Introducing the Entrepreneur Who Amassed Wealth by Overpricing, Even to Government Agencies

introducing-the-entrepreneur-who-amassed-wealth-by-overpricing-even-to-government-agencies

In January 2022, senators questioned TransDigm Group in a congressional hearing on what they claimed was price-gouging in military contracting. Co-founder, board chair, and former CEO of the firm, Nicholas Howley, had few responses.

Did your business deny the military access to price information? Howley gave an “I don’t know” response. Was Howley aware that his CEO salary was more than the combined salaries of the CEOs of Raytheon, Boeing, and Lockheed Martin?

“I’m not sure,” Rep. Katie Porter (D-Calif.) was enraged by Howley’s 17 instances of “I don’t know” responses. She instructed Howley, referring to his 2020 salary, “For $68 million a year, you need to know what’s going on in your company.”

Porter and the rest of the group were unaware that Howley had fared considerably better.

Forbes estimates that Howley has accumulated a wealth of $1.1 billion since TransDigm went public in 2006. That’s based on his disclosures of the sale of TransDigm stock and publicly disclosed CEO pay before he resigned to become board chair in 2018.

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Wealth-Building Journey

TransDigm is seen as an example of corporate avarice by detractors. Its strategy is to acquire businesses that are the sole producers of certain aviation parts and raise costs for consumers who have no other options. 

Reviews conducted by the Pentagon’s inspector general in 2019 and 2021 revealed that TransDigm boosted pricing on 44 of 46 goods as soon as it acquired a firm, reaping profit margins as high as 4,436% beyond the 15% that investigators judged appropriate. 

All of it was legal. However, one former worker called the firm a “cancer,” while another told Forbes that TransDigm is the “Satan of aircraft parts.”

But investors have found TransDigm’s business strategy to be brilliant. According to FactSet statistics, the Cleveland-based firm has seen a total return (stock price growth plus dividends) of 29% per year since its initial public offering, with sales expected to increase by almost 10 times to $5.6 billion in fiscal 2022. 

With around a third more profit than the next-closest competitor component manufacturer, HEICO, the total return tops all U.S.-listed aerospace and military firms throughout that time period by a significant margin.

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Source: forbes

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