管理層發言
Good day, and thank you for standing by. Welcome to the TransDigm Group Third Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Mary Hartman, Director of Investor Relations. Please go ahead.
Thank you, and welcome to TransDigm's Fiscal 2026 Third Quarter Earnings Conference Call. Presenting on the call this morning are TransDigm's President and Chief Executive Officer, Mike Lisman; Co-Chief Operating Officer, Patrick Murphy; and Chief Financial Officer, Sarah Wynne. Also present for the call today is our Co-Chief Operating Officer, Joel Reiss. Please visit our website at transdigm.com to obtain a supplemental slide deck and call replay information. Before we begin, the company would like to remind you that statements made during this call, which are not historical in fact, are forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the company's latest filings with the SEC available through the Investors section of our website or at sec.gov. The company would also like to advise you that during the course of the call, we will be referring to EBITDA, specifically EBITDA As Defined, adjusted net income and adjusted earnings per share, all of which are non-GAAP financial measures. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliations. I will now turn the call over to Mike.
Good morning, and thanks for calling in today. First, I'll start off with the usual quick overview of our strategy; second, make a few comments about the quarter; and third, discuss our fiscal '26 outlook. Then Patrick and Sarah will give some additional color on the quarter. To reiterate, we believe we are unique in the industry in both the consistency of our strategy in both good times and bad as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle. To summarize, here are some of the reasons why we believe this. About 90% of our net sales are generated by unique proprietary products. Most of our EBITDA comes from aftermarket revenues, which generally have significantly higher margins and over any extended period have typically provided relative stability in the downturns. We follow a consistent long-term strategy. First, we own and operate proprietary aerospace businesses with significant aftermarket content.
Second, we utilize a simple, well-proven, value-based operating methodology. Third, we have a decentralized organizational structure and unique compensation system closely aligned with our shareholders. Fourth, we acquire businesses that fit this strategy and where we see a clear path to private equity-like returns. And lastly, our capital structure and allocation are a key part of our value creation methodology. Our long-standing goal is to give our shareholders private equity-like returns with the liquidity of a public market. To do this, we stay focused on both the details of value creation as well as careful allocation of our capital. As you saw from our earnings release, we delivered another solid quarter with Q3 results exceeding expectations. As a result, we are raising guidance for the year. During the quarter, we saw healthy growth in revenue, both sequentially and compared to the prior year in all 3 of our market channels: commercial OEM, commercial aftermarket, and defense.
In commercial aftermarket, we delivered a strong performance in Q3 with the commercial transport component of our commercial aftermarket growing 18% versus the prior year period. Further, given the strong performance seen to date as well as our current expectations for Q4, we raised our commercial aftermarket guidance for the year. Note that we are seeing this healthy growth despite the overall decline in RPMs arising from the conflict in the Middle East from which we have yet to see any material impact. In the commercial OEM market, sales have increased well into the double digits as production rates at Boeing and Airbus have continued to steadily rise over the past few quarters. And lastly, our defense end market saw a double-digit revenue increase this quarter and continues to build backlog that will drive growth as we finish fiscal 2026 and head into our fiscal 2027. Our EBITDA As Defined margin was 52.8% in the quarter, which includes more than full 2 percentage points of dilution from recent acquisitions.
This is an improvement sequentially from Q2 with higher volumes and strong performance across all market channels. The sequential margin improvement is in spite of margin headwind of about 0.5 percentage point in the quarter related to the newly acquired Jet Parts and Victor Sierra operating units. Our acquisitions continue to contribute meaningfully as well and over time, should see an expansion in their respective operating margins. Additionally, we had strong operating cash flow generation in Q3 of over $700 million and ended the quarter with nearly $2.8 billion in cash. Before I get into our usual capital allocation update, I would like to quickly provide some additional color on our withdrawal from the acquisition of Stellant in mid-July. This was a difficult decision that came after the Department of Justice notified us that they intended to challenge the transaction. While we respectfully disagreed with the DOJ's decision on the matter, ultimately, the complications and hurdles that would have arisen from continuing with the acquisition through litigation, coupled with the timeline constraints in the stock purchase agreement contributed to our decision to withdraw and pursue other targets.
At the end of the day, we will always be practical and prioritize the best long-term use of our shareholders' capital and our management resources. We felt we did that here. And the outcome, though disappointing, won't impact our future M&A approach. We are always actively working away on new targets. Next, an update on our capital allocation activities and priorities. Regarding the current M&A activities in the pipeline, we continue to actively look for opportunities that fit our model. As usual, the potential targets are mostly in the small and midsize range. As always, we'll remain disciplined around our approach to M&A. Additionally, acquisitions are, by their nature, hard to predict. So consistent with past practice, I will not be saying too much on what is currently active in our funnel. Last week, we announced that we agreed to acquire Prince & Izant from Industrial Growth Partners for approximately $1.1 billion in cash.
Prince & Izant is a leading global designer and manufacturer of highly engineered brazing alloys and specialty medical components used across a range of advanced performance and high cost of failure applications. The company primarily supports the aerospace and defense, aeroderivative turbine, and transportation end markets. It is expected to generate approximately $360 million of revenue for the 2026 calendar year. We've tracked this Cleveland-based company for some time now, and Prince & Izant's highly engineered solutions and excellent customer service align well with TransDigm's acquisition strategy. We look forward to getting the transaction closed and welcoming the company into the fold. The capital allocation priorities at TransDigm are unchanged. Our first priority is to reinvest in our businesses; second, do accretive disciplined M&A; and third, return capital to our shareholders via buybacks or dividends.
A fourth option, paying down debt, seems unlikely at this time, though we do still take this into consideration. We are continually evaluating all of our capital allocation options. As we sit here today, we have significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future. Specifically, we have substantial M&A firepower and capacity remaining, in excess of $10 billion. Moving to our outlook for fiscal 2026. As noted in our earnings release, our business outlook has continued to strengthen. We're increasing our full fiscal year '26 sales and EBITDA As Defined guidance to reflect another solid quarter of results and our current expectations for the remainder of the year. At the midpoint, sales guidance was raised $150 million and EBITDA As Defined guidance was raised $100 million. Current guidance for fiscal 2026 is as follows and can be also found on Slide 6 in the presentation.
The midpoint of our fiscal '26 revenue guidance is now $10.51 billion or up approximately 19% over the prior year. With regard to the market channel growth rate assumptions in this revenue guidance, the full year market channel assumptions for our 3 primary end markets are also being increased to account for our results to date and expectations for the final quarter. The updated revenue guidance provided today is based on the following market channel growth rate assumptions. We expect commercial OEM growth in the mid-teens percentage range. We expect commercial aftermarket revenue growth to be in the low-double-digit percentage range, and we expect defense revenue growth in the high-single-digit to low-double-digit percentage range. The midpoint of fiscal 2026 EBITDA As Defined guidance is now $5.52 billion or up approximately 16% versus the prior year, with an expected margin of around 52.5%.
We're very pleased with our margin performance in the year-to-date period and continue to perform ahead of our expectations. As discussed in prior quarters, the guidance includes more than 2 full percentage points of margin dilution related to recent acquisitions compared to the prior fiscal year quarter. The midpoint of adjusted EPS is now expected to be $41.04. We believe we're well positioned for the last quarter of fiscal 2026. We'll continue to closely watch how the aerospace and capital markets develop and react accordingly. Lastly, I'd like to reiterate how pleased we are with the company's performance this quarter. Our teams remain focused on our value drivers, cost structure and operational excellence. We will continue to control what we can control and expect that our disciplined, consistent strategy will deliver the value you have come to expect from us. With that, I will now hand it over to Patrick Murphy, TransDigm's Co-Chief Operating Officer, to review our recent performance and a few other items.
Good morning, everyone. I'll start with our typical review of results by key market category. For the remainder of the call, I'll provide commentary on a pro forma basis compared to the prior year period in 2025. That is assuming we own the same mix of businesses in both periods. For reference, the market discussion includes the acquisition of Simmonds Precision Products, but excludes Jet Parts Engineering and Victor Sierra Aviation acquisitions. The purpose of excluding these newly acquired businesses is for two reasons. First, we are still working through the integration and aligning their data into our reporting structure. Second, we want to highlight the strong aftermarket performance of our base business. Beginning with the fiscal 2027 guidance, Jet Parts and Victor Sierra will be included in pro forma reporting. In the commercial market, we will split our discussion into OEM and aftermarket.
Our total commercial OEM revenue increased approximately 17% in Q3 compared with the prior year period. As we anticipated, commercial OEM added another quarter of strong revenue growth. Commercial transport OEM revenues, which excludes the bizjet submarket, were up 25% over the comparable prior period. This is primarily driven by the production improvements at Boeing and Airbus, and our teams are well positioned to support the increasing build rates. As Boeing and Airbus production rates continue to climb, we anticipate continued strength in the commercial OEM market. Commercial OEM bookings posted another quarter of solid growth compared to the same prior year period, significantly outpacing sales. Commercial transport bookings had double-digit growth for the third quarter, which represents another quarter of consistent growth for the commercial OEM market. As you know, commercial OEM bookings is an important leading indicator for our commercial OEM business, and we are pleased that our book-to-bill rate remains solidly positive in Q3.
Today's commercial OEM guidance assumes that the OEMs maintain their rates for the remainder of our 2026 fiscal year. The commercial OEM guidance we are giving today contains what we believe is an appropriate level of risk around the production build rate for the 2026 fiscal year. Fiscal '26 commercial OEM revenue guidance range, as Mike mentioned, is increasing to the mid-teens percentage growth range based on the performance to date and current outlook for the remainder of our fiscal year. Now moving on into our commercial aftermarket business discussion. Total commercial aftermarket revenue increased by approximately 17% compared to the prior year period. As a reminder, this excludes our newly acquired Jet Parts Engineering and Victor Sierra Aviation businesses. This quarter, nearly all submarkets delivered strong performances in the quarter. Our commercial transport aftermarket revenue growth, which excludes our bizjet submarket, was up 18%, driven by solid growth in the transport submarkets of engine, passenger, and interiors, while freight was roughly flat for the quarter.
Q3 bookings in commercial aftermarket delivered ahead of our expectations for the third quarter in a row. Bookings continue to support the full year growth outlook, and we are well positioned to execute our fourth quarter. Additionally, POS at our distributors also grew double digits on a percentage basis this quarter. As Mike already mentioned, we are raising our commercial aftermarket revenue growth guidance from high-single-digit to low-double-digit range up to the low-double-digit range based on our strong performance through Q3 as well as our current backlog and outlook for the remainder of the year. I also wanted to comment briefly on the conflict in the Middle East. While jet fuel prices have risen from pre-conflict levels and select airlines have adjusted capacity in the short term, we have not yet seen any meaningful slowdowns in our commercial aftermarket. We continue to monitor the situation in close partnership with our customers, and we'll take all appropriate actions if something changes.
Now shifting to our defense market. Defense market revenue, which includes both OEM and aftermarket revenues, grew by approximately 11% compared with the prior year period. Over the past year, we have seen strong growth in the defense market, driven by a combination of new business wins and excellent operational execution from our teams. This positions us well for continued growth in the defense market. Q3 defense revenue growth was well distributed across our businesses and customer base. Both OEM and aftermarket components in our defense market were up versus the prior year with aftermarket running slightly ahead of OEM. Defense bookings for the quarter increased nicely, up both year-over-year and sequentially and outpacing sales for the period. Our strong bookings this year support our guidance of high-single digits to low-double digits. As we have said many times before, defense sales and bookings can be lumpy, especially quarter-to-quarter.
But the current environment remains positive for defense spending and the global defense outlook continues to indicate this end market will remain solid heading into next year. Moving on to our value drivers. I wanted to touch on a few new business wins that the teams have secured in the last quarter, specifically driven by highly engineered innovative technical solutions. Adams Rite Aerospace was recently awarded a major line fit position with a leading airframer for its complete touch-free lavatory product suite. The award covers the full portfolio, including a touchless faucet, touchless flush switch, and touchless waste bin door. These products incorporate next-generation sensors and robust aircraft-specific designs engineered to withstand the demanding high-use environment of modern aircraft lavatories. The Avionics Instruments team was engaged by a major supplier of fighter aircraft to develop a new battery for a critical aircraft system when the previous supplier was unable to sustain the program.
The battery powers main aircraft operations during ignition and flight, enabling the platform to carry out diverse and complex missions. Our team took the program from design through qualification and into production in under two years, giving the customer a qualified production-ready replacement that kept the warfighter mission ready. Our Electromech business developed a precision electromechanical actuator engineered to control landing gear deployment and retraction on a new unmanned combat aircraft. Compact mission-critical design combines high load capability, precise motion control, reliable performance in demanding flight environments. Canyon AeroConnect developed a new audio indicator capability for its AMU50 Digital Audio Control System, DACS, to meet the new U.S. Forest Service aircraft requirement, enhancing pilot situational awareness by providing a visual indication of incoming radio transmissions regardless of audio volume or mute status.
These innovation-driven new product wins will deliver substantial new business revenue over the next three years from prototype and LRIP orders as the teams work toward full production. Now a quick update on our acquisition integration activities. Simmonds Precision, which was acquired at the beginning of our fiscal year, continues to progress nicely and run ahead of our expectations. Jet Parts and Victor Sierra acquisitions closed early in the third quarter and are also progressing beyond our expectations. We have EVPs assigned to each of the operating units and are very pleased with the team's progress to date. Still early in our ownership, but these businesses are a good complement to our existing portfolio, and we are excited that they are a part of TransDigm. I would like to wrap up by recognizing the strong contributions of our operating units during this third quarter of fiscal '26.
Our management team stayed focused on our consistent operating strategy, executing our value drivers, working hard to satisfy our customers' growing demand. We are truly pleased with the impressive results our teams delivered for our shareholders this quarter. With that, I'd like to turn it over to our Chief Financial Officer, Sarah Wynne.
Thanks, Patrick, and good morning, everyone. I'll recap the financial highlights for the third quarter and then provide some more information on the guidance. First, on organic growth and liquidity. In the third quarter, our organic growth rate was approximately 13%, and all market channels contributed to this growth as previously discussed by Mike and Patrick. On cash and liquidity, free cash flow, which we traditionally define as EBITDA less cash interest payments, CapEx, cash taxes, was approximately $870 million for the quarter, coming in at $2.1 billion on a year-to-date basis. For the full fiscal year now, we expect our free cash flow guidance to be closer to $2.6 billion, an increase from the prior guide of $2.5 billion. Below that free cash flow line, net working capital consumed approximately $160 million of cash in the quarter. For the full year, we expect working capital to end roughly in line with historical levels as a percentage of sales.
We ended the quarter with a cash balance of $2.8 billion, and our net debt-to-EBITDA ratio ended the quarter just slightly up from the prior quarter at 5.8x. This cash balance, together with our available debt capacity, gives us ample liquidity to fund the pending Prince & Izant acquisition. More broadly, our strategy is to operate in the 5 to 7 net debt-to-EBITDA ratio range, which preserves capacity for additional acquisitions and other capital deployment as opportunities arise. Regarding our debt, our capital allocation strategy is to both proactively and prudently manage our debt maturity stack by keeping near-term maturities well extended. In addition, approximately 75% of our $33.7 billion gross debt balance is fixed through fiscal 2029. This is achieved through a combination of fixed rate notes, interest rate swaps, caps and collars. This provides meaningful cushion against any near-term rate movements.
Our EBITDA to interest expense coverage ratio ended the quarter at 3x, which provides us with comfortable cushion versus our target range of 2 to 3. During the quarter, we continued to apply the same targeted return criteria we have consistently applied over the years, and that led us to opportunistically deploy about $980 million of capital via open market repurchases of our common stock. This equates to approximately 800,000 shares at an average purchase price of approximately $1,208 per share. Including our first and second quarter repurchase activity, year-to-date repurchases now total $1.8 billion. We expect these repurchases to meet or exceed our long-term return objectives. We continue to seek the best opportunities for providing value to our shareholders through our capital allocation strategy. We think we remain in a strong position to do that with adequate flexibility to continue to pursue M&A opportunities or return cash to our shareholders via share buybacks and/or additional dividends. With that, I'll hand it back to Mary Hartman, our Director of Investor Relations.
Before we open the line for Q&A, I'd ask everyone in the queue to consider your fellow analysts and ask one question only, so we can get to as many people as possible. Operator, can you please open the line?
分析師問答
Our first question comes from Robert Stallard with Vertical Research.
Mike, this might be a question for you. There's been some legislation moving through the Congress on this whole right to repair issue on the defense side. Do you think this could have any implications for TransDigm down the line?
Rob, I'll take that. The proposed bill is still evolving. So we don't want to presume or comment until it becomes final. Obviously, this will impact a broad base of companies, platforms and products. But right now, we're not in a position to really comment on something that hasn't become law.
Our next question comes from Ken Herbert with RBC Capital Markets.
I just wanted to ask, yes Mike, maybe on Stellant, did that DOJ review have any impact on your desire for incremental defense M&A? And could you provide a little more detail on what you're seeing in terms of the M&A pipeline today around the end market exposures?
Yes, Ken, this came via the HSR process in the U.S. and a couple of things. First, we think it's a one-off, not in any way indicative of our ability to get future deals through. In fact, the Jet Parts and Victor Sierra transactions, both of which closed successfully, those approvals were actually filed after the Stellant one was filed and submitted. And I would note that out of roughly 100 acquisitions in our history, this is the third one that didn't cross the finish line for these kinds of reasons. It just happens from time to time. We were working with the regulatory authority that took a slightly different view on the nature and sensitivity of the overlap, and it's always hard how the market gets defined. Different parties can take different views on that, and we were unfortunately not able to come to agreement on this one. With regard to how it affects future strategy, it doesn't on the M&A front. We're seeing a lot of activity presently across both commercial and defense markets in aerospace. Our M&A team remains very busy looking through a current list of targets.
Our next question comes from Gavin Parsons with UBS.
Guys, usually, your aftermarket activity lags flight activity by maybe a couple of quarters. So it sounds like you have good visibility for this quarter, but thoughts on why the strength and why the disconnect relative to flight activity, and whether that will catch up to you?
It's probably one of those things where you're right. Our backlog and leading indicators put us in a good position to deliver the current quarter and fiscal year. It's tough to say what that will mean in the future; one quarter is really hard for us to predict three or four quarters out at this point in time. We can only control what we control. Our aftermarket typically books and ships about 50% or so in the same quarter, and that's what we've got the most visibility to at this time.
I'll just add, Gavin, as Patrick said, we're not seeing any material impact on our business from what's going on in the Middle East and some of the changes in RPM and takeoffs and landing rates yet.
Our next question comes from Sheila Kahyaoglu with Jefferies.
Maybe just a follow-up on the last question. Can you talk about commercial aftermarket in the quarter, up 17% versus the 14% in Q2. Can you parse out the drivers of that across engines? You mentioned freight is flat. How are interiors and airframe work? If you could discuss the moving pieces there.
In general, we're seeing broad-based demand across our platforms and customers. We are seeing more strength in engine and passenger, which represent a larger part of our aftermarket. We're also seeing good strength in interiors. Q3 was a little lighter in interiors than earlier quarters, but overall performance was good across all submarkets.
Our next question comes from Kristine Liwag with Morgan Stanley.
Mike, the stock's valuation seems relatively range bound for some time. The concern has been that with TransDigm's size, it might be increasingly difficult to find aerospace acquisitions that are large enough to move the needle. You've announced a few of these, but the stock is still not moving. Historically, the market awarded TransDigm a premium multiple because of the focus on aerospace and defense. Given this perceived ceiling, what is your appetite for potentially broadening out the targets into other industrial markets that meet your criteria of proprietary products with strong aftermarket? For example, companies like Amphenol trade at higher multiples and have applied similar playbooks in larger addressable markets outside aerospace and defense.
Happy to take that. At this time, we remain primarily focused on the aerospace and defense sector. That is roughly 95% of our current revenue. It is what we do and the sectors we know. Year-to-date, once Prince & Izant gets closed, we've done well north of $3 billion of acquisitions of companies that primarily serve our core aerospace and defense end market. That's where the M&A team is currently spending the bulk of their time. Could we potentially consider other sectors in the future? It's always possible, but as we sit here today, the focus remains on aerospace and defense, and that's where the majority of our activity is. We're excited about Jet Parts and Victor Sierra and look forward to closing Prince & Izant. We still see good opportunities in our core fairway of aerospace and defense, and that's where our focus will remain.
Our next question comes from David Strauss with Wells Fargo.
Could you talk on the margin performance year-to-date and what you're expecting in Q4? I know you've discussed about 200 basis points of dilution from deals and then a headwind from ROE-related growth, but it looks like you're going to come in more like 140 to 150 basis points down year-over-year, so a lot less than what's implied by those moving pieces. Could you touch on the performance year-to-date and Q4, since it looks like you're implying a little bit down relative to Q3?
I'll take the latter part of your question. We're glad to increase our guidance. EBITDA As Defined margin is approximately 52.5%, an increase of around 20 basis points versus prior guidance. Q3 came in strong at 52.8%. That does imply a drop for Q4, and we have been conservative on Q4 given we only have a short period of ownership of Jet Parts and Victor Sierra. We expect to be disciplined and conservative in our Q4 assumptions. Year-over-year dilution reflects the acquisitions we completed, including a full year of Simmonds and partial-year effects from Jet Parts and Victor Sierra. I'll let Mike add any additional market color.
David, we did see dilution because of the acquisitions we completed, which weighed on margins by more than 2 full percentage points. We're in the early innings of owning those businesses, so we don't want to be overly aggressive in our Q4 margin assumptions. We don't believe our guidance for Q4 is overly aggressive; we'll always try to outperform, and we think outperformance is possible.
Our next question comes from Myles Walton with Wolfe Research.
I was hoping you could touch on Jet Parts and Victor Sierra. I know you mentioned they weren't in the pro forma breakdown by end market, but I thought they were commercial aftermarket. Could you comment on what you saw in the nearly full quarter of ownership relative to your 17% commercial market growth?
We're early in owning these businesses. As Patrick noted, the intent in our earlier comments was to show the strong commercial aftermarket performance of our base businesses. Whether Jet Parts or Victor Sierra were included in that pro forma doesn't materially change the percentage growth we saw; all businesses are performing well. Jet Parts and Victor Sierra are growing a bit ahead of the broader aerospace and defense components landscape. We're happy to own them and participate in that growth. So far, their initial performance in our ownership has been good.
Our next question comes from Scott Mikus with Melius Research.
Mike, Prince & Izant provides brazing alloys that are often nickel or cobalt based and used in engines. Given the advanced materials, is it fair to assume Prince & Izant has significantly higher content on the 737 MAX and A320neo relative to predecessor programs, given they were reengined?
We have not specifically disclosed platform-level content for recent acquisitions. Prince & Izant is a good business that primarily serves our markets with highly engineered, customized chemistries and formulations. It is mostly aftermarket, serving a large installed base, and has content in aerospace engine platforms, including applications like fuel nozzles and rocket engines. It's a good fit for TransDigm, and we're excited to own it.
Our next question comes from Gautam Khanna with TD Securities.
You've done some buybacks year-to-date. How do you prioritize special dividends? How likely are we to see one given the M&A pipeline? This is around the time one might be announced if there is to be one. What's your view on buybacks versus dividends in the absence of M&A?
We continue to assess both buybacks and dividends. Buybacks must meet our IRR criteria, and that drives our repurchase decisions. On dividends, we are currently around the midpoint of our net debt-to-EBITDA target range of 5 to 7, so we will evaluate what makes the most sense as we close out the fiscal and calendar years. Our goal is to maximize shareholder value in making those decisions.
Our next question comes from Seth Seifman with JPMorgan.
I wanted to follow up on one of the margin questions. Coming into this year, you talked about dilution not just from M&A but also from mix. It seems aftermarket has been stronger than expected. As we go forward, how do you think about mix as a component of margin? Last quarter you expected 100 to 150 basis points of organic expansion almost regardless of mix. Can you update on thoughts about mix and margin effect?
On a constant mix basis, our target is unchanged. We expect to drive margin improvement on a constant mix basis of around one percentage point or slightly better, perhaps up to 1.5 percentage points. That remains our expectation. Mix shifts can produce a small headwind, typically a couple of tenths of a point, but nothing material based on what we've seen year-to-date. Both commercial OEM and aftermarket have grown, with OEM a bit stronger, so any mix headwind has been slight. We expect to continue driving steady margin improvement in our base business.
Our next question comes from Ronald Epstein with Bank of America.
This is Alex Preston on for Ron this morning. On commercial OEM, you explained the assumptions behind the '26 guide, but could you comment on your view for OEM ramps into 4Q and fiscal '27? More broadly, can you update us on supply chain conditions — are they still easing as in prior quarters or are there lingering issues?
We are encouraged by the growth we're seeing from Airbus and Boeing as they ramp production; that has been a meaningful boost this year. Bookings remain a good leading indicator. As we look into 2027, we expect Boeing and Airbus to continue along their communicated paths, and our businesses are positioned to support them. The supply chain overall is reasonably solid, but we continue to monitor it closely. Our suppliers have performed well enough to keep us in a good position to support Boeing and Airbus.
Our next question comes from Scott Deuschle with Deutsche Bank.
Mike or Patrick, to follow up on Rob's earlier question: can you give a sense as to how many SKUs the defense business sells and the average volume on those SKUs? Is this a 1,000 SKU business where third-party repairs could have a big impact, or is it more like a 50,000 SKU business where it's harder for third-party repairs to impact growth?
The legislation is still evolving, so we're hesitant to speculate on final effects. Broadly speaking, our defense business comprises numerous SKUs — think tens of thousands to hundreds of thousands, not just thousands. Many parts derive from commercial technologies, and we provide products to defense customers globally. As the legislative picture becomes clearer, we'll be better positioned to discuss potential impacts in more detail on future calls.
That concludes today's question-and-answer session. I'd like to turn the call back to Mary Hartman for closing remarks.
Thank you all for joining us today. This concludes the call. We appreciate your time, and have a good rest of your day.
Thank you for participating. You may now disconnect.