Scott Mikus: Hi. Scott Mikus on for Rob Spingarn. Kevin, I wanted to ask you, in the past, you’ve talked about TransDigm not eating inflation. I know you have caps and swaps in place, but does the rising cost of capital also factor into your pricing strategy? What I’m trying to get at is are you going to pass on higher intense to your customers via price. So you can still convert free cash at 50% of EBITDA?
Kevin Stein: That’s not the way we look at it. So it doesn’t factor in. It is part of costs and inflationary pressures in general – the way we analyze pricing and inflationary measures.
Scott Mikus: Okay. And then I also wanted to ask, are your operating units, noticing any meaningful uptick in their parts being PM8 at all?
Mike Lisman: No, no. I mean we’re always actively monitoring that and looking for threats there. No meaningful uptick from prior levels of kind of low activity. I think we put a slide on this in the June investor deck that we put out, you might find helpful, but no, no meaningful uptick.
Scott Mikus: Got it. Thank you.
Operator: Our next question comes from the line of Noah Poponak with Goldman Sachs.
Noah Poponak: Hey. Got it. I wanted to get your perspective on the MAX original equipment ramp because you guys have been pretty clear eyed on the overall OE ramp. And it felt like you had gone from kind of skeptical to cautiously optimistic in the middle of the year. And then now the industry has faced the situation where some other supply chain issues have held up MAX deliveries. And so I’m curious on your perspective, did the underlying total supply chain keep moving along to the medium-term Boeing master schedule there? Or are the recent supply chain issues going to hold that ramp back by some meaningful period of time more than a handful of months?
Kevin Stein: I think we can only comment on what we see. I don’t know about the larger supply chain. And Mike, Joel can jump in. But I think that the ramp has been slow enough that I don’t know if the larger supply chain will be hampered as it tries to continue to ramp up. But that is, of course, assuming that the various quality issues and other things that have hampered delivery get resolved.
Mike Lisman: Yes. I think that’s right. And we obviously see Boeing’s target to, I think, get the MAX rate back towards 38 or so. We’re ready to support them. If they can get there across all our op units, we hope it happens. It’s obviously in our interest to see them and the rest of the supply chain fully recover and get out past this. We don’t necessarily count on when we pull our forecast together for the year, though, hitting those targets, which, again, still see maybe a bit aspirational to us on the year.
Kevin Stein: And I think that’s a good word aspirational.
Noah Poponak: Okay. Appreciate it. Thank you.
Kevin Stein: Thanks.
Operator: Our next question comes from the line of Scott Deuschle with Deutsche Bank.
Kevin Stein: Are you here?
Scott Deuschle: Yes. I’m here. Sorry about that guys. Good afternoon. Sarah, just on the $692 million contract at Armtec One, are you able to offer any detail on how much that might contribute to defense growth in 2024? It seems like potentially a lot, but be curious if you could put a finer point on that, if possible? Thanks.
Mike Lisman: Hi, guys. It’s Mike. I’ll take that one. It’s a bit off unit related. Given the ramp on that program, it’s one of the biggest awards in TransDigm’s history obviously. But given the expected ramp rate, we’ve got a – we’ll go – we’ll actually under that contract go to a third shift at the facility, build up some new capacity, including a new building to support the government on the important 155-millimeter program. That’s gotten a lot of attention. We provide with this contract, obviously, one of the critical parts that goes into supporting it. Government is a super important customer for us. On the year, given the way the production ramp ramps up. A lot of the focus out of the gate will be on getting the capacity where it needs to be with the expansion.
And the revenue upside is not hugely significant. It’s more of an FY2025 into FY2026 kind of matter. If we get things going a little bit earlier and ahead of schedule, could be a bit of upside in FY2024. We didn’t count on that as we pulled together the forecast for the year, though. And I think as you guys know, we aim to be a bit conservative with the guidance we give.
Scott Deuschle: Okay. Great. And that CapEx is funded by the government on this project, right?
Mike Lisman: It is.
Scott Deuschle: Got it. And then last question, Mike – for Mike as well. Are you seeing much aftermarket parts demand on newer platforms like 787 and A220 yet? Or is that still yet to come as these fleets age? Thanks.
Mike Lisman: I think we’re seeing about historically what we’ve seen, and we’re sort of market weighted on the aftermarket side based on takeoffs and landings by platform. We’re seeing about what we’d expect to see at the platform level. No big deviations by op unit or deviations versus the takeoffs and landings that you’re seeing across the fleet.
Scott Deuschle: All right. Thanks guys.
Operator: Our next question comes from the line of Seth Seifman with JPMorgan.
Seth Seifman: Hey. Good morning everyone.
Sarah Wynne: Good morning.
Seth Seifman: So one quick question about the margin. I think when you guys initially acquired Calspan. The expectation was that, that would be about – on an annualized basis, that would be about 100 basis points of margin pressure. And then in 2024, for a partial year, it seems like it’s still about 100 basis points of margin pressure, but it sounds like things are going at least according to plan, if not better. And so is there anything else that’s changed with regard to Calspan’s expectations? Or maybe is there just some conservatism embedded in that guidance?
