
    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 well-
designed, 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 
    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.
    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 
    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 
    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 
    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 
    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.
    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. 
    Mr. Stein. Is Defense--is after-market to the U.S. 
    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. 
    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 
    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 after-market 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 
    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 
    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----
    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 
    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 
    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?
    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 
    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----
    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 
    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, 
    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, 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 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 
    Mr. Raskin. Let me ask you----
    Mr. Howley. We buy them and we improve them. The long-term 
    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 
    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 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 
    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.
    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 
    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 
    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 
    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 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 
    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 
    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.
    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 
    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 
    Is it your testimony that he's wrong, that that did not 
    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.
    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 
    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 
    I thank the chair.
    Mr. Khanna. Thank you, Mr. Connolly.
    The chair now recognizes Ms. Norton for five minutes of 
    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 
    Ms. Norton. Look, I understand what your business model is. 
Reclaiming my time, Mr. Howley, because you're not answering my 
    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.
    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 
    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 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 
    With that said, this hearing is adjourned.
    [Whereupon, at 12:27 p.m., the committee was adjourned.]