Kristine Liwag: Great. And if I could add one on defense. I mean the pricing model regarding defense had been under the microscope with a series of IG investigations over the past 15 years. But I think with the strength in margin, what’s been underestimated is the operating strength of TransDigm. So looking at the businesses that you’ve acquired in defense, how much more margin expansion is there on production efficiencies? And as the employee TransDigm best practices in manufacturing, is this something that you could see a few 100 basis points in margin expansion?
Mike Lisman: Across all our businesses, we target – if we continue to execute our playbook on cost reductions, getting a little bit of real price every year and growing new business, we target sort of close to a percentage point of EBITDA margin improvement per year. That’s true across all parts of our businesses. Most of them have a little bit of defense, and we look to drive that kind of performance there as well. I see no reason that would change going forward. And that’s through a mix of, obviously, the whole playbook, all three value drivers. New business stuff driving productivity and getting costs out and then also a little bit of real price ahead of inflation.
Kristine Liwag: Great. Thank you.
Operator: Our next question will come from the line of Gavin Parsons with UBS.
Gavin Parsons: Hey. Thanks very much. Good morning.
Sarah Wynne: Good morning.
Gavin Parsons: 20% growth on OE organically, I think, implies you’re back above pre-COVID levels in 2024. And I assume a decent amount of that is business jet, but just wanted to ask kind of where you are on transport? And where you think the build rates go in the year?
Mike Lisman: I think that’s about right, maybe a little bit below. I think the past OEM peak, if you went all the way back to [indiscernible] before the 73 MAX issue happened, then obviously that sort of makes 2019 the not the best comp point. So I think you need to go back to 2018. And I think on the OEM side with Boeing and Airbus, we’re actually quite a bit below. I don’t have the exact stats in front of me, but we’ve looked at them recently. And I think we are down. Biz Jet, so that’s the commercial transport side down a bit. Biz Jet, obviously, we’re back. I think you guys read the next – all the same headlines we do in terms of book-to-bills across the big Biz Jet OEMs. And those guys are doing quite well and volumes – production volumes are up quite a bit.
The transport side, narrow-bodies are up and doing well, and the widebodies are still quite a bit down. I think if you go and look at widebody forecasts, it’s hard to find and you look at your guys’ estimates. It’s hard to find as well as others. Hard to find someone who’s projecting widebody production volume that gets back to the prior peak in the projected period. And some of you guys go all the way out to 2028, 2029, 2030, there’s just been a shift to the airlines for more narrow body. So it seems that’s where the backlog has become more heavily weighted and therefore, where the production will be.
Gavin Parsons: Got it. And obviously, we can see kind of overall inflation trends, but maybe it seems like there’s some pressure on wages in the aerospace and defense industry. Do you guys feel like your past kind of peak inflation on the cost side?
Mike Lisman: Hard to say. We’re not macroeconomic forecasters, and I don’t think anybody inside your respective shops who do the macroeconomic forecasting, saw this one coming. We look at past periods where inflation has spiked to the current kind of levels of that. And if you go back 80 years, usually, it goes up to this kind of level, and it’s a four, five-year phenomenon. So we don’t count on it necessarily coming down, hope for the best, but certainly planned for the worst. That’s the way we pulled together the plan for this year. And if it goes down, we’ll be – good to see that, obviously, but we certainly don’t count on it. In terms of inflation pressures on our business, I think we mentioned on a couple of prior earnings calls when this question was asked, what are we seeing on materials and labor and that kind of stuff, and it’s been sort of in a 5-ish percent area, maybe a little bit higher.
And I would say that dynamic doesn’t seem to have changed very much in the past few months. I know the CPI readings have come down that they publish here in the U.S. Europe is still high. We haven’t seen any kind of coming off of the prior levels really across our business.
Gavin Parsons: Got it. Thanks guys.
Operator: Our next question will come from the line of Pete Osterland with Truist Securities.
Peter Osterland: Hey. Good morning. I’m on for Mike Ciarmoli this morning. Thanks for taking our questions.
Kevin Stein: Good morning.
Peter Osterland: Just wanted to parse out what’s driving your growth expectations in fiscal 2024 in the defense market. So just maybe any color on how that growth could be impacted by the budget environment? And then anything you can give us on pricing dynamics with the DoD and your expectations there?
Mike Lisman: Yes. When we pull together the guidance, obviously, we think about and take into consideration things like continuing resolutions or some potential shutdown for a short period of time. All that stuff mainly generates for us a little bit of timing impact. The demand eventually comes just given the state of the world now, we did think about that a little bit that we pulled together the guidance and made sure that we have some leeway there. So it’s sort of incorporated into what you guys are providing today. And then on the pricing side, I think we continue to target kind of the same pricing dynamic we described, which is a little bit of pricing, real pricing ahead of inflation and no major change there.
Peter Osterland: Right. Thanks. And then as a follow-up, just maybe an update on labor market conditions you’re seeing productivity or attrition still a significant headwind. Just given your strong margin performance, it seems like maybe it hasn’t been significant, but just wondering if there’s potential for additional upside there if labor-related headwinds are something you’re experiencing?
Mike Lisman: Yes. We haven’t seen a ton of significant headwinds. We’ve gone – I think you guys know a small percentage of our overall workforce is unionized. We’ve had several successful negotiations around wages when the renewals came up during the past 12 or 18 months in this high inflation environment with no issues, and our op unit teams have worked through it quite well, but no major issues.
Joel Reiss: This is Joel. I’ll just add. I mean we’ve spent the last few years really working on automation projects and working to improve the – our processes within our factories to make us less susceptible to that.
Peter Osterland: Great. Thanks a lot.
Operator: Our next question comes from the line of Scott Deuschle with Deutsche Bank. Scott, your line is now open. Our next question will come from the line of Robert Spingarn with Melius Research.
