Committee Releases New Information on Defense Contractor’s Extreme Profit Margins
Washington, D.C. (May 15, 2019)—Today, Rep. Elijah E. Cummings, the Chairman of the Committee on Oversight and Reform, released a memo prepared by Committee staff ahead of today’s hearing examining the actions of a defense contractor known as TransDigm Group, Inc., which manufactures spare parts for military aircraft used in Afghanistan, Iraq, and around the world.
In response to a request from Committee Member Ro Khanna, the Department of Defense (DOD) Inspector General (IG) reviewed a sample of 47 spare parts purchased from TransDigm under contracts awarded by the Defense Logistics Agency (DLA) and the Army. The IG determined that TransDigm made “excess profit on 46 of the 47 parts it sold to the DLA and the Army.”
Today’s memo summarizes new documents obtained by the Committee regarding TransDigm’s extreme profit margins, as well as information from whistleblowers and former company officials about efforts to conceal data about the company’s costs for manufacturing these parts.
“TransDigm was able to charge these exorbitant prices because it is the sole source provider for all these parts,” the memo states. ‘Since these overcharges were identified in only a small sampling of 113 TransDigm contracts, it remains unknown how much additional excess profit TransDigm is making under its other contracts. DOD issued a total of 4,942 contracts to TransDigm valued at $471 million from April 2012 through January 2017.”
The memo describes TransDigm’s business model to acquire monopolies and hike prices using so-called “value-based pricing,” which one whistleblower, a former Sales Director for TransDigm, told the Committee “is code for raising prices.”
It also describes how TransDigm and DOD purposely structured contracts to stay below the Simplified Acquisition Threshold (SAT) that would have required greater transparency and accountability for prices of materials purchased with taxpayers’ dollars.
“We owe it to our servicemembers to give them everything they need to fulfill their missions in the battlefield,” said Rep. Khanna. “What we will not tolerate are war profiteers—those who use the fact that we are at war to hold us hostage and hike their prices on mission-critical defense articles to astronomical levels because they know we have nowhere else to go.”
Today’s hearing with TransDigm will begin at 10 a.m. in room 2154 of the Rayburn House Office Building.
Click here to read the memo.