Yahoo Finance

Michael Lisman

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 2024. That is assuming we own the same mix of businesses in both periods. In the commercial market, which typically makes up close to 65% of our revenue, we will split our discussion into OEM and aftermarket.
Our total commercial OEM revenue was about flat in Q2 compared with the prior year period. Sequentially, total commercial OEM revenues grew by about 17% compared to Q1. Bookings in the quarter were just slightly down compared to the same prior year period, with the softness driven by our biz jet and helicopter submarkets.
The bookings levels for OEM commercial transport are roughly in line with our expectations prior to the Boeing strike with the growth rate in the low single digits for the quarter, giving us confidence that the commercial OEM market is recovering from the disruptions of approximately two quarters ago.
OEM supply chain and labor challenges persist, but continue to improve. Despite government actions regarding tariffs and concerns around a potentially weakening economic environment, aircraft production backlogs are large enough that at this time, supply chains remain the primary bottleneck in the OEM production ramp-up.
We remain encouraged by the progress of the 737 MAX production line. As in prior quarters, the commercial OEM guidance we're giving here today contains an appropriate level of risk around the MAX production build rate for the balance of the '25 fiscal year. We remain optimistic that our operating units are well positioned to support the higher production rates as they occur.
Now moving on to our commercial aftermarket business discussion. Food and Commercial aftermarket revenue increased by approximately 13% compared with the prior year period. This quarter, all submarkets within commercial aftermarket experienced positive growth. The growth across the four submarkets was varied but not significantly disconnected from what we had anticipated.
Bix jet freight and interior were each stronger than the total commercial aftermarket 13% growth rate, whereas the passenger submarket performed slightly below the overall commercial aftermarket rate growth. Within our passenger segment, operating units with higher engine content posted very solid growth well in excess of those with nonengine content, and also considerably ahead of the 13% overall growth rate in our commercial aftermarket revenue.
For the full year, and as you saw in today's guidance, our outlook for commercial aftermarket growth of high single digit to low double-digit growth is unchanged. We are watching the economic environment closely. Several airlines have announced potential capacity reductions for the '25 calendar year and in some instances, pulled our financial guidance.
At this time, despite these announcements and growing economic concerns, we are seeing no material weakness in our commercial aftermarket order book versus prior expectations. The bookings are coming in at about the pace we thought they'd be. So we are, therefore, not changing our guidance.
Additionally, a few points of note. Q2 bookings in commercial aftermarket were strong, running ahead of our expectations, significantly outpacing sales and supporting the full year growth outlook. Additionally, our Q2 point-of-sales data through our distribution partners which can be a decent leading indicator was up significantly, well into the double digits on a percentage basis.
As mentioned, we're monitoring our commercial aftermarket bookings rates closely and should these booking rates decline from what we are seeing at present as a result of economic softening and ensuing airline schedule reductions, we will revise our guidance accordingly on future earnings calls.
Now turning to broader market dynamics and referencing the most recent IATA traffic data for March. Global revenue passenger miles have continued to surpass pre-pandemic levels since February of 2024. RPKs in March were up 3.3% versus prior year.
The growth rate improved slightly versus what was seen in February. RPKs were up 5.3% and the passenger load factor for March came in at about 81%. I currently expect traffic to reach 113% of 2019 levels in 2025 and to surpass prior year traffic by 8%.
Time will tell as the (inaudible) forecast is too aggressive as a few other forecasters are predicting a growth rate a couple of points lower. Regardless of the exact growth rate, we remain ready to meet the demand. Domestic travel also continues to surpass pre-pandemic levels, the March posted marginal growth compared to the prior year and the most recently reported traffic data, global domestic air traffic was up about 1% compared to 2024 and up about 8% compared to 2019.
Domestic air travel in March was unfavorably impacted by declines in both the US and Australia. International traffic continues to trend upwards. It has been above three pandemic levels for the past several months. and the most recently reported data from March, international travel was up 4.9% compared to 2024 and about 3% above pre-pandemic loans.
In March, most international markets saw growth though it was slower growth than prior months. North America and the Middle East were the only regions that saw slightly lower international traffic than prior year. Now shifting to our defense market, which traditionally is at or below 35% of our total revenue.
The defense market revenue, which includes both OEM and aftermarket revenues, grew by approximately 9% compared with the prior year period. Q2 defense revenue growth was well distributed across our businesses and customer base.
Additionally, we saw similar rates of growth in both the OEM and aftermarket components of our total defense market with OEM running slightly ahead of the aftermarket. Defense bookings for the quarter and year-to-date significantly outpaced sales and support the full year guidance for defense revenue growth.
Additionally, this quarter, we saw continued growth in US government defense spend outlooks. As we've said many times before, defense sales and bookings can be lumpy. We know the bookings and sales will come, forecasting them with accuracy and precision, especially on a quarterly basis is quite difficult.
As Kevin mentioned earlier, we are revising defense expectations upward and now expect revenue growth for this year to be in the high single-digit to low double-digit percentage range.
Lastly, I'd like to wrap up by expressing how pleased I am by our operational performance in the second quarter of fiscal 2025. Our operating unit teams did an exceptional job of executing on our value drivers, and this generated the strong results delivered in the second quarter.
Our management teams remain committed to our consistent operating strategy and servicing the growing demand for our products as we continue through the balance of the year.
With that, I'd like to turn it over to our CFO, Sarah Wynne.

Sarah Wynne

Thanks, Mike, and good morning, everyone. I'll recap the financial highlights for the second quarter and then provide some more information on the current guidance. First, on organic growth of liquidity. In the second quarter, our organic growth rate was 7%, driven by our commercial aftermarket and defense market channels, as Kevin and Mike just discussed.
On cash free cash flow, which we traditionally defined that EBITDA less cash interest payments, CapEx and cash taxes was close to $340 million for the quarter. This is lower than our normal quarterly free cash flow conversion due to the timing of the interest and tax payments. We anticipated this dip. As you may recall, our fast order free cash flow came in higher at over $800 million.
For the full fiscal year, our free cash flow guidance is unchanged. We continue to expect to generate free cash flow of approximately $2.3 billion in fiscal 2025. Below that free cash flow line, an investment in net working capital consumed about $190 million for the quarter due to the higher AR for our second quarter shipments and higher inventory plans in the back half of the year.
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 approximately $2.4 billion of cash on the balance sheet, and our net debt-to-EBITDA ratio was [5.1], down from [5.3] at the end of the last quarter. While we don't target a specific amount of cash that we like to have on hand, we have sufficient capital available through both cash on hand as well as incremental debt capacity to support all potential M&A activity in the pipeline.
As a reminder, we are comfortable operating in the 5 times to 7 times net debt-EBITDA ratio range. And while we're currently sitting on the low end of this range, our go-forward strategy, capital deployment has not changed. Our EBITDA to interest expense coverage ratio ended the quarter at 3.4 times, which provides us with comfortable cushion versus our target range of [2 to 3].
Regarding our debt, our nearest term maturity is over two years out due November 2027 and we remain approximately 75% hedged on our total $25 billion gross debt balance through fiscal 2027. This is achieved through a combination of fixed rate notes, interest rate caps, swaps and collars. This provides us plenty of protection, at least in the immediate term.
As Kevin mentioned, during the quarter, we opportunistically repurchased approximately 40,000 shares along with an additional 100,000 shares during the first week of April during the depressed stock price. This totals $500 million in deployed capital for repurchases on a year-to-date basis when combined with the first quarter repurchases.
We continue to seek the best opportunities for providing value to our shareholders through our leverage strategy. On a go-forward basis, we expect to continue both proactively and prudently managing our debt maturity stacks which for us means pushing out any near-term maturities well in advance of the final maturity date.
Regards to the guidance, as Kevin mentioned, we have maintained our prior financial guidance for fiscal 2025. A quick note on the evolving tariff environment. As Kevin mentioned, TransDigm is largely a domestic manufacturer with limited exposure to low-cost country sourcing, from an operations perspective, our 51 operating unit teams are driving their own actions to alleviate the majority of any negative headwinds through a combination of measures, including but not limited to, US MCA exemptions, cost reduction initiatives and supply chain resourcing to name a few.
Each operating unit developed a course of action in this regard that is specific to its own circumstances and situation. We believe we remain in a good position from an overall cash liquidity and balance sheet standpoint with adequate flexibility to pursue M&A will continue to return cash to our shareholders via dividends or share repurchases.
With that, I'll turn it back to the operator to kick off the Q&A.

Question and Answer Session

Operator

(Operator instructions)
Robert Stallard, Vertical Research.

Robert Stallard

Thanks very much. Good morning. First of all, I'm not sure if you're going to be able to answer this, Kevin. There's been some talk in the press that you were interested in purchasing Jeppesen from Boeing and obviously didn't. So I was wondering if you could comment on that situation.

Kevin Stein

Yeah, We look at all aerospace targets that come along. And our approach is we look for aerospace businesses that have high aftermarket content and our proprietary products, as we've always discussed. And the Jeppesen business ticked those boxes without a doubt, a highly engineered product, very important to the aerospace world. So we were very serious in it.
But also in our approach is a very disciplined process. We don't and we can't overvalue and pay up. I don't want to comment too much on the process or what happened specifically with Jeppesen or the bid. But we must stay disciplined in our approach to ensure we continue to drive the returns our shareholders have expected from us. And that means sometimes you have to say no to deals.

Robert Stallard

Yeah, And then just quickly on the tariff situation, you commented -- Sarah commented about some of the mitigation actions that you're taking, but you didn't mention price. Do you think you'll be in a situation where you won't need to pass on digital cost to customers?

Kevin Stein

Yeah, I don't know if that is going to be the case. All value drivers are always in play. But we're -- we have a very small insignificant really impact from the tariffs today. So we're not spending a lot of time wringing our hands over the impact of TransDigm.

Robert Stallard

Okay, that's great. Thanks so much.

Operator

Scott Mikus, Melius Research.

Scott Mikus

Good morning, Kevin, I wanted to ask on the capital deployment. So are we getting to the point with the amount of cash that this business is generating a share repos or special dividends are going to be a regular part of capital allocation going forward in addition to M&A?

Kevin Stein

Well, I think it's always been part of our capital allocation strategy. In my prepared comments, I went through our basic priorities. First, invest in our own businesses and make sure we're funding all of the productivity and new product projects that are available than looking at accretive M&A that meets our disciplined criteria.
And then, yeah, looking for opportunities to return through either special dividends or repurchases. And we always look at all of those options when it's time to return capital. I look at it as it belongs to the shareholders, and it's our job to get it back to you as quickly as possible.
Recently, we saw a disruption in the share price, and we opportunistically capitalize on that to put some money to work on the shareholders' behalf. We still believe that special dividends and share repurchases are the right way to get capital back. If there's not immediate and sizable M&A opportunities on the horizon or that we have more coverage than we need for what we see coming.

Scott Mikus

And then in the opening remarks, it was mentioned that your operating units with higher engine content, we're seeing better pull-through in the commercial aftermarket. So I'm just curious, is there any meaningful margin differential in commercial aftermarket sales to the engine supply chain versus the airframe side?

Michael Lisman

No, no meaningful difference on engine versus non-engine.

Scott Mikus

Okay, thanks for taking the questions.

Operator

Christine Liwang, Morgan Stanley.

Christine Liwang

Hey, Mike, Kevin, with the EBITDA guidance and change for the full year, there's an implied step down in margin from 2Q for the second half of the year. Can you discuss what items could potentially pressure margins or how much conservatism is baked in?

Kevin Stein

There's definitely conservatism baked in because we don't know how the world always unfolds and we don't want to get out over our skis too far. And we're comfortable with what we've guided and the market segmentation that we're providing. So yeah, hopefully, it turns out to be conservative. But that's the way we tend to forecast and communicate what we're looking at in the future.

Christine Liwang

Great. I mean -- I think also, I was remiss to start off with saying congratulations to both of you, Kevin and Mike. Kevin will miss you and Mike. Welcome to your new role. Very excited for this change. I guess one of the questions I'm getting from investors is as you transition to the new CEO role, Mike, there priorities that are different than what Kevin had previously looked at? And how do we think about this transition?

Michael Lisman

Thanks Kristine. First off, I don't think any meaningful changes are coming. Obviously, Kevin and I have been on the same page for the last many years. I've worked for Kevin directly for 7 or 8 years. So I think we'll continue to run performed well this quarter, as we said, experiencing significant growth, and we're pretty across all 4, for the most part, above where we were pre-pandemic.
The one exception to that would be the interior side of the business, where it's not rebounded to peak volume levels that we're seeing pre-COVID at the peak of the airline retrofit cycle. But all the others are above where they were previously. Thanks.

Christine Liwang

Great, thank you.

Operator

David Strauss, Barclays.

Hi, good morning and congratulations. This is Josh Core on for David. So you mentioned, good morning, you mentioned the four, the kind of the performance of the aftermarkets, submarkets in the quarter. Can you give us an idea of where each of those four are on a volume basis relative to pre-pandemic levels?

Michael Lisman

Sure, so all four performed well this quarter, as we said. Experiencing significant growth and we're pretty across all four for the most part above where we were pre-pandemic. The one exception to that would be the interior side of the business where it's not rebounded to peak volume levels that we're seeing pre-COVID at the peak of the airline retrofit cycle, but all the others are above where they were previously.

Okay, thanks. And then wanted to ask about defense where you raised the outlook. I is there any specific domain or area where you're seeing especially strong bookings that that gave you confidence? Thanks.

Michael Lisman

No, I would say it's pretty uniform across all of our businesses. We've continued to see good strength on the defense side, and it's evenly spread across both the OEM and the aftermarket. It's not been weighted to just one or the other. So it's been quite uniform, and we remain optimistic on where that's heading going forward just based on what we've seen come in on the bookings side.

Okay, thank you for taking the questions.

Operator

Sheila Kahyaoglu, Jefferies.

Sheila Kahyaoglu

Good morning, guys, and congrats, Kevin and Mike. So maybe just following up on the margins, if that's okay. 54% margins in the first -- in Q2, just pretty strong, implies that the second half is around 52%, so 200 basis points down in the second half. But if we assume OE margins are around 20% EBITDA margin, that only makes up for about half of it.
So just wondering like what you're factoring into the conservativeness? Is it tariffs? Is it -- are we really picking up? Is it aftermarket flowing? If you could comment on that?

Michael Lisman

Yeah, I think it's Mike Sheila. I think as Kevin said earlier, it's mainly conservative. There's no tariff headwind or anything to that sort. And then -- the other factor that plays in here is obviously just a bit of a mix shift in the second half versus the first half, because you have the commercial OEM picking up, which, as you pointed out, comes in at lower margin. So we'll see a bit of that in the second half. But hopefully, it proves conservative as things play out here over the next five months.

Sheila Kahyaoglu

Great. And then maybe on the aftermarket with 13% in the second quarter, how do we think about the puts and takes within the four submarkets as we head into the second half of the year? What are you guys seeing with the booking momentum?

Michael Lisman

All four were up nicely, as I mentioned, across the four submarkets. The engine continues to be the strong outperformer and we expect to see continued growth across the four in the back half as we sit here today and look at what we're hearing from our customers on the commercial aftermarket side.

Sheila Kahyaoglu

Awesome, thank you.

Operator

Ken Herbert, RBC Capital Markets.

Ken Herbert

Yeah, hi, good morning, and congratulations, Kevin and Mike.

Kevin Stein

Thanks.

Ken Herbert

Maybe on the aftermarket, the first question, was there any -- either in the calendar first quarter, our fiscal second quarter or in the month of April, did you see any prebuy activity with any airlines around the world just looking to get ahead of sort of this tariff risk perhaps and anything unusual that you may have seen through any of the channels in the year so far?

Michael Lisman

We did not see anything unusual, Ken. We don't get great insight into this, obviously, through the distributors and the airlines on why they're placing orders, but we didn't see any meaningful prebuy to get ahead of any tariffs or anything of that sort?

Ken Herbert

Okay, that's helpful. And obviously, you did a lot of work around Jefferson and I'm just curious, Mike, maybe as you go forward, how do you think about maybe M&A and more software-related businesses because this obviously would have been a material step change for you, but I think a nice sort of representation or logical step in the evolution of TransDigm.
But are you maybe more open now to doing less traditional acquisitions? Do you feel like you've got a better understanding of opportunities? Maybe help us understand how you're thinking about sort of within aerospace broadening now the M&A approach after obviously going through this process?

Michael Lisman

Well, I don't want to say too much to comment on other deals that we're active in the market. But generally, as Kevin said, we look at all aerospace deals, whether it's hardware, software. And generally, what we're looking for is and EBITDA stream that has the attributes like our base components business.
And if we find that on the software side, it's not necessarily something we would shy away from doing and venturing into -- but we always look at and as we've always done, we stress a five-year model where we target a certain return. And if we don't see a high likelihood of achieving that on certain opportunities, we'll always be disciplined and stand out.
So we're not going to launch down some path where it's -- we're certainly moving into software or anything of that sort. But as always, we'll always look at everything in the aerospace world, whether it's hardware or software and see if there's a path on a sticky enough earnings stream to generate a PE-like return.

Ken Herbert

Great, thank you.

Operator

Myles Walton, Wolfe Research.

Myles Walton

Thanks, good morning. I was wondering if you could comment on the OEM growth rate change. And was it more on the business jet and helicopter bookings. It almost sounded like you were more confident in what you were seeing at Boeing. So if you could just add color to that?

Michael Lisman

Yeah, that's right, Myles. We nudged it down slightly versus prior quarter, as you saw in the guidance for this morning, and it was mainly driven by the (inaudible) weakness that we saw, the commercial transport side, as we mentioned in the prepared comments, actually did quite well on the booking side this quarter. So we're seeing good progress on that front. And what really nudged it was more of the submarkets that fit within that bucket that are non-commercial transport.

Myles Walton

And then just one other one. If you look at the guidance, this is the second quarter you've reiterated, I think, the longest stretch without a raise in a while. Was there something about this year where you're seeing more incoming headwinds absorbing contingency? Or was there maybe a little less contingency in the '25 guidance looking at?

Michael Lisman

On the guidance overall across the submarkets or just commercial OEMs specifically?

Myles Walton

I mean across the EBITDA of the company.

Michael Lisman

Generally, I think we always build in a decent amount of services and try to obviously modify it as we go through the course of the year by submarket on the revenue guide. And we made some slight tweaks this quarter that netted to kind of a push on the impact towards the overall guidance. But I don't think we did anything differently this year than we've done in prior years in terms of the amount of the amounting of their band around the revenue growth estimates by submarket.

Myles Walton

Alright, congrats again.

Operator

Peter Arment, Baird.

Peter Armet

Yeah, thanks. Again, congrats, Kevin and Mike. And Mike, I think last quarter, you kind of gave us a kind of a snapshot of how the order rates were doing. I think purchase orders were running about 50% of kind of the rate [38] target at Boeing. Maybe you could just give us an update, if you don't want to comment specifically on that, just maybe in general, how OE purchase orders are going. Thanks.

Michael Lisman

Yeah, I would say it's varied across our op units. I think just based on the type of component they have and where Boeing is with the inventory position. And I think Boeing has said as much publicly just with regard to how they are approaching the supply base, it's very component specific.
But generally, we're in and around sort of that rate per month ballpark on the MAX that you would expect we are at, but it's -- there are some puts and takes across our 51 op units around that rate, and it varies a bit. But when you put it all together, that's about what we're seeing.

Peter Armet

Appreciate that. I'll leave it at one. Thanks guys.

Operator

Seth Seiman, JP Morgan.

Seth Seiman

Thanks very much. And congratulations to Kevin and Mike. I wanted to ask first about the M&A environment. we're definitely in a much more volatile financial market environment may, to some degree, be headed into a more volatile macro environment. In terms of your own -- the way you run your LBO models and the expectations that you think that potential sellers might have? How is this environment that we've seen over the past couple of months sort of affecting that environment? And specifically, your thoughts about how you model that.

Kevin Stein

I'll answer, and Mike can jump in. I -- the one change I've seen over the last I don't know, a couple of years is just the willingness for people to pay up for targets. We've seen some aggressive multiples for acquisitions. That's about the only change I've seen. And maybe it's just we're being victims of our own success.
People have seen the market and are now in the space. But that hasn't changed our approach. We're swinging at and looking at everything that comes along in the aerospace world and comfortable that we can continue to meet our EBITDA acquired needs on a yearly basis going forward. I don't see any change to that approach.

Seth Seiman

Okay, great. And then just as a follow-up, in the aftermarket, which is the place obviously where investors are focused on potential risks given what some airlines have been saying about capacity. If we thought about this kind of high single, low double pace that you have and we think about the kind of distinct risks that are out there, whether it's US carriers talking about reducing their capacity growth expectations, maybe it's some disruption in sales to China.
How do you kind of order those risks and the types of capacity cuts they've been talking about in the US, how much of a headwind does that represent to that kind of high single, low double kind of pace that you're running at fairly consistently now?

Michael Lisman

Well, as we sit here today, based on the order book, we're not seeing any change in our commercial aftermarket bookings. We're seeing continued strength actually of those bookings into April, which is good to see, like you guys, we read the news headlines.
And even though we're not seeing it today, if it were to come about through some kind of change in the economic conditions overall that there was going to be a downturn or a blip of a bit. We'd look to go and be very nimble and quick just in terms of how we react to it in going after our own cost structure. But as we sit here today, we're not seeing that.

Seth Seiman

Very helpful. Thank you.

Operator

Noah Poponak, Goldman Sachs.

Noah Poponak

Hey, good morning, everyone.

Kevin Stein

Morning.

Noah Poponak

Congrats on the new roles. And Kevin, thanks for all the time you've spent with all of us over the last few years. I guess more than a few, but thank you. I wanted to just stay on M&A because you guys have referenced a very busy pipeline for a while now. And you've done some deals, some nice deals last year, but it's kind of -- it's been not a particularly torrid pace and a lot of things in the small to aside of medium category as opposed to a larger you just referenced what's happening with valuation.
We all saw the Jefferson multiple. Are you just looking at a lot of assets that lead in the process, the multiple is just too high? Or are there other reasons things are falling out earlier in the funnel? Just trying to square up or has what you've done lined up with your definition of a very busy pipeline.

Kevin Stein

I think it has lined up with a very busy pipeline. We have looked at a tremendous number of large targets, public companies, large privates things that have gone for upwards of $10 billion or more. We've looked at them all. But again, our approach is to stay disciplined. We've been very busy.
We've screened a tremendous number of businesses. And if things fall out for certain reasons, so be it, we must stay disciplined in our approach. That's what's led to the quality of returns over a very long many year run. And I don't want to change that approach, and I know Mike doesn't either.
So we're not desperate to do deals. We are rather busy and continue to evaluate. Last year was an incredible year, the second best EBITDA acquired year we've ever had. And yeah, unfortunately, we haven't closed on a few things that have come along, but the year is not over yet, and we remain very optimistic, and we're very busy, just as busy today as we were six months ago or a year ago.
So sometimes it doesn't translate into closed deals, but it's a very active time. And to a first approximation, I don't worry about what it costs to acquire a business if it meets our criteria, then we should be bidding on it. But in the case of some of the ones we're talking about, the operations existed outside of our core competency and strength, so it didn't make sense to venture outside of our comfort zone on some of them. But we remain very active and evaluating a lot of targets.

Noah Poponak

Okay, I appreciate all that detail. And just as one follow-up, Sarah, can you just square me up on free cash flow I know you've -- I think for a few years, you've talked about it in absolute terms, but also then excluding a working capital build. What are you expecting for the full year on free cash and net income conversion? And is it now the same number, whether we're including or excluding working capital? Or is there still a working capital headwind this year?

Sarah Wynne

I think it's still the same as we thought at the beginning of the guidance. You obviously saw the net working capital change for this quarter, which was higher but if you look at it on a year-to-date basis, we're kind of in line with the percent of sales as we'd expect to be. So no change for the SD year. We expect to end the year around just over about [$2.3 billion] with the net working capital after that free cash flow number in line as a percentage of sales.

Noah Poponak

Okay, thank you very much.

Operator

Gautam Khanna, TD Securities.

Gautam Khanna

Yeah, good morning and congrats, Mike and Kevin.

Kevin Stein

Morning. Good morning, Goutam.

Gautam Khanna

Congrats, Mike and Kevin. So I wanted to ask just -- you mentioned the delta between the engine aftermarket and the non-engine. Have you seen any change in behavior of late with respect to discretionary aftermarket? Is that presumably with all the capacity cuts and you're hearing some of the US airlines talk about curtailing maintenance spend.
Is that where you're seeing some change in customer behavior or weaker orders? Or maybe you could just elaborate on kind of the order of media not just for the quarter but since the quarter.

Michael Lisman

Yeah, Gautam, it's Mike. No, we -- first, we've not seen any behavioral difference between what's discretionary versus nondiscretionary. Our biggest discretionary bucket within commercial aftermarket is probably our interiors business. But to date, that's continued to perform quite well with no signs of slowing down or pulling back. So we remain optimistic on the growth outlook for the balance of the year and aren't seeing any weakness.

Gautam Khanna

Okay, that's encouraging. Just curious on just the pricing dynamics, given tariffs. I'm just curious like what the -- are you seeing any incremental elasticity on those parts do you expect to? Because presumably, you're going to have to on the margin raise prices a little bit more than you otherwise would.
I don't want to put words in your mouth, but is that what we should expect a little bit steeper pricing action to offset the tariffs?

Michael Lisman

Yeah, I think overall, as Sarah and Kevin said in the prepared remarks, we're largely a domestic manufacturer. We don't expect some kind of material headwinds from the tariffs here. And we're pursuing a lot of cost savings and other actions internally to make sure there's no net impact on the EBITDA line.

Gautam Khanna

Okay. And then just the last one on the M&A pipeline, which you did talk about -- just anything kind of in the later stages at this point that you can point to, a lot of promises in that.

Kevin Stein

We can't comment on things that are in the process. We're evaluating a bunch of companies right now. But that's constantly the case every day, but we can't comment on where things are in the process. It's just, don't know if it's going to close, and that's the only thing that matters at the end of the day.

Gautam Khanna

Fair point, thanks guys. I appreciate it.

Operator

Ronald Epstein, Bank of America.

Ronald Epstein

Hey, good morning, guys. Good morning. Maybe circling up on a topic. I don't think anybody's really kind of hit yet. So what are you guys seeing in kind of the what's the pulse on like freight and cargo. We've heard like the shipborne cargo is way down? Or have you seen anything in those end markets, given what's going on with the tariffs?

Michael Lisman

Our freight business continued to perform well in the second quarter. The rate of growth within freight actually exceeded the 13% overall for the commercial aftermarket. I think you guys follow the data points as much as we do, are up kind of in the low single-digit kind of ballpark through the first calendar quarter. So growth continues despite some of the macroeconomic concerns that we read about in the news headlines. But our business, as far as commercial aftermarket goes in that submarket actually performed pretty nicely ahead of what CDKs are doing in the broader market. We've seen some lumpiness in orders there before, but it was good to see the strength this past quarter.

Ronald Epstein

Okay, got it. And then maybe as a follow-on, there's been a lot of talk lately about software-enabled hardware. Have you guys been kind of more interested in looking into that as an end market for you all, where I know a lot of what you do, I think software wouldn't be really relevant for. But I guess there's some stuff, it would be.
And the DoD has been pushing in that direction and we're seeing that more boding commercial markets. Is there something for something there for you all to do in kind of software-driven hardware?

Michael Lisman

think we have -- as far as the M&A landscape goes, we evaluate deals as we always have. We look and target for a 20% IRR. And that hasn't changed and is not going to change going forward. And if we find companies that tick the boxes in terms of the characteristics that we want them to have and we see a clear path to generating that kind of return, we're going to go after it.

Ronald Epstein

Got it. All right, thank you very much.

Operator

Jason Gursky, Citi.

Jason Gursky

Hey, good morning, everybody. Mike, Kevin, congrats from me as well. Mike, look forward to working more closely with you. Just wanted to bring up a topic I've been trying to cover with everybody this quarter. Obviously, there is a change afoot at DoD, in particular. We've seen some executive orders come down on a whole litany of things, but the one that kind of has piqued my interest is on a rewriting of the federal acquisition regulation and DFAs on the defense side as well.
And I would love to just get your big picture thoughts here on what you understand to date on what's changing? And secondly, how that might impact the business over the longer term. kind of what are the risks and opportunities to this kind of change in regulatory environment that it looks like we're about to go through on the defense side. Thanks.

Kevin Stein

Yeah, I guess I'm not sure how significant changes will be in the regulatory environment on DoD acquisition, DLA acquisition. We continue to work very closely with the DoD, DLA through working groups where we meet at senior levels on procurement initiatives and continuing the communication.
So it's not something that has been raised yet from their level. We tend to not speculate on what might come, but rather stay informed and react when it does. So I don't have any comment beyond that necessarily. I'm not trying to be unhelpful.

Jason Gursky

Yeah, Fair enough. So early days, it sounds like maybe -- understood. We'll be watching this one, I think, for a while. Maybe just a quick follow-up then. I'm just wondering, from a competitive perspective, what you're seeing out there in the market as far as PMAs and whether there's been any change in either your approach to PMA parts or whether you've seen a noticeable difference and pick up in investment from others in that -- in the market?

Michael Lisman

We have not seen a meaningful uptick in PMAs across our businesses in terms of others trying to BMA our product. It's always something we've commented in the past. We're sort of -- we're not a huge target on that front, just given the nature of our products, and we haven't seen any increase in the both recent months or quarters. So nothing really, no.

Jason Gursky

Yeah, understood. Thank you very much.

Operator

Michael Ciarmoli, Truist Securities.

Michael Ciarmoli

Hey, morning or, afternoon guys, thanks for squeezing me in. Congrats, Kevin, Mike. Maybe just back to Seth's line of questioning on the aftermarket and the order book. Order book is strong, but what would you guys say is the typical lead time that you have, we're seeing the carriers make changes to capacity, cutting routes that order book? Do you start to see any changes or weakening post capacity cuts? Is it three months? Is it -- just trying to gauge sort of the visibility you have there. And I'll just keep it to that one question.

Michael Lisman

Sure. So it's Mike. As I mentioned, we've not seen -- we've seen continued strength over the last couple of weeks and months. So no change coming in. But it is something that books and ship, as we've said many times before, on a tighter time line than say, the OEM parts of our business.
So rough justice, a larger percentage of the commercial aftermarket bookings that come in every quarter, ship out within that same quarter than you would find on the OEM side. I don't think we've provided an exact percentage in the past. But it's a meaningful percentage of the bookings that are received that end up shipping out. So that's why we look at it and monitor it so closely on the bookings side. But again, we're continuing to see bookings growth at this point in time.

Michael Ciarmoli

Okay, and in your proxy, I mean, is it capacity? Is it traffic? Is it takes off in landings? I mean what are you guys monitoring most closely that you think correlates and drives that aftermarket business?

Michael Lisman

We look at all of them and the fact of the matter is they're all pretty tightly correlated at this point in time, but the best case is probably takeoffs and landings. We look at all of them.

Michael Ciarmoli

Okay, thanks guys.

Operator

Thank you. That concludes today's presentation. I would now like to turn the conference back over to Jamie Stemen, for closing remarks.

Jamie Stemen

Thank you all are joining us today. This concludes the call. We appreciate your time, and have a good rest of your day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.