As I said in the beginning, the only thing I know for sure is we'll be wrong, and we'll have to adjust one way or the other over the next six months. Okay. As mentioned, we currently expect COVID-19 to have a significant adverse impact on our sales, EBITDA As Defined and net income for the second half of fiscal 2020, under the assumption that the COVID-19 outbreak will negatively impact our nondefense customers and their demand for our products and services during the second half of fiscal 2020, particularly in the commercial aftermarket. But is one of those two maybe a little bit of a deeper moat through down cycles and, over the long term, if you were to sort of lean toward one or the others having a little bit more sort of durability or moat depth, which one would you lean toward? But anyway, I think you got the side. But since we think of ourselves as market-weighted, we're not as concerned right now. So I don't know what amount they have, generally speaking, and their different products or buckets that they buy from us. Our EBITDA As Defined Margin expanded both sequentially and over the prior year period as a result of our cost mitigation efforts and a consistent focus on our operating strategy. How are you thinking about just the OE piece of sizing for the longer term? As far as Esterline performance goes, much like first quarter, Esterline performed very well in across the board, really. The next big bucket is people and benefits, or direct items related to employment, and is more than 1/3 but less than 40% of our costs, and the remaining 10% to 15% of costs include all other. We are absolutely cautious here for a while. Miles yes. Okay. Our next question comes from the line of Gautam Khanna of Cowen. The company's filing status is listed as Active and its File Number is 0374906. Before joining TransDigm in 2015, Mike worked in private equity and held positions of increasing responsibility in the New York and London offices of Warburg Pincus and the Washington D.C. office of The Carlyle Group. I would as I say, I would hope we could come reasonably close to that, which I'm hopeful that means we could stay in the 40s and I hope a little more than just over the edge, but that's going to be very dependent on the duration and the depth of the aftermarket drop. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliation. Certainly, there may be some spots, a part number here or there. Your next question comes from the line of Ken Herbert of Canaccord. However, in this unique circumstance, it could likely take longer to recover. We got moving fast, and we will adjust as the situation clarifies. Your next question comes from the line of Noah Poponak with Goldman Sachs. That's what we count on. Yes. As you saw from our press release, we had a solid performance in both the second quarter and the first half of fiscal year 2020. And how would you expect that to potentially play out? He will work closely with Mike to assure a seamless transition and also assist in the appointment of a chief accounting officer to assume oversight of public reporting, internal accounting and tax functions. You're just guessing anything until that starts to happen. It's not a big difference. Your next question comes from the line of Gautam Khanna of Cowen. To do this, we have to stay focused on both the details of value creation as well as careful allocation of our capital. So when we do the downside financial modeling assumptions, we don't count on any immediate inflow, positive inflow from a downturn in working capital, whether it's accounts receivable or inventory or stretching out your payables. We do not know how much. And the EBITDA, Mike, complies with our credit agreement. And lastly, our capital structure and allocation are a key part of our value creation methodology. TransDigm Group Incorporated (NYSE: TDG) today announced the appointment of Mike Lisman as Chief Financial Officer and the appointment of … So I think they're fitting into the general performance window of our legacy businesses, as they should. Transdigm Inc. is a Vermont Foreign Profit Corporation filed on July 24, 2020. These cost mitigation efforts were previously disclosed but worth reviewing. And we have gone to them and asked for head count reductions and furloughs and cost containment, and they've been able to respond just like the rest of our businesses. Agenda 1 TransDigm Overview and Highlights Nick Howley Executive Chairman Operating Performance, Market Review Kevin Stein and Outlook President and CEO Financial Results Mike Lisman CFO Q&A We acquire businesses that fit with our strategy and we see a clear path to PE-like returns. ET, Ladies and gentlemen, thank you for standing by, and welcome to the TransDigm Second Quarter Earnings Conference Call. That's what my assumption is, but we'll have to see. That's great, thank you very much. Thank you. The decline in the quarter did reflect a minimal headwind from the impact of the ongoing 737 MAX production halt and early OEM declines related to the pandemic. Now before we move to specific cost-cutting measures that Nick mentioned, it is important to understand that we view a very high percent of our costs as variable; costs, meaning revenue less EBITDA. IATA recently forecast a 48% decrease in revenue passenger miles in calendar year 2020 compared to 2019. As has happened in last in previous downturns, we tend to come out of these things with a better cost structure than we went in because we tend to not put the cost back in the same rate the revenue covers. But we'll see. We are grateful for this ability to contribute to the fight against COVID-19. I would my guess is it would be in the repair area is where we would see the first reloading as they're bringing planes that need to be serviced now to the service line. Just a couple of questions for you guys. This has happened during other severe shocks. Here, you got a headwind, which makes it harder. And just as a quick follow-up. We've looked at buying parts out of the used and serviceable market, and we've not seen that there's much available out there or much we can do to impact that market. So we think of the military as reasonably robust for the next six months to a year, and then we'll see. To address these, first, the cost reduction. If you are interested in www.streetinsider.com content, APIs are available. Typically, in a downturn, what has happened is you had a much sharper drop in the OEM than you did in the aftermarket. That's defined in our credit agreements. Some of the actions implemented include: flexible work-from-home scheduling; alternate shift schedules; pre-shift temperature screenings, where allowed by law; social distancing; appropriate PPE; facility deep cleaning; and paid quarantine time for impacted employees. An additional reduction in force to align operations with customer demand. Is Asia coming back? Mr. Khanna, are you there? And we had lumpy orders last year just in different quarters than we're getting them this year. We look at the EBITDA margins as kind of running in the mid-40s. Kevin Stein, CEO of TransDigm Group (“TDG”), a leading “designer, producer and supplier of highly engineered aircraft components,” gazed out his office window, playing back his conversation with CFO Michael Lisman from November 8, 2018. Today, I'll start off with some comments, as usual, about our consistent strategy, then quickly hit a little on the last quarter, an overview of our efforts with respect to the COVID-19 and the related market deterioration, and some short comments on capital allocation. It wouldn't surprise me that it could be a little sharper from the first month or so, but, hopefully, it wouldn't last six months. We're looking at this very closely. And then also if you'd even give us some direction on how much higher the margins are in that older bracket versus your average aerospace aftermarket. And the problem is the math of a very sharp aftermarket drop. As Nick said, the next few months, sharp decrease. Good morning, and thanks to everyone for calling in. I'll address that a couple ways. And then just finally for Mike. Total commercial aftermarket revenues grew by approximately 1% over the prior year quarter. I think it's in line with the average. We're working on shutting off all the incoming taps and ensuring we're not expending too much credit to airline customers or distribution partners. I would now like to hand the conference over to your speaker today, Liza Sabol. How has your pricing held up in previous experience? We define cost as revenue minus EBITDA As Defined. Okay. In Q3, it will be a larger charge, something on the order of $40 million to $70 million of onetime costs, we think. I think they're interlocked. Your next question comes from Michael Ciarmoli of SunTrust. There's certainly some here and there on some programs. I would hope not, but I don't want to the problem is the math is obvious. As a general rule, we will tend to be fairly cautious until the smoke clears a little bit. This new money is an insurance policy for these uncertain times. TransDigm Group Incorporated, through its wholly-owned subsidiaries, is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. Let me try that. Michael J. Lisman is Chief Financial Officer at TransDigm Group, Inc. View Michael J. Lisman’s professional profile on Relationship Science, the database of decision makers. I believe we've communicated prior that about $1,000 average sale price, at least a couple of years ago, it just puts our parts not in the USM available market, generally speaking. Yes. Based on any of the market forecasts we've seen, we expect to run cash positive over any extended period, including covering all required principal interest payments. You're talking about the head count reduction? So they're performing very well in the market. That's what we've always said about our aftermarket. We are committed to preserving the health and safety of our employees while continuing to meet our customer commitments. Nick, do you have a thought on that? International military sales continues strong. Kevin Stein -- President, Chief Executive Officer, and Director. Hi, good morning and thank you everyone for the time. I think that's it. And there are no further questions at this time. We can't wait for perfect information here in these situations. But how are you thinking about that? in aerospace engineering from the University of Notre Dame and an MBA from Harvard Business School. Your next question comes from the line of Robert Spingarn of Credit Suisse. http://www.streetinsider.com/signup_content.php. A follow-up question. This led to a significant reduction in global flight capacity and parked aircraft across the world. But I would say Mike got out really early in this whole process in talking to the controllers and our businesses, about watching AR and AP closely on these to ensure we didn't get overextended in debt or in basically extending credit to folks. Provisioning, as we've said in the past, isn't a huge driver for us for volume. This new debt has no maintenance covenants and no maturities until 2025. So they're very much in tune to what needs to be done. In March, it became clear that the COVID-19 situation and the related government actions around the world will substantially and negatively impact the worldwide commercial aerospace business. . We wide-bodies are important to us. We believe we can get cost out ratably with our reduced revenue sizing estimates. And while the interest rates were slightly higher than we would like, two quick points worth mentioning. Okay. The Ascent is The Motley Fool's new personal finance brand devoted to helping you live a richer life. Major product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, NiCad batteries and chargers, engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, cockpit security components and systems, specialized cockpit displays, aircraft audio systems, specialized lavatory components, seatbelts and safety restraints, engineered interior surfaces and related components, lighting and control technology, military personnel parachutes, high performance hoists, winches and lifting devices, and cargo loading, handling and delivery systems.
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