The information set forth in this article does not constitute a recommendation to buy or sell any security. This article represents the opinion of the author as of the date of this article. Please read the Disclaimer at the bottom of the page in its entirety before continuing. Note this article has been updated on 3-10-2017 to reflect the fact that the Aviation Technologies related party ownership was disclosed in a 2008 filing.

“Where there’s smoke there’s fire.”

The new saying should be, when a company deletes contents from a website after being questioned by a short seller, that should raise a red flag. Often it is the small clues which lead to interesting information.

TransDigm has been recently targeted by Citron Research and The Capitol Forum. Citron states that TransDigm subsidiaries have incorrectly submitted ownership information to undermine the bidding process:

The easiest way for the government to encourage competitive bidding would be to audit the bidding process. They will find how TransDigm has been able to use the guise of multiple shell distributors, who have no pricing power, to make a bid seem competitive when in reality they are all shills for TransDigm

Citron also exposes Bratenahl Capital as an investment vehicle ultimately owned by the TransDigm CEO, Nick Howley (who has been the TDG CEO since 2005).

SEC filings confirm that Howley has an ownership stake in Bratenahl Capital Partners, Ltd.

Bratenahl Capital recently removed advisor information from its website after being targeted by Citron’s short report. However, it also removed roughly 7 investments from its portfolio. Many of these investments are in aviation/aerospace businesses. Two of these investments are shown below, AvTech and Avtron Aerospace:

investments source: https://web.archive.org/web/20160325225556/http://bratenahlcapital.com/portfolio

Bratenahl even discloses that it invested with the lead sponsor in AvTech (Aviation Technologies), Odyessey Investment Partners (TransDigm’s sponsor). After TDG’s IPO in 2006, TDG bought Aviation Technologies in 2007 for $430mm! There was no disclosure that TDG’s CEO had an indirect equity stake in the company (Update 3-10-2017: There was a disclosure in 2008, see note at the end of the article). Subsidiaries of Aviation Technologies remain part of TDG today (AvTech and Transicoil) and are guarantors on some of TDG’s debt:

This SECOND SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of April 9, 2015, by and among Telair US LLC, a Delaware limited liability company (“Telair US”), Telair International LLC, a Delaware limited liability company (together with Telair US, the “Guaranteeing Subsidiaries”), TransDigm Inc., a Delaware corporation (the “Company”), TransDigm Group Incorporated, a Delaware corporation (“TD Group”), Adams Rite Aerospace, Inc., a California corporation (“Adams Rite”), MarathonNorco Aerospace, Inc., a Delaware corporation (“Marathon”), Champion Aerospace LLC, a Delaware limited liability company (“Champion”), Avionic Instruments LLC, a Delaware limited liability company (“Avionic”), Skurka Aerospace Inc., a Delaware corporation (“Skurka”), CDA InterCorp LLC, a Florida limited liability company (“CDA”), Aviation Technologies, Inc., a Delaware corporation (“ATI”),AvtechTyee, Inc., a Washington corporation (“Avtech”), Transicoil LLC, a Delaware limited liability company (“Transicoil”)[1]

Additionally, Bratenahl invested in Avtron Aerospace with CapitalWorks in 2013. CapitalWorks and Bratenahl recently sold SOME of the business to Odyssey Investments.

Could TDG intend to buy this business at a later date? How many other aviation businesses does Bratenahl own? Has TDG bought any of them? Why has the relationship between Bratenahl and the TDG CEO not been disclosed to TDG shareholders? Is TDG overpaying for some of the 50 aerospace companies that it owns, as Bratenahl and other investors such as Odyessey or CapitalWorks seem to buy them first?

These are extremely important disclosures. How can the CEO of TDG be potentially investing in similar aerospace businesses that TDG may want to purchase?!?

Why has Bratenahl Capital removed information from its website?

“Where there’s smoke there’s fire.”

Update 3-10-2017 9:10AM

According to a reader, the Aviation Technologies related party ownership was disclosed in a 2008 filing, which is shown below. That being said, we still have questions as to why Bratenahl Capital continues to invest in similar businesses and removed information from its website. In our opinion, it was unclear that Mr. Howley’s ownership stake was through Bratenahl Capital from the filing. Additionally, it was unclear that Bratenahl Capital would continue to invest in similar businesses. Again, these transactions could be totally kosher, but this combined with other potential red flags raises serious concerns and shareholders deserve answers. It also is still not known what else Bratenahl Capital owns and the exact ownership structure of the entity.

Acquisition of Aviation Technologies, Inc. On February 7, 2007, pursuant to the terms and that certain Agreement and Plan of Merger, dated as of January 9, 2007, among TransDigm Inc., Project Coffee Acquisition Co., a newly formed wholly owned subsidiary of TransDigm Inc., and Aviation Technologies, Inc., Project Coffee Acquisition Co. merged with and into Aviation Technologies, Inc., with Aviation Technologies, Inc. continuing as the surviving corporation and a wholly owned subsidiary of TransDigm. The purchase price paid by TransDigm in connection with the transaction was approximately $430 million. Prior to the acquisition, the stock of Aviation Technologies, Inc. was held primarily by Odyssey Investment Partners and related parties. Odyssey Investment Partners is an equity fund which was the principal owner of TransDigm prior to July 2003. Based on their working relationship with Odyssey Investment Partners arising from Odyssey’s investment in TransDigm, Mr. W. Nicholas Howley, Chairman and Chief Executive Officer of TransDigm, and Mr. Douglas Peacock, a director of TransDigm, co-invested with Odyssey in Aviation Technologies, Inc. in 2003. Prior to the acquisition, each of Mr. Howley and Mr. Peacock owned less than one-half of 1% of Aviation Technologies, Inc.’s outstanding equity on a fully diluted basis. In addition, because of their working relationship and their expertise in the aerospace industry, Odyssey asked both Mr. Howley and Mr. Peacock to serve on the board of directors of Aviation Technologies, Inc. Mr. Howley and Mr. Peacock were directors of Aviation Technologies, Inc. from 2003 through the acquisition date, and Mr. Peacock served as the Chairman of the Board of Aviation Technologies, Inc. during that time. Due to the relationship of Mr. Howley and Mr. Peacock with Aviation Technologies, Inc., the acquisition was evaluated and recommended by a special committee of disinterested directors of our Board of Directors. In addition, Messrs. Howley and Peacock abstained from the vote of the full TransDigm Board of Directors in approving the transaction. [2]

[1] https://www.sec.gov/Archives/edgar/data/1260221/000126022116000107/exhibit433.htm

[2] https://www.sec.gov/Archives/edgar/data/1260221/000119312508007428/ddef14a.htm